Sample midterm 2a - Economics 136 Financial Economics Sample midterm 2A suggested solution Fall 2009 1 True or false(25 points 5 each(i False The

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Economics 136. Financial Economics Sample midterm 2A, suggested solution, Fall 2009 1. True or false. (25po ints ,5each) (i) False. The risk of the call option on Google may be di f erent from the risk of the put option on Microsoft, and hence the two investments may have di f erent expected returns. (ii) True. a high ROE means that money is more productive inside the company. There- fore shareholder value and stock price are higher if earnings are retained and reinvested. (iii) False. High dividend-price ratios predicted high (positive) subsequent price growth. (iv) False. This comparison su f ers from survivorship bias: the worst performing funds were likely closed down before 2005. Hence even if mutual funds have no ability in picking stocks, we expect the return of funds surviving to 2005 to be higher than that of the index. the bene f ts of diversi f cation. When many stocks are held in a portfolio, the low returns
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 09/02/2010 for the course ECON 136 taught by Professor Szeidl during the Fall '08 term at University of California, Berkeley.

Page1 / 3

Sample midterm 2a - Economics 136 Financial Economics Sample midterm 2A suggested solution Fall 2009 1 True or false(25 points 5 each(i False The

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online