FIN 310 Midterm 1

- Income is either [blank_start]spent[blank_end] or saved. → Savings are invested. - The investments constitute a [blank_start]portfolio[blank_end]. The composition of a portfolio depends on investment goals. Not all assets are appropriate for all financial goals. - Factors affecting investment decision (1) The [blank_start]goals[blank_end] of the investor (2) The [blank_start]risks[blank_end] involved (3) The [blank_start]taxes[blank_end] that will be imposed on any gain (4) Knowledge of investment [blank_start]alternatives[blank_end].

Factors affecting investment decision (1) The goals of the investor: Without a [blank_start]goal[blank_end], a portfolio is like a boat without a rudder. Some objective must guide the composition of the portfolio. - Possible investment goals 1) Funds to meet [blank_start]emergencies[blank_end] 2) Funds to finance education expenses 3) Funds to make a specified purchase (e.g., a home) 4) Funds for [blank_start]retirement[blank_end]

(2) The risks involved: Willingness to bear [blank_start]risk[blank_end] plays an important role in constructing the portfolio. Some individuals are more able to bear risk. → Investors who are more willing to accept risk may construct portfolios with assets involving greater risk that may earn [blank_start]higher[blank_end] returns. (3) The taxes that will be imposed on any gain: Return on investments can be taxable or not depending on type of assets. - Income such as interest and realized capital gains are taxed. - Many states levy a tax on an individual’s [blank_start]inheritance[blank_end]. Such taxes and the desire to reduce them affect the composition of each investor’s portfolio.

(4) Knowledge of investment alternatives - Securities, commodities, or real estate? - Stocks or bonds? - Original securities or derivatives? - Traditional trading or short selling? - Corporate bond or municipal bond? - Convertible bond or straight bond? → The more you know, the more appropriate [blank_start]alternatives[blank_end] you have.

Preliminary Definitions - Investment (in [blank_start]economics[blank_end]): The purchase of plant, equipment, or [blank_start]inventory[blank_end]. - Investment (in lay terms): Acquisition of an [blank_start]asset[blank_end] such as a stock or a bond. - Secondary market: A market for buying and selling previously issued securities. - Primary market: The [blank_start]initial[blank_end] sale of securities. - During the course, purchase of an asset for the purpose of storing value (and, it is hoped, increasing that value over time) will be called an investment, even if in the aggregate there is only a transfer of ownership from a seller to a buyer.

- Value: What something is [blank_start]worth[blank_end]; the present value of future benefits. - Valuation: The process of determining the current [blank_start]worth[blank_end] of an asset. - Return: The sum of income plus capital [blank_start]gains[blank_end] earned on an investment in an asset, where income means the flow of money or its equivalent produced by an asset (e.g. dividends and interest), and capital gain is an increase in the value of a capital asset, such as a stock. - Rate of return: The annual percentage return [blank_start]realized[blank_end] on an investment. - Risk: The possibility of [blank_start]loss[blank_end]; the uncertainty of future returns.

Efficient Market Hypothesis Financial markets tend to be efficient. : New [blank_start]information[blank_end] about future cash flows for an asset → the market rapidly adjusts the asset’s price. - Efficient financial market implies that a security’s current price embodies all the [blank_start]known[blank_end] information concerning the potential return and risk associated with the particular asset. - Financial markets are efficient because: (1) [blank_start]Competition[blank_end] exists among investors; (2) Participants may readily enter and [blank_start]exit[blank_end] financial markets, and (3) Information is readily available.

- Investors (or at least the vast majority of investors) cannot expect on average to beat the market [blank_start]consistently[blank_end]. - An individual can earn large returns on particular assets. However, the concept of efficient markets implies that this investor will not consistently select those individual securities that earn abnormally large returns. - Depending on your belief in EMH, you can choose passive or [blank_start]active[blank_end] (aggressive) investment strategy. * Finally, an investment decision is to choose a portfolio while considering (1) the tradeoff relation between risk & return, and (2) macroeconomic environment.

