31. With _____ coupon rate, a bond’s price sensitivity tends to increase, ceteri

Question

31. With _____ coupon rate, a bond’s price sensitivity tends to increase, ceteris paribus. With _____ maturity, a bond’s price sensitivity tends to increase, ceteris paribus.

lower; longer

higher; shorter

lower; shorter

higher; longer

zero; no

32. Suppose that investors have not been able to earn excess returns using newly released announcements about the firms. Based on this statement only, which of the following must be correct?

Markets are at least weak-form and semi-strong-form efficient.

Markets are semi-strong-form efficient, but not weak-form efficient.

Markets are semi-strong-form efficient, but not weak-form efficient.

Markets are definitely strong-form efficient.

Markets are weak-form efficient, but not semi-strong-form efficient.

33. When a country’s currency depreciates relative to other currencies, domestic goods become ______ for ______ buyers.

more expensive; domestic

absolutely free; all

more expensive; foreign

cheaper; domestic

cheaper; foreign

34. What is the geometric average of the returns during Period 1 through Period 6?

0.0941

0.1302

0.1251

0.1152

0.1080

35. You have $0 in your bank account today and have decided to start depositing every month for your after-retirement life. You just turned 30 years old and would like to able to withdraw $20,000 at the beginning of each month for 20 years after your 60th birthday. How much will you need to deposit into his account at the end of each month, starting one month from today and ending on his 60th birthday? You bank account earns 12 percent annual interest, compounding monthly, both before and after his retirement.

$423.51

$524.91

$285.27

$336.55

$556.33

Explanation / Answer

31)

Bond price is directly sensitive to coupon rates and duration of the maturity. Since, bonds value calculations consider compounding affect, higher and/or longer the said variables, higher the sensitivity and vice-versa.

Hence, correct option is higher; longer.

32)

Strong-form market information:

When market is strong-form market efficient, all the public and private information about stock will is already duly incorporated in stock price. No new information about company can affect stock price and returns.

Hence, correct option is Markets are definitely strong-form efficient.

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