Deck 3: The Financial Information Marketplace

Question 1

In the capital asset pricing model CAPM the term bi[E(Rm)-rf] measures the risk premium demanded by investors in the money and capital markets before they are willing to buy and hold a risky asset.

Answer 1

True

Question 2

According to the capital asset pricing model (CAPM) yields on all financial assets should lie along the Security Market Line (SML).

Answer 2

True

Question 3

The capital asset pricing model (CAPM) argues that the existence of financial assets whose expected returns lie permanently above or below the SML are indicators that the financial marketplace is efficient.

Answer 3

False

Question 4

In the capital asset pricing model CAPM the term bi[E(Rm)] measures the risk premium demanded by investors in the money and capital markets before they are willing to buy and hold a risky asset.

Question 5

In 2006, of the $13 trillion gross domestic product of the United States, approximately

A) $9 trillion was for personal consumption expenditures
B) $2.3 trillion was gross private domestic investment
C) 2.5 trillion was for federal, state and local governments
D) None of the above
E) All of the above

Question 6

Can you explain why financial information that is accurate and reliable is also of great significance to government policymakers and regulators within the financial system?

Question 7

Carefully explain what is meant by the term efficient market. Are there different levels of market efficiency? What are these different efficiency levels?

Question 8

Please explain what is meant by the term informational asymmetries. What problems can these asymmetries create for participants in the money and capital markets and the financial system?

Question 9

On the other hand, rent control in certain areas, such as New York City, leads to permanent underpricing of real estate assets for the lucky tenants who have been the incumbent tenants. (The Boston Globe, April 28, 1997, p. A1.)
What does it mean to say an asset is "temporarily overpriced"
or "temporarily underpriced"? How can such a situation happen? Why is such overpricing or underpricing likely to be temporary? Can you suggest a situation that might lead to permanent overpricing or underpricing of an asset?

Question 10

Compare and contrast the Flow of Funds Accounts of the United States with the National Income Accounts. What types of information does each system of accounts provide that could be useful for making financial decisions?

Question 11

Please explain how the Flow of Funds Accounts of the United States are constructed.

Question 12

Discuss the principal limitations of Flow of Funds data. Why must a user of Flow of Funds information keep these limitations in mind?

Question 13

Note that the increase in liabilities was the unknown quantity to be solved from the information provided.

Question 14

The following situations may be covered by insider trading laws in the United States. Please examine each situation described and indicate whether in your opinion a violation of insider trading laws might have occurred. What kind of violation, if any?

Question 15

The following situations may be covered by insider trading laws in the United States. Please examine each situation described and indicate whether in your opinion a violation of insider trading laws might have occurred. What kind of violation, if any?

Question 16

Please identify the key terms and concepts in this chapter as described in the phrases and sentences listed below:

Question 17

Please identify the key terms and concepts in this chapter as described in the phrases and sentences listed below:

Question 18

Please identify the key terms and concepts in this chapter as described in the phrases and sentences listed below: