Question 1

Which of the following is a popular type of investment?

Accepted Answer

A) dividends 
B) portfolios 
C) mutual funds 
D) capital gains 
A) dividends 
B) portfolios 
C) mutual funds 
D) capital gains C

Question 2

The so-called market portfolio used as a benchmark in financial economics is

Accepted Answer

A) the lowest risk portfolio. 
B) the most diversified portfolio. 
C) the portfolio with the highest expected return. 
D) the portfolio with zero systemic risk. 
A) the lowest risk portfolio. 
B) the most diversified portfolio. 
C) the portfolio with the highest expected return. 
D) the portfolio with zero systemic risk. B

Question 3

Mutual fund managers tend to focus on the long-term performance of the corporations in whose securities they are invested, rather than their short-term quarterly performance.

Accepted Answer

A) True 
 B)False  False

Question 4

Thea buys a house for $250,000, rents it for two years for $1,000 per month, and sells it at the end of those two years for $300,000.Thea's per-year rate of return is

Accepted Answer

A) 4.8 percent. 
B) 14.8 percent. 
C) 20 percent. 
D) 29.6 percent. 
A) 4.8 percent. 
B) 14.8 percent. 
C) 20 percent. 
D) 29.6 percent.

Question 5

Shawna bought an antique table for $200 last year and is now selling it for $250.Her rate of return on the table is

Accepted Answer

A) 10 percent. 
B) 20 percent. 
C) 25 percent. 
D) 30 percent. 
A) 10 percent. 
B) 20 percent. 
C) 25 percent. 
D) 30 percent.

Question 6

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 7

(Last Word) Before trading costs and management fees are taken into account, passively managed funds outperform actively managed funds by about percent per year.

Accepted Answer

A) 5 
B) 1 
C) zero 
D) 3 
A) 5 
B) 1 
C) zero 
D) 3

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

Tracy won a $100 million jackpot.She can receive the jackpot as a $5 million payment each year for 20 years, or she can ask to receive the present value of all those payments all at once now.Assume an annual interest rate of 5 percent.If she decides to take the present value payment, about how much will she receive?

Accepted Answer

A) $52.1 million 
B) $62.3 million 
C) $71.4 million 
D) $78.6 million 
A) $52.1 million 
B) $62.3 million 
C) $71.4 million 
D) $78.6 million

Question 10

(Consider This) According to critics, growth in the popularity of mutual funds has

Accepted Answer

A) significantly increased market risk for investors. 
B) created more macroeconomic instability. 
C) led corporate management and fund managers to focus more on short-run share prices than long-run investor returns. 
D) discouraged average citizens from investing in stock and bond markets. 
A) significantly increased market risk for investors. 
B) created more macroeconomic instability. 
C) led corporate management and fund managers to focus more on short-run share prices than long-run investor returns. 
D) discouraged average citizens from investing in stock and bond markets.

Question 11

Investors evaluate an investment by estimating its average expected rate of return, and this estimation process assigns higher weights to

Accepted Answer

A) higher returns. 
B) more likely outcomes. 
C) higher risks. 
D) smaller returns. 
A) higher returns. 
B) more likely outcomes. 
C) higher risks. 
D) smaller returns.

Question 12

Payments to holders of corporate bonds are known as dividends.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following statements is true?

Accepted Answer

A) Passively managed funds do not pay dividends. 
B) Passively managed funds have only one asset in their portfolio. 
C) Actively managed funds constantly buy or sell assets to generate better returns. 
D) Actively managed funds adjust assets to match the performance of a particular index. 
A) Passively managed funds do not pay dividends. 
B) Passively managed funds have only one asset in their portfolio. 
C) Actively managed funds constantly buy or sell assets to generate better returns. 
D) Actively managed funds adjust assets to match the performance of a particular index.

Question 14

Future value measures the present-day value of returns or costs expected to arrive in the future.

Accepted Answer

A) True 
 B)False

Question 15

The decision of the Federal Reserve to reduce the short-term interest rate will shift the Security Market Line upward.

