Which of the following statements is false? the stock and bond markets are very
ID: 2789691 • Letter: W
Question
Which of the following statements is false?
the stock and bond markets are very efficient.
In real life, when an individual expects the economy to expand, he should hold no nominal assets.
corporations, unlike proprietorships and partnerships, are subject to double taxation.
bond prices will fall when lenders expect higher rates inflation in the future.
Which of the following statements is true?
The investment portfolio of younger investors should be heavily weighted toward conservative assets such as government bonds and blue chip stocks.
Bond prices and interest rates fluctuate directly.
The relationship between risk and potential reward is inverse.
During an economic contraction, bond prices are likely to rise.
Which of the following statements is true?
A risk averse investor would prefer low cap stocks to large cap stocks.
A growth stock would pay low (or no) dividends.
Low cap stocks provide the lowest potential rate of return.
Blue chip stocks provide a greater growth potential than growth stocks.
Explanation / Answer
1) C is false.
Stock and bond markets are very efficient as they price new information efficiently. When economy expands, real assets does very well in comparison to nominal assets and hence, an individual should not hold nominal assets. Bond prices are inversely related to interest rates. If inflation increases, interest rates are likely to increase and the bond price are likely to fall.
2) D is correct.
During economic contraction, interest rates are likely to decline. As interest rates and bond prices are inversely related. Bond Prices increase when interest rates decline.
3) B is correct
A growth stock requires capital to cater to growth in business. Hence, it is very likely that growth stocks would not pay any dividend during the high growth phase.
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