191. Diversification is one way in which insurance companies can protect themselves against:
Correct answer: (B)
Random fluctuation
192. Five assets have expected mean returns and variances as follows: (A) 8% 15; (B) 12% 18; (C) 11% 18; (D) 15% 20; (E) 11% 17. Which of these assets will be rejected by all rational risk-averse investors?
Correct answer: (E)
C
193. Given a current rate of inflation of 3 per cent, and an expected rate of inflation next year of 5 per cent, what increase in nominal wages will workers seek in order to increase their real wage by 2 per cent:
Correct answer: (A)
7 per cent
194. Given a fall in interest rates, the largest price change will occur in:
Correct answer: (C)
Perpetual bonds
195. Government appointed members of the Monetary Policy Committee of the Bank of England are appointed:
Correct answer: (A)
For set periods up to five years
196. If a firm has one million shares in issue, earns profits of £200,000 and operates a retention ratio of 0.4, the dividend per share will be:
Correct answer: (A)
12p
197. If asset A has a variance of 49 while asset B has a variance of 36 while the correlation coefficient of their returns is 0.75, the covariance of the returns of the two assets is:
Correct answer: (D)
31.5
198. If interest rates rise, the present value of any future earnings is bound to:
Correct answer: (B)
Fall
199. If investors become income risk averse, they will:
Correct answer: (A)
Hold long-dated assets to redemption
200. If long-term interest rates rise from 5 per cent to 6 per cent, the price of a perpetual UK government bond with a 7 per cent coupon will change by:
Correct answer: (E)
-23.33