1. Three bonds (A, B, and C) have the same maturity, issuer, seniority, coupon rate, and maturity. However, Bond A is convertible, Bond B is callable, and Bond C is a standard non-callable non-puttable bond. A convertible bond gives the investor the right but not the obligation to convert the bond to shares of the issuer’s stock for a fixed price. A callable bond gives the issuer the right but not the obligation to buy the bond back from the investor for a fixed price. Rank the value of the three bonds from highest to lowest: Group of answer choices -C, A, B -C, B, A -B, C, A -A, B, C -A, C, B 2. A famous anomaly in stock returns is the Post-earnings announcement drift (the PEAD anomaly). The PEAD occurs after a company announces its earnings. The share prices of firms whose announced earnings exceed those predicted by analysts rise at the announcement and continue to rise on average for up to 3 months following the announcement. Conversely, the share prices of firms whose announced earnings are below those predicted by analysts fall on the earnings announcement day and continue to steadily fall on average for up to three months. Assuming earnings surprise have no obvious effect on risk, does the PEAD anomaly appear to violate market efficiency? Group of answer choices Yes; if markets are efficient, then stocks whose prices go up on earnings announcement days should go back down in the days following the announcement. No; this just means that the stock market does not incorporate the news in earnings announcements very quickly Yes; if markets are efficient, then they should rapidly incorporate new information leaving no easily exploitable short-term trends in returns immediately after Cannot be determined No; when there is good news about a stock, its price should steadily increase in value
1. Three bonds (A, B, and C) have the same maturity, issuer, seniority, coupon rate, and maturity. However, Bond A is convertible, Bond B is callable, and Bond C is a standard non-callable non-puttable bond. A convertible bond gives the investor the right but not the obligation to convert the bond to shares of the issuer’s stock for a fixed price. A callable bond gives the issuer the right but not the obligation to buy the bond back from the investor for a fixed price. Rank the value of the three bonds from highest to lowest:
Group of answer choices
- -C, A, B
- -C, B, A
- -B, C, A
- -A, B, C
- -A, C, B
2. A famous anomaly in stock returns is the Post-earnings announcement drift (the PEAD anomaly). The PEAD occurs after a company announces its earnings. The share prices of firms whose announced earnings exceed those predicted by analysts rise at the announcement and continue to rise on average for up to 3 months following the announcement. Conversely, the share prices of firms whose announced earnings are below those predicted by analysts fall on the earnings announcement day and continue to steadily fall on average for up to three months. Assuming earnings surprise have no obvious effect on risk, does the PEAD anomaly appear to violate
Group of answer choices
- Yes; if markets are efficient, then stocks whose prices go up on earnings announcement days should go back down in the days following the announcement.
- No; this just means that the stock market does not incorporate the news in earnings announcements very quickly
- Yes; if markets are efficient, then they should rapidly incorporate new information leaving no easily exploitable short-term trends in returns immediately after
- Cannot be determined
- No; when there is good news about a stock, its price should steadily increase in value
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