Question

True and False

b)Assuming that the constant growth rate dividend discount model is valid, a firm with a price to book ratio of 0.96 will increase its price-earnings ratio by increasing the proportion of its earnings it retains in the business.

(c): A financial asset is a homogenized security.

(d): A typical mortgage loan is structured in such a way that only the interest due on the outstanding amount is paid every period and the principal is paid in a lumpsum at the end of the life of the loan.

(e): Money Market Mutual Funds in the US typically hold Corporate Bonds with a term to maturity of two to three years.

(f): Federal Reserve Bank acts as a Lender of Last Resort to the commercial banks in the US that it regulates.

(g): Sums of a large number of identically distributed random variables tend to have a normal distribution.

(h): A CDO will have a low risk as measured by the variance of its returns if the correlation between its constituents is low.

Answer 1

B. False

C. True a financial asset is a harmonized security

D. True as a typical monetary loan is structured in such a way that only the interest due on the outstanding amount is paid every period and the principal is paid in a lumsump amount at the end of the life of the loan.

E. True money market mutual funds in the US market hold up for a period of 2-3 years.

F. True.federal reserve bank work as a bank of last resort to the banks in US.

G. True as sums of large number of highly indenticaly distributed have normal distribution.

H. False as a CDO will have high risk if the as measured by the variance of its returns if the correlation between the constituents is low.