Gross domestic product (GDP): Total value of all [blank_start]final[blank_end] goods produced with domestic factors of production GDP is the summation of expenditures: GDP = C + I + G + E where C: personal consumption I: gross private domestic investment G: government spending E: net exports GDP is a leading indicator of macroeconomic environment. Recession: A period of rising [blank_start]unemployment[blank_end] and declining national output - Recession periods are determined by NBER (National Bureau of Economic Research) Recession in late 2000s - Initiated by sub-prime mortgage crisis - Bank failures lead to liquidity and solvency crisis. - Sharp decline in stock prices - Dow Jones Industrial average sank to below 6,500 in 2009

Consumer confidence : measured by Consumer Confidence Index (CCI) and the Consumer Sentiment Index (CSI). Both the CCI and the CSI provide indicators of consumer attitudes by focusing on (1) consumer perceptions of business conditions, (2) consumer perceptions of their [blank_start]financial[blank_end] condition, and (3) consumer willingness to purchase durables, such as automobiles, homes, and other large dollar-cost items. - An increase in confidence forecasts that consumers will increase spending, which leads to economic [blank_start]growth[blank_end]. - A decline in consumer confidence forecasts a reduction in the level of economic activity. Inflation: measured by CPI (Consumer Price Index) and PPI (Producer Price Index) - Consumer Price Index can be found through the Bureau of Labor Statistics home site. http://www.bls.gov/cpi/ - While aggregate prices are measured by an index, the rate of inflation is measured by changes in the index. : If the CPI rises from 100 to 105.6 during the year, the annual rate of inflation is 5.6 percent. - Inflation decreases purchasing power, thus amount of [blank_start]investments[blank_end]

The Federal Reserve (Fed): The nation's central [blank_start]bank[blank_end] - Purpose: to control the supply of money in order to achieve 1) stable prices, 2) full employment, and 3) economic growth * Monetary policy by Fed 1) The reserve requirement: changing commercial banks' reserves 2) The federal funds rate: changing the rate banks charge each other for borrowing reserves (Fed sets a target federal funds rate.) 3) Open market operations: Fed buying and selling federal government securities by order of FOMC (Federal Open Market Committee). - Monetary Expansion : To expand the money supply, the Fed [blank_start]buys[blank_end] government securities. → The purchases reduce interest rates. - Monetary Contraction : To contract the money supply, the Fed [blank_start]sells[blank_end] government securities. → The sales increase interest rates. - A change in interest rates is transferred to stock prices through its 1) Impact on the required rate of [blank_start]return[blank_end] 2) Impact on earnings

Fiscal policy of the federal government 1) taxation 2) spending 3) debt management - Deficit spending: Government spending exceeds [blank_start]revenues[blank_end]. Sources of funds to finance the deficit: commercial banks non-bank public Federal Reserve - Surplus: Government revenues exceed [blank_start]spending[blank_end]. Question of how to use any surplus

Basics of Securities Markets Corporations can be private or [blank_start]public[blank_end] - A private corporation has a [blank_start]limited[blank_end] number of owners and there is no organized market for its shares - A public corporation has many [blank_start]owners[blank_end] and its shares trade on an organized market, called a stock market (Ex: NYSE, NASDAQ) Primary VS secondary markets - The primary market refers to a corporation issuing new [blank_start]shares[blank_end] and selling them to investors (i.e. IPO: Initial Public Offering) - After the initial transaction between corporation and investors, the shares continue to trade in a [blank_start]secondary[blank_end] market between investors without the involvement of the corporation. NYSE and NASDAQ are all secondary markets.

Mechanism of physical stock markets (Ex: NYSE) (1) Market makers (dealers, specialists) match buyers and [blank_start]sellers[blank_end]. : They post two prices for their own accounts. - Bid price: the price market makers are willing to [blank_start]buy[blank_end] the stock at - Ask price: the price market makers are willing to [blank_start]sell[blank_end] the stock at → A customer can always buy or sell stocks at the market, if they can trade at bid-price (when buying) or ask-price (when selling) (2) Large investment banks and brokerages buy trading [blank_start]licenses[blank_end] which entitle them to access the floor and trade on NYSE. Ex) A license holder can go to IBM’s trading post, and directly sell IBM shares to the highest bidder or buy shares at the lowest offered price. → It is an [blank_start]auction[blank_end] market.

Mechanism of Over-the-Counter stock markets (Ex: NASDAQ) (1) OTC stock market: a collection of dealers or market makers connected by [blank_start]computer[blank_end] networks and telephones * NYSE has only [blank_start]one[blank_end] market maker per each stock. On NASDAQ, stocks can and do have [blank_start]multiple[blank_end] market makers who compete with each other. (2) Since investors do not directly interact to set the prices, OTC markets are [blank_start]dealer[blank_end] markets.

