Investment Strategies - Review Answers
- "B". the short sale must be executed on a plus-tick.
- "C". investment-grade corporate bonds as they generate income which would be tax-deferred.
- "B". DRIP plans entail the purchase of dividend paying stocks and little else.
- "B". All of the other statements describe the risks of leverage.
- "D". Ease of replication speaks to the heart of passive investing.
- "C". The reason is due to transaction costs associated with the strategy.
- "B". Asset drift could significantly skew the portfolio's risk profile both positively and negatively.
- "C". A zero-cost collar satisfies these requirements.
- "B". This is the greatest risk associated with short selling.
- "D". Such tactical shifts are designed to exploit fleeting opportunities, but may generate additional risks.
- "D". all of the statements describe risks associated with rebalancing.
- "D". An exchange traded fund is not a strategy for dealing with low basis stock. An exchange fund is.
- "C". A tax-deferred retirement account is not an investment strategy but a tax-advantaged vehicle in which one may invest.
- "D". Both statements describe basic risks of concentration in low basis stock.
- "B". All of the other statements describe the determinants of an option's price. T-bills would be the risk-free rate.
- "D". Black-Scholes is a continuous time pricing model.
- "B". This is a simple definition of APT.
- "B". SML and CML differ in that the former uses standard deviation as the risk measure; the latter uses Beta.
- "E". Ceteris paribus, a deep in-the-money option on a high price and volatile stock would be more expensive than if some or all of these conditions did not exist. The $11 premium represents intrinsic and time value as follows. Intrinsic value:25.58-7=8.58; Time value:11.00-8.58=2.42.
- "B". This is a rudimentary definition of binomial options pricing.
- "F". All of the items are acceptable uses of options.
- "D". Options close to expiration are worth less. Though b. and c. do not specify strike prices, the statements imply out of the money options which would carry lower prices.
- "B". This is the definition of a European option. An American style option permits exercise at any time before expiration. An Asian style option is one whose value and payoff are a function of the underlying over a specific time period. Contango is a term relating to futures markets where the futures price exceeds the spot price.
- "E". The question does not specify prices, but one can infer what they are in relation to one another based upon time left to expiration and the degree to which they are in or out of the money.
RetirementWe discuss the advantages of seeking professional help when it comes to managing our retirement account.
Personal FinanceWhile there’s still potential for some “tweaking” around your Social Security retirement benefits, I’d like to share some insight on what we know now.
Chart AdvisorThere has been lots of hype around the IPO market lately. We'll take a look at whether now is the time to buy.
EntrepreneurshipLearn how a complete risk management plan can minimize or eliminate your financial exposure through insurance and prevention solutions.
Investing BasicsA diversified portfolio will protect you in a tough market. Get some solid tips here!
EntrepreneurshipThere are a lot of risks associated with running a business, but there are an equal number of ways to prepare for and manage them.
Active TradingIt's impossible to avoid disaster without trading rules - make sure you know how to devise them for yourself.
Trading StrategiesReduce position size by 50% to 75% in a flat market.
Credit & LoansIf you are seeking a personal loan, be aware of these pitfalls before you proceed.
Chart AdvisorFalling lumber prices and weakness on the charts of home builders suggest that the next leg of the trend could be downward.
The excess return that investing in the stock market provides ...
The amount of risk that an insurance company retains after subtracting ...
Coverage that provides financial protection to investors, financial ...
The maximum loss from a peak to a trough of a portfolio, before ...
The absolute level of a fund's investments.
A technique used by insurance companies to calculate loss reserves.
Secured loans are better for the borrower than unsecured loans because the loan terms are more agreeable. Often, the interest ... Read Full Answer >>
Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
Like all securities, mutual funds are subject to market, or systematic, risk. This is because there is no way to predict ... Read Full Answer >>
Mutual funds have become an incredibly popular option for a wide variety of investors. This is primarily due to the automatic ... Read Full Answer >>
While your auto insurance company cannot pull your full motor vehicle report, or MVR, it does pull a record summary that ... Read Full Answer >>
While the majority of financial advisors work for financial institutions such as banks, a large proportion of them are self-employed ... Read Full Answer >>