Exam 37: Financial Economics

(Advanced analysis) Kara has $2,000 to invest today that she wants to grow to $3,000 in five years.What annually compounded rate of interest would she have to earn to reach her goal?

Rates of return on short-term U.S.government bonds are compensation for

Myrna borrows $500 at an annually compounded interest rate of 8 percent that she will repay at the end of 10 years.How much will be required to pay off the loan at the end of 10 years?

Hermione is considering an investment that has a ¾ chance of paying a 10 percent rate of return and a ¼ chance of paying 2 percent.What is the average expected rate of return on the investment?

The risk-free market rate is essentially the rate of return that compensates solely for time preference.

For most financial assets, investors must be compensated for

The beta of an investment measures the probability-weighted expected rate of return of a portfolio.

Before taking management and trading costs into account, arbitrage activities in the market ensure that the returns of actively managed funds are

One asset has a beta of 1.5 and another asset has a beta of 0.75.The difference in beta means that the asset with a beta of 0.75 has

Other factors constant, the present value will be larger,

A bank makes an auto loan for $10,000 at an annual rate of 6 percent.Assuming no repayment is made during the period, after two years the borrower will owe

Lottery winners who take the lump-sum payouts instead of payments spread out over many years

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

The two most important investor preferences are a desire for high rates of return and a dislike of inflation.

The underlying cause of risk in finance is

The estimated value of all financial assets held by U.S.households and nonprofit organizations in 2015 was about

Which of the following is not common to all investments?

Financial investment refers to

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

The current share price of a corporation's stock is determined by the