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- 15. If a financial institution has a portfolio that half (50%) consists of bonds with a tenor of five years and the other half is in the form of bonds with a duration of seven years, what is the duration/tenor of the financial institution's portfolio? A) 12 years B) 7 years C) 6 years D) 5 years 16. If the corporation/company begins to experience large losses, the default risk on the company's bonds will be A) increases and the uncertainty of bond returns increases, meaning that the expected return on the company's bonds will decrease. B) increases and the uncertainty of bond returns decreases, which means the expected return on the company's bonds will decrease. C) decreases and the uncertainty of bond returns decreases, which means the expected return of the company's bonds will decrease. D) decreases and the uncertainty of bond returns decreases, which means the expected return of the company's bonds will increase.When the economy is expected to enter into a recession, a BB rated bond would A be impossible to sell B show a higher yield than when the economy was stronge C likely default very soon D be converted to a zero-coupon bond1. If investors were not risk adverse on average, but rather risk averse or risk averse (neutral). Would the risk-return principles be true if you disliked or even enjoyed risk? 2. Is the security market trend stable over time? If so, why or why not? 3. What will happen if investors discover that a security is undervalued in terms of the capital-asset pricing model?
- Identify two (2) derivative investment products and how they allow investors to hedge against risk while creating unnecessary risk to the global economy.Which statement is incorrect related to financial intermediaries (institutions)? a. They are firms that specialize in financial intermediation - a process of borrowing funds from SSUs and lending such funds to the DSUs. b. The main objective of financial intermediaries is to convert savings from SSUs into investments. c. They are the biggest investors in equity securities in the PSE d. They offer the highest returns and lowest risks when compared to alternative investments available to SSUs. e. none of the aboveAn agent (a financial institution or individual financial investor) that has agreed to deliver a specific asset (as yet unpossessed) to another party at a future date has:A. taken a long position.B. hedged against risk.C. entered a forward transactionD. taken a short positionE. bought an option.
- What term do economists use to describe the tendency for people to prefer certain outcomes over risky situations? a. The precautionary principle b. Risk differentiationc. Risk uncertainty d. Risk aversion e. Risk management(a) You are selling your home, which has a large mortgage with favourable rates. You want to know whether a new purchaser can assume this mortgage. (i) Explain when assumption of a mortgage may occur, and also discuss whether you could bear any liability if the mortgage is assumed. (ii) Would novation of the mortgage be a better idea? Explain what novation is, when it may occur, and any liability you may face. (b) You are able to sell your property and now your financial advisor suggests that you should invest your new windfall in mortgages. He lists the various types of mortgages available. Discuss at least three different types of mortgages, relating their advantages and disadvantages from a legal standpoint, in particular with respect to the security involved. 4.Which type of financial intermediary provides individual investors with professional management of their money and diversification in order to limit the risk of investing? A. mutual funds B. insurance companies C. hedge funds D. investment banks
- Select all of the following that are true regarding hedging: A. Hedging is risk mitigation through diversification. B. Hedging is the same as arbitirage since it acts in across markets C. Hedging increases the returns of an investment D. Buying an risky investment is an example of hedging Detailedly Explanation Please, Thank you!Which of the following statements is false? a. The slope of the security market line is measured by beta. b. Company-specific risk can be diversified away. c. The market risk premium is affected by attitudes about risk. d. Higher beta stocks have a higher required return.Investors have different preferences with regards to the risk: they can be risk averse, risk neutral and risk seeking. What do we mean by risk averse, risk neutral, and risk seeking?