Accepted Answer

A) True 
 B)False

Question 16

Matt, a star basketball player, is looking to join a new NBA team.The Bulls are offering him $24 million for one year.The Heat is offering him $10 million this year and $7.0 million in each of the next two years.The market interest rate is 5 percent.What is the present value of the offer from The Heat in millions (rounded to the nearest one hundred thousand dollars)?

Accepted Answer

A) $22.5 million 
B) $23.0 million 
C) $24.0 million 
D) $25.2 million 
A) $22.5 million 
B) $23.0 million 
C) $24.0 million 
D) $25.2 million

Question 17

Stock investors can earn a return from stocks only in the form of dividends.

Accepted Answer

A) True 
 B)False

Question 18

$500 invested at an annual interest rate of 8 percent will be worth how much at the end of one year?

Accepted Answer

A) $504 
B) $508 
C) $540 
D) $580 
A) $504 
B) $508 
C) $540 
D) $580

Question 19

The Security Market Line depicts the relationship between the

Accepted Answer

A) average expected rate of return on stocks and the average expected rate of return on bonds. 
B) average expected rate of return of a financial asset and the discount rate. 
C) risk level of a financial asset and the prime interest rate. 
D) average expected rate of return and risk level of a financial asset. 
A) average expected rate of return on stocks and the average expected rate of return on bonds. 
B) average expected rate of return of a financial asset and the discount rate. 
C) risk level of a financial asset and the prime interest rate. 
D) average expected rate of return and risk level of a financial asset.

Question 20

Index funds are a portfolio of

Accepted Answer

A) bonds with rates of return fixed at 2 percentage points above the rate of inflation. 
B) mutual funds that track different indexes. 
C) stocks or bonds that exactly match a particular index. 
D) stocks guaranteed rates of return in excess of growth in the GDP price index. 
A) bonds with rates of return fixed at 2 percentage points above the rate of inflation. 
B) mutual funds that track different indexes. 
C) stocks or bonds that exactly match a particular index. 
D) stocks guaranteed rates of return in excess of growth in the GDP price index.

Exam 37: Financial Economics

Which of the following is a popular type of investment?

The so-called market portfolio used as a benchmark in financial economics is

Mutual fund managers tend to focus on the long-term performance of the corporations in whose securities they are invested, rather than their short-term quarterly performance.

Thea buys a house for $250,000, rents it for two years for $1,000 per month, and sells it at the end of those two years for $300,000.Thea's per-year rate of return is

Shawna bought an antique table for $200 last year and is now selling it for $250.Her rate of return on the table is

What do bonds represent?

(Last Word) Before trading costs and management fees are taken into account, passively managed funds outperform actively managed funds by about percent per year.

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

(Consider This) According to critics, growth in the popularity of mutual funds has

Investors evaluate an investment by estimating its average expected rate of return, and this estimation process assigns higher weights to

Payments to holders of corporate bonds are known as dividends.

Which of the following statements is true?

Future value measures the present-day value of returns or costs expected to arrive in the future.

The decision of the Federal Reserve to reduce the short-term interest rate will shift the Security Market Line upward.

Stock investors can earn a return from stocks only in the form of dividends.

$500 invested at an annual interest rate of 8 percent will be worth how much at the end of one year?

The Security Market Line depicts the relationship between the

Index funds are a portfolio of

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures: Public Goods and Externalities

Governments Role and Government Failure

Elasticity

Utility Maximization

Behavioral Economics

Businesses and the Costs of Production

Pure Competition in the Short Run

Pure Competition in the Long Run

Pure Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Technology, Rd, and Efficiency

The Demand for Resources

Wage Determination

Rent, Interest, and Profit

Natural Resource and Energy Economics

Public Finance: Expenditures and Taxes

Antitrust Policy and Regulation

Agriculture: Economics and Policy

Income Inequality, Poverty, and Discrimination

Health Care

Immigration

An Introduction to Macroeconomics

Measuring Domestic Output and National Income

Economic Growth

Business Cycles, Unemployment, and Inflation

Basic Macroeconomic Relationships

The Aggregate Expenditures Model

Aggregate Demand and Aggregate Supply

Fiscal Policy, Deficits, and Debt

Money, Banking, and Financial Institutions

Money Creation

Interest Rates and Monetary Policy

Extending the Analysis of Aggregate Supply

Current Issues in Macro Theory and Policy

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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