1.Like liquidity, momentum is a priced factor. Momentum as a priced factor in a multifactor model and momentum as a technical analysis tool measure the same security price characteristics.
a.Ture
b.False
2.The CAPM measure of systematic risk, beta, is replaced in the extended labor CAPM by an adjusted beta that also accounts for covariance with the portfolio of aggregate human capital. Despite the complications inherent in any extension of the CAPM with a labor component, labor is an important consideration in explaining the systematic risk of financial securities.
a.True
b.False
3.Duration is a direct measure of the sensitivity of a bond’s price to a change in its yield. Duration equals the weighted average of the times to each coupon or principal payment. Convexity is the first derivative of price with respect to interest rates. Duration refers to the curvature of a bond’s price yield relationship and is the second derivative.
a.True
b.False
4.Provide a quick paragraph outlining your stock market outlook for the remainder of 2020, highlighting your major drivers (fundamentals and/or factors). Using that forecast, provide either the French-Fama or APT-Ross multifactor model betas that would be appropriate. Short answer essay questions
5.Provide a quick paragraph outlining your fixed income market outlook for the remainder of 2020, highlighting your major drivers (fundamentals and/or factor). What are the two questions-and of course, your answers- that need to be addressed in structuring your fixed income portfolio. What is the structure of your portfolio. Short answer essay questions
6.The essence of the efficient market hypothesis for stocks, example, that price changes should be random and unpredictable. Competition among market participants is a source of efficiency.
a.True
b.False
7.Beta is defined as the covariance of the asset with the market portfolio divided by the variance of the market portfolio. Intuitively, Beta helps to objectively measure link risk with return and can be calculated by regression excess stock returns on excess market returns. Beta can be positive, zero, or negative as well as time varying.
a.True
b.False
8.Bonds rate BBB or Baa or below are considered investment grade bonds, whereas higher rated bonds are classified as speculative grade or junk bonds. Defaults on how grade bonds are not uncommon.
a. True
b. False
9.Holding maturity constant, a bond’s duration is lower when the coupon rate is lower; generally decreases with its time maturity; is lower when the bonds yield to maturity is higher; and is equals to its time maturity when no coupon is paid (i,e., a zero coupon bond).
a. True
b. False
Sample Solution