Question 1

The Fed can regularly influence and change the risk-free rate of financial investments through its

Accepted Answer

A) open-market operations. 
B) quantitative easing. 
C) required reserve ratio. 
D) bank supervision. 
A) open-market operations. 
B) quantitative easing. 
C) required reserve ratio. 
D) bank supervision.

Question 2

Present value is best defined as the

Accepted Answer

A) worth or value today of future expected returns or costs. 
B) worth in the future of a current flow of returns or costs. 
C) current worth of a financial asset purchased in the past. 
D) expected future value of a financial asset purchased today. 
A) worth or value today of future expected returns or costs. 
B) worth in the future of a current flow of returns or costs. 
C) current worth of a financial asset purchased in the past. 
D) expected future value of a financial asset purchased today.

Question 3

Stocks represent a debt, and buyers of stock expect to earn interest.

Accepted Answer

A) True 
 B)False

Question 4

How do actively managed funds differ from passively managed funds?

Accepted Answer

A) Managers of actively managed funds use their discretion to buy and sell assets as they attempt to generate higher returns. 
B) Actively managed funds focus on stocks; passively managed funds focus on bonds. 
C) Actively managed funds necessarily contain a greater variety of stocks or bonds than does a passively managed fund. 
D) Actively managed funds consistently outperform passively managed funds. 
A) Managers of actively managed funds use their discretion to buy and sell assets as they attempt to generate higher returns. 
B) Actively managed funds focus on stocks; passively managed funds focus on bonds. 
C) Actively managed funds necessarily contain a greater variety of stocks or bonds than does a passively managed fund. 
D) Actively managed funds consistently outperform passively managed funds.

Question 5

If the demand for an asset increases, its price will

Accepted Answer

A) increase and the rate of return for new investors of this asset will increase. 
B) decrease and the rate of return for new investors of this asset will increase. 
C) decrease and the rate of return for new investors of this asset will decrease. 
D) increase and the rate of return for new investors of this asset will decrease. 
A) increase and the rate of return for new investors of this asset will increase. 
B) decrease and the rate of return for new investors of this asset will increase. 
C) decrease and the rate of return for new investors of this asset will decrease. 
D) increase and the rate of return for new investors of this asset will decrease.

Question 6

Joe and Linda have the opportunity to purchase a new home.The house in Glen Oaks is currently worth $250,000 but is predicted to be worth $270,000 in a year.What is the rate of appreciation for the house from one year to the next?

Accepted Answer

A) 5 percent 
B) 6 percent 
C) 7 percent 
D) 8 percent 
A) 5 percent 
B) 6 percent 
C) 7 percent 
D) 8 percent

Question 7

The intercept of the Security Market Line at any point in time is determined primarily by

Accepted Answer

A) the prime interest rate. 
B) Federal Reserve monetary policy. 
C) the average beta of the market. 
D) investor tolerance of risk. 
A) the prime interest rate. 
B) Federal Reserve monetary policy. 
C) the average beta of the market. 
D) investor tolerance of risk.

Question 8

Compound interest refers to the multiple interest rates an investor will be paid in a diversified portfolio.

Accepted Answer

A) True 
 B)False

Question 9

The limited liability rule means that if a corporation goes bankrupt,

Accepted Answer

A) shareholders are responsible for all the debts of the firm. 
B) bondholders are responsible for all the debts of the firm. 
C) shareholders can only lose the amount they invested. 
D) bondholders only lose the face value of the bond. 
A) shareholders are responsible for all the debts of the firm. 
B) bondholders are responsible for all the debts of the firm. 
C) shareholders can only lose the amount they invested. 
D) bondholders only lose the face value of the bond.

Question 10

Augi buys a bond for $10,000 and receives interest payments of $400 every six months.The interest rate on the bond is approximately

Accepted Answer

A) 4 percent. 
B) 8 percent. 
C) 12.5 percent. 
D) 25 percent. 
A) 4 percent. 
B) 8 percent. 
C) 12.5 percent. 
D) 25 percent.

Question 11

Suppose that some people invest $1,000 today in a financial asset that will make one future payment.The longer they must wait for the future payment, the

Accepted Answer

A) higher the future payment they will expect to receive. 
B) lower the future payment they will expect to receive. 
C) lower the risk of not receiving that future payment. 
D) more they will want to invest. 
A) higher the future payment they will expect to receive. 
B) lower the future payment they will expect to receive. 
C) lower the risk of not receiving that future payment. 
D) more they will want to invest.

Question 12

Ownership of a single corporation is represented by what investment?

Accepted Answer

A) stock 
B) bonds 
C) mutual funds 
D) commercial paper 
A) stock 
B) bonds 
C) mutual funds 
D) commercial paper

Question 13

What do bonds represent?

Accepted Answer

A) shares of ownership in a corporation and a guaranteed stream of profits 
B) shares of ownership in a corporation and an entitlement to its future profits 
C) debt contracts with corporations or governments and regular interest payments on the loan 
D) debt contracts with corporations or governments and some unspecified interest payments on the loan 
A) shares of ownership in a corporation and a guaranteed stream of profits 
B) shares of ownership in a corporation and an entitlement to its future profits 
C) debt contracts with corporations or governments and regular interest payments on the loan 
D) debt contracts with corporations or governments and some unspecified interest payments on the loan

Question 14

Suppose stock X has a beta of 2.5 and stock Y has a beta of 0.5.From this we can conclude that X has

Accepted Answer

A) 5 times the nondiversifiable risk of the market portfolio. 
B) 5 times the nondiversifiable risk of Y. 
C) 2.5 times the nondiversifiable risk of Y. 
D) 2.5 times the diversifiable risk of the market portfolio. 
A) 5 times the nondiversifiable risk of the market portfolio. 
B) 5 times the nondiversifiable risk of Y. 
C) 2.5 times the nondiversifiable risk of Y. 
D) 2.5 times the diversifiable risk of the market portfolio.

