Exam 17: C: Financial Economics

^{Xavier is a baseball player negotiating a contract to play for a team for one year. He is usually paid $10 million a year for playing, but the salary cap for his team means that he will have to be paid $5 million this year and the remainder next year. If the interest rate is 8 percent, how much should that} remaining amount be next year?

(Advanced analysis) Indy has $2,000 invested in a financial asset earning an annually compounded interest rate of 6 percent.Approximately how many years will it take before Indy's investment is worth $5,000?

Which of the following is an economic investment?

Terri buys a house for $200,000 and expects to sell it in three years for $300,000.Her expected percentage rate of return over that three-year period is

A bank account pays 4 percent interest per year.If you deposit $1,000 into this account at the start of each year for three years, how much will your account balance be at the end of three years?

The buying and selling process that leads profit-seeking investors to equalize average expected rates of return from identical assets is known as

Short-term U.S.government securities are practically risk-free, and thus their rates of return are payments solely for

When a company declares bankruptcy, stockholders are the first to be paid when company assets are sold.

Equal shares of a firm's profit are paid out to stockholders as

A bond that pays no annual interest (or coupons) and has a face value at maturity will fetch a price today that is equal to the

Which one of the following would best describe a mutual fund?

The formula for present value allows investors to

The maximum amount of money that company shareholders can lose on their investment in the corporation is

The terms "economic investment" and "financial investment" can be used synonymously.

Indy owns 100 shares of stock in Pet Mart Corporation that he purchased for $20 per share.Every year he has received, from company profits, $1 for each share he owns.If Indy sells all his shares at a price of $30 per share, he will receive a

Which of the following statements best describes the relationship between risk and the average expected return of investments?

Pavel is considering buying a $10,000 bond with no expiration date that generates yearly payments of $500.If the price of the bond were to fall to $9,000,

Suppose two corporate bonds with similar risk pay different rates of return.The process of arbitrage should

According to The International Country Risk Guide, financial assets in

The Security Market Line shows the positive relationship between the average expected rates of return and levels of diversifiable risk of financial assets.