Question

15. According to our class discussion of empirical findings in stock markets, which of the following statements is (are) correct?
(I) Poorly- or well-performing stocks tend to continue abnormal performance over short horizons.
(II) Portfolios of high P/E stocks exhibit higher risk-adjusted returns.
(III) Larger firms tend to have higher stock returns than smaller firms.
(IV) Value stocks usually generate lower returns than growth stocks.
(V) Stock prices of firms with negative earnings surprise tend to rise.
(a) I only
(b) I and II only
(c) I and IV only
(d) I, III and IV only
(e) I, IV and V only

16. You expect interest rates to decline during COVID-19 even though the bond market hasn’t indicated any sign of this change. Which action should you do now to maximize your gains if the rate does fall later?
(a) buy bonds with short-term and low coupon
(b) buy bonds with long-term and high coupon
(c) buy bonds with long-term and zero coupon
(d) sell bonds with short-term and high coupon
(e) sell bonds with long-term and zero coupon

17. Which one of the following statements is true?
   (a) The higher the beta, the higher the expected return on a security.
   (b) The higher the risk premium, the lower the standard deviation of the returns.
   (c) Bonds tend to have a higher risk premium than stocks.
   (d) Short-term bonds tend to have a higher risk premium than long-term bonds.
   (e) Beta measures total risk.
  

Answer 1

15.(I) Poorly- or well-performing stocks tend to continue abnormal performance over short horizons.
(a) I only

Statement II to V are all False and they should be exact opposite

16. (b) buy bonds with long-term and high coupon

we have to choose a bond which has higher maturity and pays higher coupon which results in increase in in price when interest rate falls

17. (a) The higher the beta, the higher the expected return on a security.

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