Listing standards: Outlines of the [blank_start]requirements[blank_end] a company must meet to be traded on the exchange * The NYSE’s listing standards are more stringent than those of [blank_start]NASDAQ[blank_end]. (http://venturelawcorp.com/nyse-mkt-listing-requirements/) - Third market: Over-the-[blank_start]counter[blank_end] market for securities listed on an exchange. : Large shares (i.e. 10,000 shares or more) are traded in third markets. These large shares are called “[blank_start]blocks[blank_end].” (usually traded by institutional investors) - Penny stocks on [blank_start]pink[blank_end] sheets are also traded in OTC markets. (transactions are usually less than $1 million per day.)

- A financial analyst (or securities analyst or investment analyst) is an individual who analyzes financial statements, interviews corporate management, and uses other sources of information to construct earnings [blank_start]estimates[blank_end] and buy- or sell-recommendations for individual securities. “Buy-side” analyst: works for a non-brokerage firm that manages mutual funds, pension plans, or trust services for corporate clients or individual investors. They develop recommendations for possible [blank_start]purchases[blank_end] by their employers. “Sell-side” analyst: employed by a brokerage firm, and gives the recommendations to investors. The purpose of a sell-side analyst’s reports is to generate [blank_start]sales[blank_end].

The Mechanics of Investing in Securities Broker: An agent who handles buy and sell orders for an [blank_start]investor[blank_end]. Many brokerage firms also act as [blank_start]market[blank_end] makers and may be referred to as “broker-dealers” since different divisions within the firm perform both functions. - Securities dealers: individuals buying and selling for [blank_start]firm’s[blank_end] account - Brokers: individuals buying and selling for [blank_start]customers[blank_end]’ accounts

Types of securities accounts offered by brokerage firms - Cash account VS Margin account Margin: The amount that an investor must put down to buy securities on [blank_start]credit[blank_end]. Margin requirement: The [blank_start]minimum[blank_end] percentage that the investor must put up in cash to buy securities. Margin call: When the amount of collateral on the account fall below a specified [blank_start]level[blank_end] Maintenance margin: The minimum [blank_start]equity[blank_end] required for a margin account * [blank_start]SIPC[blank_end] (Securities Investor Protection Corporation) insures accounts against bankruptcy by brokerage firms (up to $500,000).

Cost of Investing (1) Commissions: Fees charged by [blank_start]brokers[blank_end] for executing orders. (2) Bid-ask spread: implicit cost paid to [blank_start]market[blank_end] makers. (3) Price concessions: A market order is highly likely to pay [blank_start]more[blank_end].

The Short Sale Short sale: The sale of borrowed securities in anticipation of a price [blank_start]decline[blank_end]; a contract for future delivery. - Premised on prices declining - Sale of borrowed securities - Shares must be [blank_start]repurchased[blank_end] and returned to lender. Though Investor B sold the shares, the proceeds will not be paid to B right away. The [blank_start]broker[blank_end] holds it to “repurchase” the shares in future.

If a stock is bought on margin

Financial investments are made in efficient markets. The existence of these markets suggests that

You purchased 100 shares of common stock on margin at $60 per share. Assume the initial margin is 60% and the stock pays no dividend. What would the maintenance margin be if a margin call is made at a stock price of $40? Ignore commission and interest on margin.

Which one of the following statements is FALSE?

Which one of the following statements is CORRECT?

Which of the following is not an investment in the layperson's general use of the term?

Many investments such as stock have common characteristics including 1. existence of secondary markets 2. risk 3. potential for capital gains

Financial investments are made in efficient markets. The existence of these markets suggests that

Investors are insured from brokerage firm losses by

Which of the following statements is incorrect?

Time Value of Money A dollar [blank_start]today[blank_end] is more valuable than a dollar to be received in the future - Why? A dollar today is more valuable because: (1) It can be invested to make more dollars. (2) It can be immediately consumed. (3) There is no doubt about its receipt. This difference between the value of a dollar today and a dollar to be received in the future is “Time value of Money.”

If you know your required rate of return and the length of time before cash is harvested, you can calculate some critical metrics: * The value [blank_start]today[blank_end] of a payment to be received in the future : This measure is called a “Present Value” * The value in the future of a sum invested [blank_start]today[blank_end] : This measure is called a “Future Value” Present and Future Values can be calculated over single and multiple periods

Annual Percentage Rates (APR) : Indicates the amount of “simple interest” earned in one [blank_start]year[blank_end] without the effect of compounding Simple Interest : Interest earned without the effect of [blank_start]compounding[blank_end] * Because the APR does not reflect the true amount you will earn over one year, the APR itself cannot be used as a discount rate. Instead, the APR is a way of quoting the actual interest earned each compounding period

