B- False6. Active strategy is an investment policy that based on the premise that securities are fairlypriced, and it avoids the costs involved in undertaking security analysisA- True.B- False7. Examples of the company-specific influences are firm's success in R&D, itsmanagement style and philosophy, and so on.A- TrueB- False8. Some examples of macroeconomics variable that cause market risk are business cycles,inflation, interest rates, exchange rates, and so forth.A- TrucB- False

As per Bartleby honor code, when multiple questions are asked, the expert is required only to solve…

Answered: 6. Active strategy is an investment…

6. Active strategy is an investment policy that based on the premise that securities are fairly priced, and it avoids the costs involved in undertaking security analysis A- True. B- False

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

ChapterA2: Investments

Section: Chapter Questions

Problem 3MCQ

See similar textbooks

Related questions

Q: List which of the following statement(s) concerning risk are correct? I. Nondiversifiable risk is…

A: Risk is a factor which arises due to uncertain future factors. It can be generated through external…

Q: An investor who believes that markets are efficient should follow: A. An active management strategy…

A: the passive investment strategy is a strategy to maximize returns, the investor minimizes his…

Q: Active secondary markets

A: Secondary Market: Secondary market is the market where the securities are bought or sold without the…

Q: how

A: Market risk is the potential for losses arising from adverse movements in market prices, such as…

Q: Hedging is a risk management strategy that is used in limiting or offsetting probability of loss…

A: Financial risk managers analyse the market trend and accordingly take financial decisions.Roles and…

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

A: The financial market can be defined as the market place which includes the trading of securities and…

Q: If the security market is efficient in the strong form, then _____. Group of answer choices a. it…

A: There are three forms of market hypothesis weak form, semi-strong form and strong form

Q: Which of the following is not a characteristic of an efficient market? Investors can frequently…

A: Efficient Market Hypothesis is a hypothesis theory in finance which states that asset prices reflect…

Q: In theory, market risk should be the only “relevant” risk. However, companies focus asmuch on…

A: Stand-alone risk: Stand-alone risk is the risk related with the anticipated project cash flow. The…

Q: The capital asset pricing model (CAPM) contends that there is systematic and unsystematic risk for…

A: Introduction : In simple words, capital asset pricing model or CAPM can be understood as a valuation…

Q: Which is correct about security valuation? A. In an efficient market, several factors would affect…

A: The process that is used in order to determine the fair value of the security, as well as any type…

Q: The market efficiency hypothesis claims that, as a rule, the market value and intrinsic value of a…

A: The market efficiency hypothesis posits that security prices reflect all available information,…

Q: The maximum rate of return needed to induce an investor to purchase or hold a security is referred…

A: The statement is TRUE.Explanation:Step 1:An investor's required rate of return is the lowest…

Q: Hedging is a risk management strategy that is used in limiting or offsetting probability of loss…

A: Financial risk managers analyse the market trend and accordingly take financial decisions. Roles and…

Q: "If a security plots below the security market line, it is: " O ignoring all of the security's…

A: Security market line : Security market line represents the beta and expected return of a security on…

Q: Which of the following is not an assumption of technical analysis? A.The security under analysis is…

A: Technical Analysis is used to find out trading opportunities by analyzing the past trends and…

Q: According to Capital Asset Pricing theory (CAPM), in a competitive marketplace: Group of answer…

A: Capital Asset Pricing Model(CAPM) is an investment tool used to determine the fair valuation of…

Q: Which of the following statements is TRUE about risk-free investment? a. Return in risk-free…

A: Risk free investment is an investment which gives low consistent returns and is a safe, secure…

Q: Why might a manager intentionally classify a trading security as an available-for-sale security?…

A: Trading Security: A trading security is a type of investment that a company purchases with the…

Q: Market risk ________. a. is equal to the rate of return generated by a risk-free asset b.…

A: By simple diversification the total risk can be reduced but can not be totally eliminated. The…

Q: hich of the following is not an advantage of a repurchase agreement (repo) market? a.…

A: A repurchase agreement (repo) is a form of short-term financial support for government mortgage…

Q: Relative value strategies seek profits from pricing discrepancy between securities. Select one:…

Q: Explain what is meant Market Risk and by Specific risk. How can an investor reduce these risks?

A: Risk is referred to as the chance that an outcome or an investment's actual gains will differ from…

Q: Security selection refers to A. the allocation of assets into broad asset classes. B. choosing…

A: Securities selection is the process of selection of various financial securities to be included in…

Q: Which is least likely correct about security valuation? a. The calculated or determined value…

A: Security valuation is technique o knowing the value of securities.

