2 - True or False - Review Questions

In each of the following statements, identify whether or not each statement is true or false and comment/Justify the reason for True/False

explanation (one-two line at most) to support your argument.

-GDP fluctuations in an economy is considered a non-systematic risk that is reflected in the total

volatility of financial assets.

-The assumptions of rationality and perfect informations in CAPM imply that financial markets are

efficient.

-The efficient markets hypothesis means that at any point time the demand must be equal to the supply

of financial assets.

-If the beta coefficient of an asset is zero, then the asset is free from non-systematic risk.

-Preferred shareholders are considered first claimants whereas common stock holders are residual claimants.

-The relationship between the coupon rate and the bond price is always negative.

-The present value of a perpetuity is simply the fixed payment divided by the discount rate. Thus, one

can argue that it does not take into account all future payments.

-The yield to maturity is preferred to the rate of return since it takes into account the time value of

money.

-The covariance between the rates of return on two stocks is a measure of correlation between them.

-A beta coefficient of 1.5 means that the risk contribution of this asset in the market is 150%

-If the sigma of an asset is 2, then this asset is said to have a total volatility of 2%.