Perpetuity : A constant stream of cash flows that lasts [blank_start]forever[blank_end] Growing perpetuity : A stream of cash flows that grows at a [blank_start]constant[blank_end] rate forever Annuity : A stream of constant cash flows that lasts for a [blank_start]fixed[blank_end] number of periods Growing annuity : A stream of cash flows that [blank_start]grows[blank_end] at a constant rate for a fixed number of periods

The Process of Financial Planning The specification of investment [blank_start]goals[blank_end] 1) The capacity to meet financial [blank_start]emergencies[blank_end] 2) The financing of specific future [blank_start]purchases[blank_end], such as the down payment for a home 3) The provision for income at [blank_start]retirement[blank_end] 4) The ability to leave a sizable estate to heirs or to charity 5) The ability to speculate or receive enjoyment from accumulating and managing wealth In addition to these specific investment goals, many individuals have general financial objectives that are related to their age, income, and wealth. Individuals go through phases, often referred to as a financial life cycle.

- Financial life cycle: The stages of life during which individuals accumulate and subsequently use financial assets. The cycle has three stages: (1) a period of [blank_start]accumulation[blank_end] (2) a period of [blank_start]preservation[blank_end] (3) a period of the use or [blank_start]depletion[blank_end] of the investor’s assets. - After specifying the goals, the individual should: (1) Understand the investment alternatives, (2) Analyze his/her financial position and (3) Establish a financial plan. - Analysis of personal balance sheet and cash budget is required.

- The individual’s [blank_start]balance[blank_end] sheet Assets Liabilities - The individual’s cash [blank_start]budget[blank_end] Receipts Disbursements - Financial statements are expressed in the present or forecasted into the [blank_start]future[blank_end].

Taxation and Investment - Capital gain: The [blank_start]increase[blank_end] in the value of an asset such as a stock or a bond. - Capital loss: A [blank_start]decrease[blank_end] in the value of an asset such as a stock or a bond. - Short-term capital gains (in 1 yr): taxed at the individual's marginal tax rate - Long-term capital gains: taxed at no more than [blank_start]15[blank_end] percent, depending on marginal tax rate

The order of offsetting gains and losses: 1) First, short-term losses offset short-term [blank_start]gains[blank_end]. 2) Second, long-term losses offset long-term [blank_start]gains[blank_end]. 3) Third, net short-term losses offset long-term [blank_start]gains[blank_end] or net long-term losses offset short-term [blank_start]gains[blank_end]. 4) Fourth, net short-term or long-term losses are used to offset income from other sources. - $3,000 ($1,500) limitation - Net losses exceeding $3,000 ($1,500) are carried forward. - Paper profits: Price appreciation that has not been realized. These returns are not taxed until realized.

- Capital gains taxes can be avoided entirely if the individual holds the securities until he or she [blank_start]dies[blank_end]. → When calculating inheritance tax amount, these securities are evaluated based on the "current" market value. (The capital gains tax on the appreciation is avoided.) When an investor sells only part of the holdings, which shares are sold? - General rule: [blank_start]first[blank_end]-in, first-out - Exception: Specified lot method (particularly, specify which shares are sold) - Purpose of Specified lot method: to avoid excessive capital gains tax when the general rule (first-in, first-out) is applied.

- Pension plan can be a good tax shelter and eases the financial burden of [blank_start]retirement[blank_end]. Employer-sponsored pension plans (1) Defined benefit (DB) plans: the company determines the [blank_start]amount[blank_end] and the conditions (2) Defined contribution (DC) plans: 401(k) or 403(b), permit the employee to contribute a portion of earned income, up to a specified limit, to a savings plan. The company will [blank_start]match[blank_end] a percentage of the contribution. - Employee's contribution is tax [blank_start]deductible[blank_end]. (This tax is deferred until the individual withdraws the money.)

Individual retirement account (IRA): An individual retirement plan that is available to [blank_start]workers[blank_end]. - Employees can invest in IRAs even if they are already participating in an employer-sponsored pension plan. Keogh account (HR-10 plan): A retirement plan that is available to [blank_start]self[blank_end]-employed individuals. - Effective contribution limit is [blank_start]20[blank_end]% of earned income. - Contributions: [blank_start]deductible[blank_end] from taxable income - Assets in the account are selected by the individual. - Withdrawals are [blank_start]taxable[blank_end].

Non-deductible Roth IRA - Contributions are not [blank_start]deductible[blank_end] from income. - Assets in the account are selected by the individual. - Withdrawals are non-taxable.

