Exam 37: Financial Economics

Suppose that Clint wins a lottery jackpot of $300 million.He can receive it over the next 30 years in annual payments of $10 million, or he can receive a lump sum of $100 million immediately.Assuming that taxes are not a consideration, should Clint take his winnings as a lump sum?

Other factors constant, if the interest rate is higher, the present value of a certain future amount will be smaller.

Which of the following statements best describes the relationship between asset prices and average expected returns?

The risk-free interest rate is the rate on long-term U.S.government bonds.

Investment returns

Katie buys a house for $200,000 and rents it for $1,000 per month.Katie's annual rate of return

The present value of a future amount of money will be greater the

Another name for diversifiable risk is

(Advanced analysis) Tani invests $100 in a financial asset earning an annually compounded interest rate of 5 percent.In about how many years will her investment be worth $150?

You deposit $5,000 into a 10-year bank CD that pays a 6.5 percent annual compound interest rate.When the CD matures in 10 years, you will get more than $9,000 from it.

The Federal Reserve changes the risk-free interest rate most directly

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

The risk premium of a financial asset is the

What do stocks represent?

Which one of the following is an example of an economic investment?

Orange Computers, Inc., is planning to spend $200,000 on the promotion of its new portable music player next year.The current market interest rate is 5 percent.What is the present value of this promotional budget?

Which of the following statements is true about investing in stocks and bonds?

Index funds are an example of passively managed funds.

Burt bought a house for $250,000 and plans to rent it out for $2,000 per month.His expected annual rate of return from renting the house is approximately

If an amount $AAA today earns interest at a rate of i percent per year, then the accumulated amount at the end of n years will be