Study Guide I

Private placements can be advantageous, compared to public issue, because:

1. Private placements are cheaper to market than public issues.

2. Private placements may still be sold to the general public under SEC Rule 144A.

3. Privately placed securities trade readily on secondary markets.

• 1 only

• 1 and 3 only

• 2 and 3 only

• 1, 2, and 3

The material wealth of society is determined by the economy's __________, which is a function of the economy's __________.

• productive capacity; real assets

• productive capacity; financial assets

• investment bankers; financial assets

• investment bankers; real assets

Risk that can be eliminated through diversification is called __________ risk.

• All of these options are correct.

• unique

• diversifiable

• firm-specific

 

4. You put up $50 at the beginning of the year for an investment. The value of the investment grows 4% and you earn a dividend of $3.50. Your HPR was __________. 

• 3.50%

• 4.00%

• 7.00%

• 11.00%

An investor's degree of risk aversion will determine their __________.

• optimal risky portfolio

• risk-free rate

• capital allocation line

• optimal mix of the risk-free asset and risky asset

Which of the following result in a taxable event for investors in mutual funds?

Short-term capital gain distributions from the fund 

2. Dividend distributions from the fund 

3. Long-term capital gain distributions from the fund 

• 1 and 2 only

• 1 only

• 2 only

• 1, 2, and 3

Empirical results estimated from historical data indicate that betas __________.

• of all securities are always between zero and 1

• are constant over time

• seem to regress toward 1 over time

• are always close to zero

According to the Flow of Funds Accounts of the United States, the largest liability of U.S. households is __________.

• gambling debts

• consumer credit

• bank loans

• mortgages

Explicit costs of a stock IPO tend to be around __________ of the funds raised.

• 25%

• 15%

• 1%

• 7%

The expected rate of return of a portfolio of risky securities is the __________.

• sum of the individual securities' variance

• sum of the individual securities' covariance

• weighted sum of the individual securities' expected returns

• weighted sum of the individual securities' variance