Exam 16: Capital and Financial Markets

If the implicit rental price of an airliner is $200,000 per year, the interest rate is 5 percent, and depreciation is $60,000 per year, then the purchase price of the airliner is

Suppose an investor buys a share of stock for $200 and sells it for $220 after one year. At the end of that year, the dividend per stock is $5. The company has 250,000 shares outstanding and a total profit for the year of $1,000,000. Calculate the rate of return on this stock for the investor.

The equilibrium risk-return curve for a risk-loving individual is

Bernard Madoff was famously caught in one of the biggest frauds in U.S. history. He perpetrated the management of funds where existing investors' returns were paid using new investors' funds rather than from legitimate investments in the stock or bond markets. This type of fraud is known as

The price of a stock will decline if its expected rate of return is less than the interest on a bank account.

Answer the questions below:

This concept regularly arises in insurance markets. It is described as a situation in which a person buys insurance against some risk and subsequently takes actions that increase the risk.

The quantity of housing demanded is positively related to the rental price of housing.

Suppose you win a million dollars in the state lottery. What is the present discounted value of your winnings if you are scheduled to receive $200,000 at the end of each year for the next five years, and the rate of interest is 5 percent?

When the Troubled Assets Relief Program was first announced in 2008, stock market prices continued to fall to reflect the public's

A profit-maximizing firm will select all inputs so that the marginal revenue product is equal to the price of the input.

If the marginal revenue product of capital for a profit-maximizing firm is $500 and the price of capital is $300, then

The present discounted value of $75 to be received in two years with no interest is ____ when the interest rate is 8 percent.

The stock of physical capital in the economy consists of all of the

The price-earnings ratio is the price of a good divided by the average profit per unit.

Physical capital is a good used to produce other goods.

Which of the following investments is most risky?

A bond pays a fixed percent of its face value every year. Explain what happens to the price of the bond when interest rates in the economy increase.

Will a risk-averse person who wants to invest $1000 prefer to put his or her funds into a bank account that pays 10-percent interest or in a stock that has a 10-percent dividend and a 75-percent chance of a 20-percent price decrease and a 25-percent chance of a 20-percent price increase? Explain.

Draw the equilibrium risk-return relationship. Why does this relationship hold true?