53. Prospect theory devised by Kahneman and Tversky - suggests that gains and losses are valued equally, thereby validating the analytical description of rational risk-averse investors found in conventional finance theory.

True

False

54.CDS are in effect an insurance policy on the default risk of a bond.

True

False

55. The consumption based CAPM (Rubenstein, Lucas and Breeden) is a factor model in which the market portfolio excess return is replaced by a consumption-tracking portfolio. The Consumption CAPM is designed to accommodate investors who are concerned with time-varying, multi-period (i.e., lifetime) consumption.

True

False

56.Deviations from informational efficiency would result in a large cost that will be borne by all participants, namely inefficient resource allocation. Corporations with overpriced securities, for example, would be able to obtain capital too expensively while undervalued companies might forgo investment opportunities because the cost of raising capital would be too low.

True

False