Q: Which of the statements about the Arbitrage Pricing Theory MUST BE TRUE. I. There is only one…

A: There are two models of security pricing where different risk factors are considered along with the…

Q: Question 51 occurs when market participants observe returns on a security that are larger than what…

A: Market dynamics are influenced by various factors, and participants keenly observe returns on…

Q: Derivatives are used in risk management because they _____. a. diversify risks b. hedge risks c.…

A: In the world of Finance, risk can be classified into various types, such as :- Credit risk - It is…

Q: Market risk is portion of a security's stand-alone risk that cannot be eliminated through…

A: Market risk is portion of a security's stand-alone risk is also called as systematic risk.It can not…

Q: Riskless, costless arbitrage is the cornerstone of the efficient market hypothesis. However,…

A: Unavoidable Risk: There may be some improbable but significant risks, such as the possibility that…

Q: Which one of the following statements is correct concerning unsystematic risk? An investor is…

A: In finance there are two main types of risk – systematic risk and unsystematic risk. Systematic…

Q: 1.What is the relationship between an investment’s risk and its return? Please provide examples if…

A: Note: As per our policy, we only answer one question, when more than one question is posted. The…

Q: isk and Return: Introduction isk is an important concept affecting security prices and rates of…

A: Risk and return are foundational concepts in finance, representing the dynamic relationship between…

Concept explainers

Classification Of Risk

Risk means when there could be a possibility that the returns expected from a particular project or investment may or may not match the investor's expectations. In other words, the uncertainty of an income arising from a source that would either be lower than expected or result in losses in risk exposure of the project. The higher the risk involved, the higher is the return expected by the investor as the investor is exposed to a high level of risk. There are various methods by which different types of risk can be assessed and avoided or mitigated.

Question

B- False
6. Active strategy is an investment policy that based on the premise that securities are fairly
priced, and it avoids the costs involved in undertaking security analysis
A- True.
B- False
7. Examples of the company-specific influences are firm's success in R&D, its
management style and philosophy, and so on.
A- True
B- False
8. Some examples of macroeconomics variable that cause market risk are business cycles,
inflation, interest rates, exchange rates, and so forth.
A- Truc
B- False

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

The theory is based on the notion that investors act rationally and consider all available information in the decision-making process, and hence investment markets are efficient, reflecting all available information in security prices. This describes Select one: a. conventional finance. b. irrational investors. c. behavioral finance. d. cognitive errors. e. None of the these
2. If the value of the financial sector is in terms of reducing the individual risk in the economy, how could you measure the value of the financial sector without using information on loan payments (broadly construed to include any interest payment necessary to measure an interest rate or any payment that looks like a return on an investmemt)? If we think of the amount of individual risk remaining after individuals buy portfolios is a measure of the ineffectiveness of the financial sector [or its imperfections], what do you think accounts for these imperfections?
1. How can investors make decisions about financial instruments that involve future payoffs? a) There is no uncertainty in market economies. b) This can be done only when the future payoffs are certain. c) Prices are determined by supply and demand which is always certain. d) Investors can use probabilities and risk measurement procedures to account for all possibilities.
QUESTION 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?
19. The slope of the SML is determined by the value of market risk premium. a. True b. False The SML relates required returns to firms' systematic (or market) risk. The slope and intercept of this line can be influenced by managerial actions. 20. a. True b. False
The efficient markets hypothesis True or False: The efficient markets hypothesis holds only if all investors are rational. False True Almost all financial theory and decision models assume that the financial markets are efficient. The informational efficiency of financial markets determines the ability of investors to “beat” the market and earn excess (or abnormal) returns on their investments. If the markets are efficient, they will react rapidly as new relevant information becomes available. Financial theorists have identified three levels of informational efficiency that reflect what information is incorporated in stock prices. Identify the form of capital market efficiency under the efficient market hypothesis described in the following statement: Current market prices reflect all information contained in past price movements. This statement is consistent with: Strong form efficiency Semistrong form efficiency Weak form efficiency…
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?
Which of the following is not a characteristic of an efficient market? Investors can frequently make profits by predicting asset market prices that are different from intrinsic values. The market value of all securities at any one instant in time fully reflect all available information. Investors act rationally. The forces of demand and supply work to maintain that the security's market price and its intrinsic value are in equilibrium.
Which is correct about financial securities?a. Financial securities guarantees return to investors.b. Financial securities eliminate risk that most financial managers are facing.c. Diversification spreads risk and improves expected total return.d. Financial securities protect investors against risk shocks brought by social, economic, and politicalevents.e. All of the abovef. None of the above
Suppose the financial institution is trying to minimise their exposure to changes in the underlying asset price. Explain why the financial institution may want to keep their portfolio both Delta and Gamma neutral
Discuss how the concept of pure security, short selling and no arbitrage profit help establish and understand the equilibrium from the capital markets. Discuss different economic determinants security prices. Kindly answer the question as soon as possible.
Complete the following table : Aggressive IS Gap ManagementDefensive IS Gap Management Rising Market Interest Rates What steps will a bank take to put in place an aggressive /defensive strategy in the face of rising interest rates. Paragraph BIEE