CSR 342 EXAM 1

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Author:
tsciole
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108259
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CSR 342 EXAM 1
Updated:
2011-10-12 01:04:55
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Chapter 3
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  1. According to rational expectations, stock prices are actually...
    the discounted value of all future cash flows associated with the stock
  2. Ponzi Scheme
    a fraudulent investment operation that pays returns to investors from their own money or money paid by subsequent investors rather than profit
  3. A PEG ratio greater than 1 may imply which of the following?
    The company is currently overvalued
  4. Typically, stock price decreases when earnings are lower than anticipated.
    True
  5. According to rational expectations, stock prices are actually...
    the discounted value of all future cash flows associated with the stock
  6. Which of the following is not typical of a growth stock?
    • Low P/E ratio
    • High dividend yield
    • Currently out of favor with investors
    • Currently undervalued
  7. Which of the following is true of P/E ratios?
    It is calculated by dividing the stock price by EPS

    It can show whether a stock is under or overvalued

    Can be used to compare similar companies but not companies from different industries
  8. Which of the following measures gives you the percentage income return from your investment?
    Dividend yield
  9. Which of the following is usually considered the riskiest?
    Emerging growth stocks
  10. Which of the following describe problems with the dividend growth model?
    Future cash flows are hard to estimate

    The model is extremely stylized

    The model only works under stong assumptions
  11. According to Keynes, stock prices are determined by which of the following?
    Higher order beliefs
  12. What was the investment strategy that R. Citron was convinced about?
    Borrowing money at low, short-term interest rates and investing at higher, longer-term interest rates
  13. Citron believed that interest rates would increase in the near future
    false
  14. Leveraging with bonds is called:
    Reverse repurchase agreements
  15. REPO is an agreement between two parties
    Investor purchases an asset accompanied by an agreement to sell that asset back to the original seller at a later date for a higher price
  16. By how much was Orange country outperforming returns of State of California in 1993?
    3.8 percent
  17. For how many years The Federal Reserve has not raised its short-term interest rates (before 1994)
    5 yrs
  18. What was Citron doing during the times when interest rates were increasing?
    Continuing his initial strategy (REPO)
  19. If Citron didn’t resign from his post and maintained his portfolio what would be the losses for Orange country?
    600 000 000
  20. Hedging is frequently defined as using downside risk to achieve portfolio protection in bull markets.
    false
  21. Hedge funds are known to use the following strategies
    Dynamic by using options, futures, swaps, and other more complex derivatives instruments to amplify fund returns
  22. What was the strategy used by the first hedge fund?
    Short selling overvalued stocks and purchasing undervalued stocks
  23. The main advantage of hedge funds is
    Seeking “absolute returns”

    Being less susceptible to the movements of the markets

    Offering unique investment opportunities not available through mutual funds
  24. A key feature of hedge funds is
    Enhance the performance of traditional investment portfolio

    Increase risk-adjusted returns

    That they can reduce the volatility of a global portfolio
  25. Fund of funds is
    A mutual fund that invests in other mutual funds.
  26. Hedge funds are regarded as very liquid
    false
  27. What advantages do exchange-traded funds have over mutual funds?
    Can be bought and sold at all times during the day

    They can be leveraged
  28. The general ranking of risk for different investment fund vehicles is
    Mutual funds are less risky than ETFs and hedge funds
  29. Information overload leads to
    excess volatility

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