Question 1

Two investments, X and Y, have beta values of 0.1 and 3.0 respectively.Based on this, we can claim that, relative to the market portfolio,

Accepted Answer

A) both have more nondiversifiable risk than the market portfolio. 
B) both have less nondiversifiable risk than the market portfolio. 
C) X has more nondiversifiable risk and Y has less nondiversifiable risk than the market portfolio. 
D) X has less nondiversifiable risk and Y has more nondiversifiable risk than the market portfolio. 
A) both have more nondiversifiable risk than the market portfolio. 
B) both have less nondiversifiable risk than the market portfolio. 
C) X has more nondiversifiable risk and Y has less nondiversifiable risk than the market portfolio. 
D) X has less nondiversifiable risk and Y has more nondiversifiable risk than the market portfolio.

Question 2

The market portfolio, by definition, has a beta = 0.

Accepted Answer

A) True 
 B)False

Question 3

The primary risk that bondholders face is that

Accepted Answer

A) the bond will reduce in price. 
B) the bond issuer will default. 
C) inflation will decrease. 
D) the rate of return will increase. 
A) the bond will reduce in price. 
B) the bond issuer will default. 
C) inflation will decrease. 
D) the rate of return will increase.

Question 4

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

Accepted Answer

A) total capital gain of $10. 
B) dividend of $10 per share. 
C) total capital gain of $1,000. 
D) capital gain of $30 per share. 
A) total capital gain of $10. 
B) dividend of $10 per share. 
C) total capital gain of $1,000. 
D) capital gain of $30 per share.

Question 5

The steeper the Security Market Line,

Accepted Answer

A) the lower the risk premium. 
B) the more investors dislike risk. 
C) the less investors are concerned about risk. 
D) the greater the risk-free interest rate. 
A) the lower the risk premium. 
B) the more investors dislike risk. 
C) the less investors are concerned about risk. 
D) the greater the risk-free interest rate.

Question 6

The average expected rate of return is a

Accepted Answer

A) volume-weighted average. 
B) price-weighted average. 
C) probability-weighted average. 
D) value-weighted average. 
A) volume-weighted average. 
B) price-weighted average. 
C) probability-weighted average. 
D) value-weighted average.

Question 7

A bond that pays annual interest (or coupons) and a face value at maturity will fetch a price today that is equal to the

Accepted Answer

A) future value of its annual coupons and face value. 
B) future value of its annual coupons minus its face value. 
C) present value of its annual coupons and face value. 
D) present value of its annual coupons minus its face vale. 
A) future value of its annual coupons and face value. 
B) future value of its annual coupons minus its face value. 
C) present value of its annual coupons and face value. 
D) present value of its annual coupons minus its face vale.

Question 8

Portfolio diversification eliminates all of the from a portfolio.

Accepted Answer

A) risk 
B) diversifiable risk 
C) nondiversifiable risk 
D) risk from business cycle fluctuations 
A) risk 
B) diversifiable risk 
C) nondiversifiable risk 
D) risk from business cycle fluctuations

Question 9

A recession in an economy would be an example of a diversifiable risk.

Accepted Answer

A) True 
 B)False

Question 10

If an investment is equally likely to return 10 percent per year or 15 percent a year, then its average expected rate of return is

Accepted Answer

A) 10.5 percent. 
B) 11.0 percent. 
C) 11.5 percent. 
D) 12.5 percent. 
A) 10.5 percent. 
B) 11.0 percent. 
C) 11.5 percent. 
D) 12.5 percent.

Question 11

People tend to be impatient, and they typically prefer to

Accepted Answer

A) save for later rather than spend now. 
B) be paid to consume now rather than in the future. 
C) be paid to consume in the future rather than now. 
D) pay in order to consume in the future rather than now. 
A) save for later rather than spend now. 
B) be paid to consume now rather than in the future. 
C) be paid to consume in the future rather than now. 
D) pay in order to consume in the future rather than now.

Question 12

Time value of money refers to the idea that a specific amount of money

Accepted Answer

A) can be converted into other currencies in the foreign exchange market. 
B) is needed to purchase goods and services. 
C) is more valuable the sooner it is received. 
D) can buy less goods and services if inflation occurs over time. 
A) can be converted into other currencies in the foreign exchange market. 
B) is needed to purchase goods and services. 
C) is more valuable the sooner it is received. 
D) can buy less goods and services if inflation occurs over time.

Question 13

Alyssa is saving money for a vacation she wants to take five years from now.If the trip will cost $1,000 and she puts her money into a savings account paying 4 percent interest, compounded annually, how much would Alyssa need to deposit today to reach her goal without making further deposits?

Accepted Answer

A) $961.54 
B) $923.75 
C) $867.81 
D) $821.93 
A) $961.54 
B) $923.75 
C) $867.81 
D) $821.93

Question 14

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 15

One statistic that quantifies the risk of an investment is

Accepted Answer

A) alpha. 
B) beta. 
C) gamma. 
D) the average expected rate of return. 
A) alpha. 
B) beta. 
C) gamma. 
D) the average expected rate of return.

Question 16

The U.S.federal government is unlikely to default on its bonds because

Accepted Answer

A) the bonds are all long-term bonds and they are insured. 
B) the federal government has the ability to collect taxes and to sell securities to the Fed. 
C) foreigners are willing to buy the federal government bonds and lend to the U.S.government. 
D) the federal government can always borrow from the states and from businesses. 
A) the bonds are all long-term bonds and they are insured. 
B) the federal government has the ability to collect taxes and to sell securities to the Fed. 
C) foreigners are willing to buy the federal government bonds and lend to the U.S.government. 
D) the federal government can always borrow from the states and from businesses.

Question 17

Which institution is least likely to default on a bond?

Accepted Answer

A) local government 
B) small corporation 
C) U.S.federal government 
D) large corporation 
A) local government 
B) small corporation 
C) U.S.federal government 
D) large corporation

Question 18

The present value of a stream of lottery payments is less than the size of the stated jackpot.

Accepted Answer

A) True 
 B)False

Question 19

The market portfolio would have a beta of

Accepted Answer

A) 0. 
B)  1.0 
C)  100 
D)  any value 
A) 0. 
B)  1.0 
C)  100 
D)  any value

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 37: Financial Economics

Two investments, X and Y, have beta values of 0.1 and 3.0 respectively.Based on this, we can claim that, relative to the market portfolio,

The market portfolio, by definition, has a beta = 0.

The primary risk that bondholders face is that

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

The steeper the Security Market Line,

The average expected rate of return is a

A bond that pays annual interest (or coupons) and a face value at maturity will fetch a price today that is equal to the

Portfolio diversification eliminates all of the from a portfolio.

A recession in an economy would be an example of a diversifiable risk.

If an investment is equally likely to return 10 percent per year or 15 percent a year, then its average expected rate of return is

People tend to be impatient, and they typically prefer to

Time value of money refers to the idea that a specific amount of money

Alyssa is saving money for a vacation she wants to take five years from now.If the trip will cost $1,000 and she puts her money into a savings account paying 4 percent interest, compounded annually, how much would Alyssa need to deposit today to reach her goal without making further deposits?

If the demand for an asset increases, its price will

One statistic that quantifies the risk of an investment is

The U.S.federal government is unlikely to default on its bonds because

Which institution is least likely to default on a bond?

The present value of a stream of lottery payments is less than the size of the stated jackpot.

The market portfolio would have a beta of

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

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

Filters