Chpt 17 HW questions ACCT370

When market rates of interest rise after a fixed-rate security is purchased, the value of the now below-market, fixed-interest payments declines, so the market value of the investment falls. If that drop in fair value is viewed as giving rise to an other-than-temporary impairment, how would it be reflected in the investment account for a security classified as held-to-maturity?

(Based on Appendix 12B) When market rates of interest rise after a fixed-rate security is purchased, the value ofthe now-below-market, fixed-interest payments declines, so the market value of the investment falls. If that dropin fair value is viewed as giving rise to an other-than-temporary impairment, how would it be reflected in theinvestment account for a security classified as held-to-maturity?

"If a security plots below the security market line, it is: ignoring all of the security's specific risk. "underpriced, a situation that should be temporary." offering too little return to justify its risk. "a defensive security, which expects to offer lower returns. " %3D

The return an investor in a security receives is Blank______ the cost of that security to the company that issued it. Multiple choice question. greater than equal to greater than or equal to less than

The return an investor in a security receives is Blank______ the cost of that security to the company that issued it. Multiple choice question. greater than equal to less than greater than or equal to

Derivatives are used in risk management because they _____.a. diversify risksb. hedge risksc. avoid risksd. none of the above

Market risk ________.   a. is equal to the rate of return generated by a risk-free asset b. cannot be eliminated, as it is non-diversifiable c. is synonymous with diversifiable risk d. is synonymous with financial risk

What type of security can be used to minimize both price risk and reinvestment riskfor an investor with a fixed investment horizon? Does this security protect the realpayoff? Explain.

Hedging is a risk management strategy that is used in limiting or offsetting probability of loss from fluctuations in the prices of commodities, currencies, or securities. In effect, hedging is a transfer of risk without buying insurance policies.   REQUIRED: Discuss the importance of hedging to the financial risk manager Are there any downside to hedging?

(a) Define risk-free asset (b) Is the following statement true or false. Briefly explain your answer. "There can not be a universally risk-free asset for all investors."

The maximum rate of return needed to induce an investor to purchase or hold a security is referred to as the investor's required rate of return. OTRUE. FALSE

Which is correct about security valuation? A. In an efficient market, several factors would affect the market and value is not necessarily equals the price. B. The value of the security is determined to compare it with the current market price and usually investor would buy when the value equals the price. C. Sellers would prefer the accept lower bid price than higher bid price to realize gains. D. Investors buy securities when securities are underpriced and sell them when it is overpriced. E. All of the above F. None of the above

The return an investor in a security receives is the Blank______ of that security to the company that issued it. Multiple choice question. cost return economic value added risk

Market risk cannot be eliminated. OA. True OB. False

Physical settlement of a credit default swap avoids the need to determine the termination value of the reference asset. True False

Question 51 occurs when market participants observe returns on a security that are larger than what is justified by the characteristics of that security and quickly act to eliminate the unexploited profit opportunity. Asset capitalization Mediation Arbitrage O Market intercession

Risk and Return: Introduction Risk is an important concept affecting security prices and rates of return. Risk is the chance that some unfavorable event will occur, and there is a trade-off between risk and return. The higher an investment's risk, the-Select-the return required to induce investors to purchase the asset. This relationship between risk and return indicates that investors are risk ; investors dislike risk and require -Select- Vrates of return as an inducement to buy riskier securities. A represents the additional compensation investors require for bearing risk; it is the difference betweer the expected rate of return on a given risky asset and that on a less risky asset. An asset's risk can be considered in two ways: On a stand-alone basis and in a portfolio context. -Select- -Select-

A fair value hedge differs from a cash flow hedge because a fair value hedge Select one: a.records gains or losses in the value of the derivative directly to earnings of the company. b.defers the gains or losses in the value of the derivative using Other Comprehensive Income. c.cannot be used for firm purchase or sales commitments. d.is not recorded unless it is a highly-effective hedge.

Which of the following is not an advantage of a repurchase agreement (repo) market?     a. Facilitating price discovery and transparency of Bond Prices b. Improving investor appeal and broadening the investor base c. Developing hedging tools which contribute to risk management d. None of the above

Which one of the following statements is correct concerning unsystematic risk? An investor is rewarded for assuming unsystematic risk. Beta measures the level of unsystematic risk inherent in an individual security. Eliminating unsystematic risk is the responsibility of the individual investor. Standard deviation is a measure of unsystematic risk. Unsystematic risk is rewarded when it exceeds the market level of unsystematic risk. оо O O