The reason FIs can offer highly liquid, low price-risk contracts to savers while investing in relatively illiquid and higher risk assets are the following except A.FIs can provide the savers with higher returns than corporations. B.because FIs have a cost advantage in monitoring their portfolios.C.significant amounts of portfolio risk are diversified away by investing in assets that have correlations between returns that are less than perfectly positive.D.because individual savers cannot benefit from risk diversification.E.because diversification allows an FI to predict more accurately the expected returns on its asset portfolio.

Diversifying an investment portfolio allows the reduction of unsystematic risk to a minimum.This Statment Is True OR FLSE

Because long-term securities face greater risk of capital loss than do short-term securities, investors generally:Group of answer choicesrequire a higher yield on long-term securities.require a lower yield on long-term securities.. pay a higher price for long-term securities.stay away from long-term securities.

Which of the following statements is TRUE?A.FIs are regulated at a moderate level. B.Hedge funds are subject to the numerous regulations that apply to mutual funds for the protection of individualsC.One major economic reason for the existence of mutual funds is the ability to achieve diversification through risk pooling for small investors.D.Mutual funds and hedge funds both charge their customers two types of fees: management fee and performance fee. E.The number of shares outstanding of close end mutual funds is not fixed while the number of shares outstanding of open end mutual funds is fixed.

The presence of a risk-free asset enables the investor to:Group of answer choicesform portfolios having greater Sharpe ratios.invest in the market portfolio and find an interior portfolio using quadratic programming.invest in the market portfolio and borrow or lend at the risk-free rate.borrow or lend at the risk-free rate and form portfolios having greater Sharpe ratios.

Which of the following statements is FALSE?A.In a world without FIs, the level of fund flows between household savers and the corporate sector is likely to be low.B.In a world without FIs, the users of corporate funds in the economy would have to directly approach the household savers of funds in order to satisfy their borrowing needs.C.Households can only be the savers or the providers of funds if they consume less than they could earn.D.Households are often averse to directly investing in corporate securities because of three types of costs: monitoring cost, liquidity costs, and interest rate risk.E.The long-term nature of corporate equity and debt securities would likely eliminate at least a portion of those households willing to lend money.