50.1K

Verified Solution

Link Copied!

Problem 1. Are the following statements True or False? If the statement is correct, write down T. Otherwise write down F. No argument required. a) Money market securities are risk-free as they are short-term, liquid and marketable b) Commercial papers securities are risk-free. c) Decimalization allowed the tick size to fall to 1 cent, leading to a decrease in transaction costs. d) To get around the 499-investor restriction of privately held firms, middlemen have formed partnerships to buy shares in private companies; the partnership counts as only one investor, even though many individuals may participate in it e) In the event of the firm's bankruptcy, the claims of common shareholders are honored before those of the preferred shareholders f) Preferred stock payments are not tax-deducible expenses for the firm g) CAPM measures the systematic risk with beta and states that only the non-diversifiable risk will be rewarded in equilibrium h) If two securities have the same beta, then their realized returns are the same i) The interest income from a municipal bond is exempt from federal income taxation j) A fixed-income security always pays a fixed income stream to owner of the security k) Holding a put option provides insurance to someone who holds the underlying asset because it guarantees that the asset can always be sold at or higher than the strike price of the put option 1) Selling a futures contract provides insurance to someone who holds the underlying asset, because it guarantees that the asset can always be sold at or higher than the futures price. m) The premium of a call option decreases as the exercise price increases

Answer & Explanation Solved by verified expert

See Answer