Investment

Over the long haul, there is an expected upward drift in stock prices based on their fair expected rates of return.

83.	A successful firm like Microsoft has consistently generated large profits for years. Is this a violation of the EMH? This is not the violation of EMH The continuing success and large profits by Microsoft doesn’t imply that those investors who purchased stocks after Microsoft’s success was established, earned huge profits. It is therefore, not a violation of EMH.
84.	At a cocktail party, your co-worker tells you that he has beaten the market for each of the last three years. Suppose you believe him. Does this shake your belief in efficient markets? As per this theory there would naturally be some people who would beat the market while others would not. Also the higher, the risk for investments, there would have higher returns too. Therefore there is no harm in believing him without violating the EMH.
85.	Which version of the efficient market hypothesis (weak, semistrong, or strong-form) focuses on the most inclusive set of information? Strong-form efficiency includes all information: historical, public, and private.
86.	“Highly variable stock prices suggest that the market does not know how to price stocks.” Respond. Volatile stock prices could reflect volatile underlying economic conditions, as large amounts of information being incorporated into the price will cause variability in stock price.
87.	Define the following type of bonds: Catastrophe bond.is a high-yield debt instrument that is designed to raise money for companies in the insurance industry in the event of a natural disaster. A CAT bond allows the issuer to receive funding from the bond only if specific conditions, such as an earthquake or tornado, occur.
88.	Define the following type of bonds: Eurobond. s a fixed-income debt instrument (security) denominated in a different currency than the local one of the country where the bond's been issued. Hence, it is a unique type of bond. Eurobonds allow corporations to raise funds by issuing bonds in a foreign currency.
89.	Define the following type of bonds: Zero-coupon bond. These are bonds that pay no coupons but pay at par value on maturity.
90.	Define the following type of bonds: Samurai bond. These bonds are yen-dominated bonds which are sold in Japan by non-Japanese issuers called Samurai bonds.
91.	Define the following type of bonds: Junk bond. These are those speculative bonds which are rated low and hence are called junk bonds
92.	Define the following type of bonds: Convertible bond. These are those bonds that may be exchanged at bond holder’s discretion for a specific number of shares of stock. This option is availed by the ‘bondholder’ by paying and accepting a lower coupon rate on the security.
93.	Define the following type of bonds: Serial bond. It is an issue in which the firm sells bonds with staggered maturity dates. As bonds mature, the principal repayment burden of the firm is spread over time. It is more like sinking funds and but do not include call provisions
94.	Define the following type of bonds: Equipment obligation bond It is a bond that is issued with specific equipment pledged as collateral against the bond..
95.	Define the following type of bonds: Original-issue discount bond. These are bonds which are issued intentionally with low coupon rates that cause the bond to sell at a discount from par value. These bonds are less common than coupon bonds issued at par.
96.	Define the following type of bonds: Indexed bond. These are bonds that make payments tied to a general price index or the price of a particular commodity
97.	What is the option embedded in a callable bond? A puttable bond? Callable bond gives the option to the issuer to retire the bond at the call date Puttable bond gives the option to the bond-holder to retire the bond at the call date It is a type of bond that allows the issuer to redeem the bond at some time before it reaches its maturity. On the other hand the puttable bond allows the bondholder to force the issuer to repurchase the bond at some time before it reaches its maturity.
98.	What would be the likely effect on the yield to maturity of a bond resulting from an increase in the issuing firm’s times-interest-earned ratio? Drop Since the company has more money to pay the interest on its bonds, the Yield to Maturity will drop.
99.	What would be the likely effect on the yield to maturity of a bond resulting from an increase in the issuing firm’s debt-equity ratio?