Question

45.A conservatism bias suggests that investors are too quick (i.e., too fast, too aggressive) in updating their beliefs in response to new information. Conservatism may account for the observance of momentum in some securities.

True

False

46.Fundamental analysis focuses on stock patterns and is essentially the search for recurrent and predictable patterns in stock prices. On the other hand, technical analysis focuses on the determinants of the underlying value of the firm, such as current profitability, free cash flows, and growth prospects.

True

False

47.A provision in the indenture that allows the issuer to repurchase the bond at a specified call price before the maturity date. A call provision may be invoked if a company issues a bond with a market interest rate (with a market-based coupon) and interest rates later rise.

True

False

48.For a given maturity, the yield to maturity on zero coupon bonds is labeled as the spot rate. In turn, the short rate for a given time interval refers to the interest rate for that interval available at different points in time. The forward interest rate is the future interest rate that is inferred from the yield curve by using spot and short rates.

True

False

Answer 1

45 . The given statement is FALSE as conservatism bias will suggest that investors are too slow in updating their beliefs in response to the new information.

46. The given statement is FALSE as fundamental analysis is related to to determining the underlying value of the firm and technical analysis associated with finding out patterns in prices structure.

47. The given statement is TRUE as these bonds can be called upon when market interest rates are rising and since it is embedded to the market coupon rate than the company will be calling these bonds.

48. The given statement is TRUE.