The Efficient Market Hypothesis - Cannot expect to beat the market [blank_start]consistently[blank_end]. - Earning a higher return is not necessarily outperforming the market - Considering [blank_start]risk[blank_end] is also important (risk-adjusted basis). Assumptions concerning efficient markets 1) Large number of competing participants 2) [blank_start]Information[blank_end] is readily available. 3) Transaction costs are small. Random walk

1) Rationality : When [blank_start]new[blank_end] information is released in the marketplace, all investors will adjust their estimates of stock prices in a rational way. 2) Independent Deviations from Rationality : Even though some investors deviate from rationality, the market is rational on [blank_start]average[blank_end]. 3) Arbitrage : Rational [blank_start]professionals[blank_end] can over-perform irrational amateurs.

*Weak Form : Security prices reflect only [blank_start]historical[blank_end] information. (Something that has already happened is reflected in stock price.) * Semi-strong Form : Security prices reflect all publicly [blank_start]available[blank_end] information. * Strong Form : Security prices reflect all information – public and [blank_start]private[blank_end].

Empirical results generally support: - The [blank_start]weak[blank_end] form - The semi-strong form - Possible exceptions to the efficient market hypothesis, called [blank_start]anomalies[blank_end], appear to exist. - Examples of Anomalies 1) Low P/E stocks have [blank_start]higher[blank_end] returns 2) The small firm effect: small firms have [blank_start]higher[blank_end] returns 3) The January effect: First few days (usually 4-5 days) of January show [blank_start]higher[blank_end] returns than expected compared to other days 4) The neglected firm effect: neglected firms have [blank_start]higher[blank_end] returns 5) The day-of-the-week effect: lower returns on Friday and [blank_start]higher[blank_end] returns on Monday 6) The overreaction effect: Overreaction to announcements 7) Drifts in securities prices: lingering impacts of announcements - Empirical evidence of the existence of an anomaly does not mean the individual can take advantage of the anomaly. - The anomaly can still exist and the market be effectively [blank_start]efficient[blank_end] from the individual investor’s perspective.

Returns have two components: 1) Current [blank_start]Income[blank_end] (e.g., interest or dividends); and, 2) Capital [blank_start]Gains[blank_end] (or Losses) Returns can be expressed in dollar or percentage terms. * Dollar Returns: the sum of the current income received plus the change in value of the asset, in [blank_start]dollars[blank_end]. * Percentage Returns: the [blank_start]sum[blank_end] of the current income received plus the change in value of the asset, divided by the initial investment.

Expected return: The sum of the [blank_start]anticipated[blank_end] dividend yield and capital gains. Required return: The return necessary to induce the investor to [blank_start]purchase[blank_end] an asset when considering (1) opportunity cost from alternative options and (2) risk associated with the asset. Realized return: The [blank_start]sum[blank_end] of income and capital gains earned on an investment.

Roger Ibbotson and Rex Sinquefield conducted a famous set of studies dealing with rates of return in U.S. financial markets. They presented year-to-year historical rates of return on five important types of financial investments. The returns can be interpreted as what you would have earned if you had held portfolios of the following: 1. Large-company stocks: This common stock portfolio is based on the Standard & Poor’s (S&P) 500 index, which contains [blank_start]500[blank_end] of the largest companies (in terms of total market value of outstanding stock) in the United States. 2. Small-company stocks: This is a portfolio composed of the stock corresponding to the smallest [blank_start]20[blank_end] percent of the companies listed on the New York Stock Exchange, again as measured by market value of outstanding stock. Long-term corporate bonds: This is based on high-quality bonds with [blank_start]20[blank_end] years to maturity. 4. Long-term U.S. government bonds: This is based on U.S. government bonds with [blank_start]20[blank_end] years to maturity. 5. U.S. Treasury bills: This is based on Treasury bills (T-bills for short) with a [blank_start]one[blank_end]-month maturity.

What type of investment has the largest returns?

Which investment is the safest asset to have and has the lowest amount of return?

