1) The only costs of investing in a mutual fund are the commissions to buy and sell the
shares.
2) Because of arbitrage, an option should not sell for less than its intrinsic value.
3) According to the efficient market hypothesis, purchasing high P/E stock should
produce higher returns.
4) The purpose of the federal securities laws is to provide investors with data and facts
so they can make informed investment decisions.
5) A direct transfer of funds from savers to firms occurs when new securities are issued
in the primary market.
6) Acknowledging traits that affect investment behavior should lead to better
investment decisions.
7) Investing in futures contracts is considered to be among the riskiest of all investment
alternatives.
8) When a seller executes a repurchase agreement, the seller agrees to repurchase the
asset at a lower price.
9) Federal government bonds are among the least risky bonds because the federal
government has the power to tax and print money.
10) Put bonds tend to have lower coupons than bonds that lack the put feature.
11) In an efficient securities market, the investor should earn, over a period of years, a
return comparable to the amount of risk the individual bears.
12) In an efficient securities market, the investor should earn, over a period of years, a
return comparable to the amount of risk the individual bears.
13) Even if financial markets have elements of inefficiency, the individual may still be
unable to outperform the market.
14) The value of a convertible bond as a debt instrument sets a floor (i.e., the minimum
price) for the bond.
15) A short sale is a sale that occurs quickly after the
stock is purchased.
16) In a world of certainty, there would be no risk.
17) An increase in the expected rate of inflation suggests that investors should sell the
stocks of natural resource companies (e.g., gold and silver).
18) The dividends paid by a convertible preferred stock are treated as a tax-deductible
expense to the firm.
19) The Jensen index compares actual performance to the risk-adjusted required
performance.
20) If an individual sells a stock short, that investor is protected from a large increase in
the price of the stock by selling a call option.