Question 1

A promised amount $FV n years into the future is worth how much today, if the interest rate is i percent per year?

Accepted Answer

A)  $\$ F V _ { n } / ( 1 + i ) ^ { n }$ 
B)  $\text { (\$FV/ } n \text { ) (i percent) }$ 
C)  $( 1 + i ) ^ { n } / \$ F V$ 
D)  $[ \$ \mathrm { FV } / ( 1 + i ) ] ^ { n }$ 
A)  $\$ F V _ { n } / ( 1 + i ) ^ { n }$ 
B)  $\text { (\$FV/ } n \text { ) (i percent) }$ 
C)  $( 1 + i ) ^ { n } / \$ F V$ 
D)  $[ \$ \mathrm { FV } / ( 1 + i ) ] ^ { n }$

Question 2

The Standard & Poor's 500 Index measures prices of the 500

Accepted Answer

A)  most purchased consumer goods in the United States. 
B)  stocks of the largest companies in the United States. 
C)  largest bonds trading in the United States. 
D)  largest index funds trading in the United States. 
A)  most purchased consumer goods in the United States. 
B)  stocks of the largest companies in the United States. 
C)  largest bonds trading in the United States. 
D)  largest index funds trading in the United States.

Question 3

Refer to the graph. Consider asset D. We would expect arbitrage to

Accepted Answer

A)  increase the risk level of D. 
B)  increase the price of D. 
C)  lower the price of D. 
D)  increase both the expected return and risk level of D. 
A)  increase the risk level of D. 
B)  increase the price of D. 
C)  lower the price of D. 
D)  increase both the expected return and risk level of D.

Question 4

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 5

A portfolio of many different stocks and bonds protects against nondiversiﬁable risk.

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A)  Issuers of stocks can default on their stock obligations. 
B)  Investing in stocks involves less risk because the future payments are less uncertain. 
C)  In case of bankruptcy, bondholders get paid ﬁrst ahead of stockholders. 
D)  Bankruptcy occurs when the issuing ﬁrm is unable to fulﬁll its stock obligations. 
A)  Issuers of stocks can default on their stock obligations. 
B)  Investing in stocks involves less risk because the future payments are less uncertain. 
C)  In case of bankruptcy, bondholders get paid ﬁrst ahead of stockholders. 
D)  Bankruptcy occurs when the issuing ﬁrm is unable to fulﬁll its stock obligations.

Question 7

A mutual fund company uses the funds of its investors to

Accepted Answer

A)  produce goods and services for consumers. 
B)  buy stocks and bonds. 
C)  build factories and other infrastructure. 
D)  buy capital and other resources for other ﬁrms. 
A)  produce goods and services for consumers. 
B)  buy stocks and bonds. 
C)  build factories and other infrastructure. 
D)  buy capital and other resources for other ﬁrms.

Question 8

Kick is looking to play for a U.S. MLS team. D.C. United is offering him $50 million for his ﬁrst year. The Chicago Fire is offering him $25 million his ﬁrst year and $10 million per year for the following
Three years. The market interest rate is 5 percent. Which offer is the better deal in terms of present
Value in millions?

Accepted Answer

A)  D.C. United, because it will pay him $50 million compared with $48.1 million from Chicago Fire 
B)  D.C. United, because it will pay him $50 million compared with $46.8 million from Chicago Fire 
C)  Chicago Fire, because it will pay him $52.2 million compared with $50 million from D.C. United 
D)  Chicago Fire, because it will pay him $55 million compared with $50 million from D.C. United 
A)  D.C. United, because it will pay him $50 million compared with $48.1 million from Chicago Fire 
B)  D.C. United, because it will pay him $50 million compared with $46.8 million from Chicago Fire 
C)  Chicago Fire, because it will pay him $52.2 million compared with $50 million from D.C. United 
D)  Chicago Fire, because it will pay him $55 million compared with $50 million from D.C. United

Question 9

Karen holds a $100 bond that pays $10 per year in interest. The minimum price Karen would have to be offered before she would sell the bond

Accepted Answer

A)  is $110. 
B)  is $125. 
C)  is $140. 
D)  depends on rates of return she could earn on other, similar investments. 
A)  is $110. 
B)  is $125. 
C)  is $140. 
D)  depends on rates of return she could earn on other, similar investments.

Question 10

Suppose stock A sells for $50 per share and pays dividends of $2 per share per year. Stock B sells for $100 per share and pays dividends of $4 per share per year. Through the process of arbitrage,
We would expect the price of

Accepted Answer

A)  stock A to fall and/or the price of stock B to rise. 
B)  stock A to rise and/or the price of stock B to fall. 
C)  both stocks to rise or fall together. 
D)  neither stock to change. 
A)  stock A to fall and/or the price of stock B to rise. 
B)  stock A to rise and/or the price of stock B to fall. 
C)  both stocks to rise or fall together. 
D)  neither stock to change.

Question 11

What is a bond? How does it differ from a stock?