What order of returns of investment types from highest return to lowest? 1[blank_start].[blank_end] 2[blank_start].[blank_end] 3[blank_start].[blank_end] 4[blank_start].[blank_end] 5[blank_start].[blank_end]

The “[blank_start]extra[blank_end]” return earned for taking on risk. - Treasury bills are considered to be risk-[blank_start]free[blank_end]. (All the other securities have a certain level of risk.) - The risk premium is the return over and above the risk-free rate. Thus, for any investment at the market, Return = Risk-free rate + Risk [blank_start]premium[blank_end]

Variance, standard deviation, and histogram measure the [blank_start]volatility[blank_end] of asset returns. The greater the [blank_start]volatility[blank_end], the greater the uncertainty. Historical variance = sum of squared deviations from the [blank_start]mean[blank_end] / (# of observations – 1) Standard deviation = square [blank_start]root[blank_end] of the variance [blank_start]Small[blank_end] Stocks portfolio has the highest level of st. dev. Thus, it has the highest level of returns. (due to risk premium)

Expected returns are based on the probabilities of [blank_start]possible[blank_end] outcomes. Variance and standard deviation measure the [blank_start]volatility[blank_end] of returns. Using unequal probabilities for the entire range of possibilities.

Correlation is the covariance divided by the product of standard [blank_start]deviations[blank_end] of two funds.

1. An increase in the spread [blank_start]_________[blank_end] the cost of investing. 2. Using an online brokerage firm instead of a full-service brokerage firm [blank_start]______[blank_end] commissions. 3. An increase in the margin requirement [blank_start]________[blank_end] the funds an investor must initially remit. 4. A reduction in the margin requirement [blank_start]_________[blank_end] the amount an investor may borrow to purchase a stock. 5. Buying stock on margin [blank_start]_________[blank_end] the potential percentage return on an investment and [blank_start]________[blank_end] increases risk. 6. If the price of a stock purchased on margin declines, the percentage loss on the investment [blank_start]___________[blank_end]. 7. If an investor buys a stock on margin and its price subsequently increases, the required amount of margin [blank_start]___________[blank_end]. 8. An increase in the "spread" [blank_start]___________[blank_end] the cost of investing. 9. An increase in the use of online trading [blank_start]___________[blank_end] commission costs. 10. If the price of a stock rises after an investor sells the stock short, the loss on the transaction [blank_start]___________[blank_end]. 11. If a company raises its dividend, the potential loss on a short position in the stock [blank_start]___________[blank_end]. 12. SIPC insurance [blank_start]___________[blank_end] the risk to the individual investor associated with a brokerage firm failure.

1. If interest rates rises, the future value of a dollar [blank_start]increases[blank_end], and the present value of a dollar [blank_start]decreases[blank_end]. 2. As the number of years increases, the future value of a dollar [blank_start]increases[blank_end], and the present value of a dollar [blank_start]decreases[blank_end]. 3. As the interest rates increase, the future value of an annuity of a dollar [blank_start]increases[blank_end], and the present value of an annuity of a dollar [blank_start]decreases[blank_end]. 4. If the number of years increases, the future value of an annuity of a dollar [blank_start]increases[blank_end], and the present value of an annuity of a dollar [blank_start]decreases[blank_end]. 5. The future value of an annuity [blank_start]increases[blank_end] if the payments are made at the beginning of the year. 6. The present value of an annuity [blank_start]increases[blank_end] if the payments are received at the beginning of the year. 7. More frequent compounding [blank_start]increases[blank_end] the future value of an annuity. 8. A lower interest rate [blank_start]increases[blank_end] the time necessary to accumulate a specified amount. 9. An [blank_start]increase[blank_end] in the margin requirement does not change the present value of an annuity. 10 . A decrease in interest rates [blank_start]decreases[blank_end] the future value of an ordinary annuity and [blank_start]decreases[blank_end] future value of an annuity due. 11. An increase in the present value of a dollar may be the result of a [blank_start]decrease[blank_end] in the interest rate. 12. A decrease in the future value of an annuity may result from a [blank_start]decrease[blank_end] in the interest rate or a [blank_start]decrease[blank_end] in the annual payment. 13. If a stock's price rose from $10 to $20, the compound return [blank_start]decreases[blank_end] as the number of years increases. 14. The decrease in the annual contribution to a retirement account [blank_start]decreases[blank_end] the terminal value for a given interest rate. 15. For a given rate of interest and term (number of years), payments at the beginning of the year instead of the end of the year [blank_start]increases[blank_end] the terminal value.

With a Roth IRA, the individual can

Concerning a new issue of stock (IPO), a lock-up refers to

An active portfolio strategy is premised on

Which of the following statements is incorrect?

Which of the following statements is incorrect?

Which of the following currently reduces taxes? 1. contributions to an IRA 2. contributions to a Roth account 3. purchases of life insurance 4. contributions to a 401(k) plan

The strong form of the efficient market hypothesis suggests