Question 15

What does the "beta" of an asset measure?

Accepted Answer

A) how the nondiversifiable risk compares with diversifiable risk for an asset 
B) how the expected return compares with the diversifiable risk of a given asset 
C) how the expected return compares with the nondiversifiable risk of the market portfolio 
D) how the nondiversifiable risk of a given asset compares with that of the market portfolio 
A) how the nondiversifiable risk compares with diversifiable risk for an asset 
B) how the expected return compares with the diversifiable risk of a given asset 
C) how the expected return compares with the nondiversifiable risk of the market portfolio 
D) how the nondiversifiable risk of a given asset compares with that of the market portfolio

Question 16

"Do not put all your eggs in one basket" is advice that seeks to reduce

Accepted Answer

A) idiosyncratic risk. 
B) nondiversifiable risk. 
C) systemic risk. 
D) market risk. 
A) idiosyncratic risk. 
B) nondiversifiable risk. 
C) systemic risk. 
D) market risk.

Question 17

The current price of an asset is equal to the future value of its expected returns or income streams.

Accepted Answer

A) True 
 B)False

Question 18

Portfolio diversification

Accepted Answer

A) reduces the likelihood that the entire amount invested will be lost. 
B) eliminates all risk of loss. 
C) ensures that investors will receive a positive rate of return. 
D) provides the maximum possible rate of return from an investment portfolio. 
A) reduces the likelihood that the entire amount invested will be lost. 
B) eliminates all risk of loss. 
C) ensures that investors will receive a positive rate of return. 
D) provides the maximum possible rate of return from an investment portfolio.

Question 19

One fundamental concept in financial economics is that an investment's rate of return is

Accepted Answer

A) positively related to the price paid for it. 
B) inversely related to the price paid for it. 
C) inversely related to the riskiness of the investment. 
D) inversely related to the maturity of the investment. 
A) positively related to the price paid for it. 
B) inversely related to the price paid for it. 
C) inversely related to the riskiness of the investment. 
D) inversely related to the maturity of the investment.

Question 20

What are the two most important factors influencing investor preferences?

Accepted Answer

A) the desire for high rates of return and the thrill of uncertainty 
B) the desire for high rates of return and dislike of risk and uncertainty 
C) an equal balance between stocks and bonds, and high rates of return 
D) stable rates of return and balance between private and public sector financial assets 
A) the desire for high rates of return and the thrill of uncertainty 
B) the desire for high rates of return and dislike of risk and uncertainty 
C) an equal balance between stocks and bonds, and high rates of return 
D) stable rates of return and balance between private and public sector financial assets

Exam 17: C: Financial Economics

The Fed can regularly influence and change the risk-free rate of financial investments through its

Present value is best defined as the

Stocks represent a debt, and buyers of stock expect to earn interest.

How do actively managed funds differ from passively managed funds?

If the demand for an asset increases, its price will

Joe and Linda have the opportunity to purchase a new home.The house in Glen Oaks is currently worth $250,000 but is predicted to be worth $270,000 in a year.What is the rate of appreciation for the house from one year to the next?

The intercept of the Security Market Line at any point in time is determined primarily by

Compound interest refers to the multiple interest rates an investor will be paid in a diversified portfolio.

The limited liability rule means that if a corporation goes bankrupt,

Augi buys a bond for $10,000 and receives interest payments of $400 every six months.The interest rate on the bond is approximately

Suppose that some people invest $1,000 today in a financial asset that will make one future payment.The longer they must wait for the future payment, the

Ownership of a single corporation is represented by what investment?

What do bonds represent?

Suppose stock X has a beta of 2.5 and stock Y has a beta of 0.5.From this we can conclude that X has

What does the "beta" of an asset measure?

"Do not put all your eggs in one basket" is advice that seeks to reduce

The current price of an asset is equal to the future value of its expected returns or income streams.

Portfolio diversification

One fundamental concept in financial economics is that an investment's rate of return is

What are the two most important factors influencing investor preferences?

B: Limits, Alternatives, and Choices

A: - Limits, Alternatives, and Choices

B: The Market System and the Circular Flow

A: - The Market System and the Circular Flow

B: Demand, Supply, and Market Equilibrium

A: - Demand, Supply, and Market Equilibrium

B: Market Failures: Public Goods and Externalities

A: - Market Failures: Public Goods and Externalities

B: Governments Role and Government Failure

A: Governments Role and Government Failure

B: an Introduction to Macroeconomics

A: an Introduction to Macroeconomics

B: Measuring the Economys Output

A: Measuring the Economys Output

B: Economic Growth

A: Economic Growth

B: Business Cycles, Unemployment, and Inflation

A: Business Cycles, Unemployment, and Inflation

B: Basic Macroeconomic Relationships

A: Basic Macroeconomic Relationships

B: The Aggregate Expenditures Model

A: The Aggregate Expenditures Model

B: Aggregate Demand and Aggregate Supply

A: Aggregate Demand and Aggregate Supply

B: Fiscal Policy, Deficits, Surpluses, and Debt

A: Fiscal Policy, Deficits, Surpluses, and Debt

B: Money, Banking, and Money Creation

A: Money, Banking, and Money Creation

B: Interest Rates and Monetary Policy

A: Interest Rates and Monetary Policy

A: Long-Run Macroeconomic Adjustments

B: Long-Run Macroeconomic Adjustments

A: International Trade

B: International Trade

A: The Balance of Payments and Exchange Rates

B: The Balance of Payments and Exchange Rates

The Economics of Developing Countries

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