Accepted Answer

Bonds are debt contracts that are issued

Question 12

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

Question 13

Terri buys a house for $200,000 and expects to sell it in three years for $300,000. Her expected percentage rate of return over that three-year period is

Accepted Answer

A)  25 percent. 
B)  33 percent. 
C)  50 percent. 
D)  67 percent. 
A)  25 percent. 
B)  33 percent. 
C)  50 percent. 
D)  67 percent.

Question 14

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

Accepted Answer

A)  original purchase price multiplied by 1 plus the interest rate. 
B)  present value of capital gains and dividends received by stock owners. 
C)  expected interest and dividend payments. 
D)  expected capital gains and dividends prospective buyers will earn. 
A)  original purchase price multiplied by 1 plus the interest rate. 
B)  present value of capital gains and dividends received by stock owners. 
C)  expected interest and dividend payments. 
D)  expected capital gains and dividends prospective buyers will earn.

Question 15

An investor owns bond #1, which has a rate of return of 10 percent, but a similar bond #2 has an 11 percent return and equal risk. By selling bond #1 and buying bond #2 to earn a higher return, the
Investor is engaging in

Accepted Answer

A)  pooling. 
B)  arbitrage. 
C)  diversiﬁcation. 
D)  time preference. 
A)  pooling. 
B)  arbitrage. 
C)  diversiﬁcation. 
D)  time preference.

Question 16

Accepted Answer

A)  expansionary monetary policy and arbitrage, respectively. 
B)  arbitrage and expansionary monetary policy, respectively. 
C)  restrictive monetary policy and arbitrage, respectively. 
D)  arbitrage and restrictive monetary policy, respectively. 
A)  expansionary monetary policy and arbitrage, respectively. 
B)  arbitrage and expansionary monetary policy, respectively. 
C)  restrictive monetary policy and arbitrage, respectively. 
D)  arbitrage and restrictive monetary policy, respectively.

Question 17

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 18

Why is it diﬃcult for most investors to take advantage of arbitrage opportunities?

Accepted Answer

It is diﬃcult to engage in arbitrage bec

Question 19

An asset's price and rate of return are directly related.

Accepted Answer

A) True 
 B)False

Question 20

What concept describes how quickly an investment increases in value when interest is paid not only on the original amount invested, but also on the accumulated interest payments?

Accepted Answer

A)  present value 
B)  future value 
C)  compound interest 
D)  real rate of interest 
A)  present value 
B)  future value 
C)  compound interest 
D)  real rate of interest

A promised amount $FV n years into the future is worth how much today, if the interest rate is i percent per year?

The Standard & Poor's 500 Index measures prices of the 500

Refer to the graph. Consider asset D. We would expect arbitrage to

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,

A portfolio of many different stocks and bonds protects against nondiversiﬁable risk.

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

A mutual fund company uses the funds of its investors to

Karen holds a $100 bond that pays $10 per year in interest. The minimum price Karen would have to be offered before she would sell the bond

Suppose stock A sells for $50 per share and pays dividends of $2 per share per year. Stock B sells for $100 per share and pays dividends of $4 per share per year. Through the process of arbitrage, We would expect the price of

What is a bond? How does it differ from a stock?

Which of the following is a popular type of investment?

Terri buys a house for $200,000 and expects to sell it in three years for $300,000. Her expected percentage rate of return over that three-year period is

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

An investor owns bond #1, which has a rate of return of 10 percent, but a similar bond #2 has an 11 percent return and equal risk. By selling bond #1 and buying bond #2 to earn a higher return, the Investor is engaging in

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?

Why is it diﬃcult for most investors to take advantage of arbitrage opportunities?

An asset's price and rate of return are directly related.

What concept describes how quickly an investment increases in value when interest is paid not only on the original amount invested, but also on the accumulated interest payments?

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures Caused by Externalities Asymmetric Information

Public Goods, Public Choice, and Government Failure

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

Exam 17: Financial Economics

A promised amount $FV n years into the future is worth how much today, if the interest rate is i percent per year?

The Standard & Poor's 500 Index measures prices of the 500

Refer to the graph. Consider asset D. We would expect arbitrage to

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,

A portfolio of many different stocks and bonds protects against nondiversiﬁable risk.

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

A mutual fund company uses the funds of its investors to

Karen holds a $100 bond that pays $10 per year in interest. The minimum price Karen would have to be offered before she would sell the bond

Suppose stock A sells for $50 per share and pays dividends of $2 per share per year. Stock B sells for $100 per share and pays dividends of $4 per share per year. Through the process of arbitrage, We would expect the price of

What is a bond? How does it differ from a stock?

Which of the following is a popular type of investment?

Terri buys a house for $200,000 and expects to sell it in three years for $300,000. Her expected percentage rate of return over that three-year period is

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

An investor owns bond #1, which has a rate of return of 10 percent, but a similar bond #2 has an 11 percent return and equal risk. By selling bond #1 and buying bond #2 to earn a higher return, the Investor is engaging in

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?

Why is it diﬃcult for most investors to take advantage of arbitrage opportunities?

An asset's price and rate of return are directly related.

What concept describes how quickly an investment increases in value when interest is paid not only on the original amount invested, but also on the accumulated interest payments?

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures Caused by Externalities Asymmetric Information

Public Goods, Public Choice, and Government Failure

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