Question 1

"Do not put all your eggs in one basket" is advice that seeks to reduce

Accepted Answer

A)  idiosyncratic risk. 
B)  nondiversiﬁable risk. 
C)  systemic risk. 
D)  market risk. 
A)  idiosyncratic risk. 
B)  nondiversiﬁable risk. 
C)  systemic risk. 
D)  market risk.

Question 2

In the accompanying graph, bracket A represents the

Accepted Answer

A)  rate of return for an asset. 
B)  rate of return for the risk-free asset. 
C)  risk premium for an asset with a certain risk level. 
D)  compensation for time preference for an asset with a certain risk level. 
A)  rate of return for an asset. 
B)  rate of return for the risk-free asset. 
C)  risk premium for an asset with a certain risk level. 
D)  compensation for time preference for an asset with a certain risk level.

Question 3

Risk in ﬁnance means

Accepted Answer

A)  mostly positive outcomes. 
B)  mostly negative outcomes. 
C)  either positive or negative outcomes. 
D)  the same thing as risk in health science. 
A)  mostly positive outcomes. 
B)  mostly negative outcomes. 
C)  either positive or negative outcomes. 
D)  the same thing as risk in health science.

Question 4

(Advanced analysis) Susie has $500 invested in a ﬁnancial asset earning an annually compounded interest rate of 8 percent. If Susie plans to cash in the asset when it is worth $700, about how long
Will she have to wait?

Accepted Answer

A)  4.4 years 
B)  5 years 
C)  6.1 years 
D)  8 years 
A)  4.4 years 
B)  5 years 
C)  6.1 years 
D)  8 years

Question 5

Why might a lottery winner decide to take a large lump-sum payment rather than receive
installments of their winnings over time? How does the concept of present value inﬂuence this
decision?

Accepted Answer

Present value is today?s value of some a

Question 6

What is the risk-free interest rate?

Accepted Answer

The risk-free interest rate is the inter

Question 7

Alma recently purchased a Mexican restaurant for $450,000, from which she expects to earn a monthly proﬁt of $1,500. Her expected annual rate of return is

Accepted Answer

A)  4 percent. 
B)  6 percent. 
C)  8 percent. 
D)  10 percent. 
A)  4 percent. 
B)  6 percent. 
C)  8 percent. 
D)  10 percent.

Question 8

A manufacturing ﬁrm takes out a $500,000 loan to expand its plant. The loan has an annual interest rate of 7 percent. What would be the total compounded interest on the loan at the end of ﬁve years,
Excluding the principal?

Accepted Answer

A)  $175,000 
B)  $35,075 
C)  $150,750 
D)  $201,275 
A)  $175,000 
B)  $35,075 
C)  $150,750 
D)  $201,275

Question 9

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 10

An investment's average expected rate of return is the

Accepted Answer

A)  probability-weighted average of the investment's possible future rates of return. 
B)  simple average of the investment's possible future rates of return. 
C)  probability-weighted average of all past rates of return. 
D)  simple average of the rates of return of all similar investments. 
A)  probability-weighted average of the investment's possible future rates of return. 
B)  simple average of the investment's possible future rates of return. 
C)  probability-weighted average of all past rates of return. 
D)  simple average of the rates of return of all similar investments.

Question 11

A change in Federal Reserve monetary policy will

Accepted Answer

A)  have no effect on the Security Market Line. 
B)  invert the Security Market Line. 
C)  change the slope of the Security Market Line. 
D)  cause a vertical shift of the Security Market Line. 
A)  have no effect on the Security Market Line. 
B)  invert the Security Market Line. 
C)  change the slope of the Security Market Line. 
D)  cause a vertical shift of the Security Market Line.

Question 12

The Hazards, a professional baseball team, want to sign pitcher Alex McScoob to a two-year contract but, because of salary cap limitations, can only pay $8 million for the ﬁrst year (Alex's
Market value is $10 million per year). The Hazards offer to pay $8 million in year 1 and $13 million in
Year 2. Should Alex sign the contract?

Accepted Answer

A)  Yes, Alex is better off ﬁnancially regardless of the interest rate. 
B)  Yes, if the interest rate is less than 50 percent. 
C)  Yes, but only if the team expects to be successful. 
D)  Yes, but only if the interest rate is less than 10 percent. 
A)  Yes, Alex is better off ﬁnancially regardless of the interest rate. 
B)  Yes, if the interest rate is less than 50 percent. 
C)  Yes, but only if the team expects to be successful. 
D)  Yes, but only if the interest rate is less than 10 percent.

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

According to the concept of the time value of money,

Accepted Answer

A)  money is more valuable to a person the sooner it is received. 
B)  money is more valuable to a person the later it is received. 
C)  people are indifferent between receiving a given sum of money now versus receiving it later. 
D)  there is no opportunity cost of receiving a sum of money later rather than sooner. 
A)  money is more valuable to a person the sooner it is received. 
B)  money is more valuable to a person the later it is received. 
C)  people are indifferent between receiving a given sum of money now versus receiving it later. 
D)  there is no opportunity cost of receiving a sum of money later rather than sooner.

Question 15

Which of the following is common to all investments?

Accepted Answer

A)  The investment pays interest. 
B)  Some price must be paid to acquire them. 
C)  Owners are guaranteed future payments. 
D)  Government insurance backs them. 
A)  The investment pays interest. 
B)  Some price must be paid to acquire them. 
C)  Owners are guaranteed future payments. 
D)  Government insurance backs them.

Question 16

A stockholder owning 5 percent of a company's stock

Accepted Answer

A)  is guaranteed to receive 5 percent of the company's yearly proﬁts. 
B)  is personally responsible for 5 percent of the debts if the company goes bankrupt. 
C)  has 5 percent of her personal assets vulnerable if the company goes bankrupt. 
D)  gets 5 percent of the votes at the shareholders' meetings. 
A)  is guaranteed to receive 5 percent of the company's yearly proﬁts. 
B)  is personally responsible for 5 percent of the debts if the company goes bankrupt. 
C)  has 5 percent of her personal assets vulnerable if the company goes bankrupt. 
D)  gets 5 percent of the votes at the shareholders' meetings.

Question 17

What concept would be most consistent with the observation that people tend to be impatient and typically prefer to consume things in the present rather than the future?

Accepted Answer

A)  future value 
B)  present value 
C)  time preference 
D)  market portfolio 
A)  future value 
B)  present value 
C)  time preference 
D)  market portfolio

Question 18

An expansionary monetary policy will shift the Security Market Line down.

Accepted Answer

A) True 
 B)False

Question 19

Mark buys a bond for $8,000 and receives interest payments of $100 every three months. The interest rate on the bond is approximately

Accepted Answer

A)  1.3 percent. 
B)  2 percent. 
C)  5 percent. 
D)  20 percent. 
A)  1.3 percent. 
B)  2 percent. 
C)  5 percent. 
D)  20 percent.

Question 20

If investors have two identical assets that have different rates of return, the investors will sell the
asset with the higher rate of return to buy the asset with the lower rate of return.

Accepted Answer

A) True 
 B)False

"Do not put all your eggs in one basket" is advice that seeks to reduce

In the accompanying graph, bracket A represents the

Risk in ﬁnance means

(Advanced analysis) Susie has $500 invested in a ﬁnancial asset earning an annually compounded interest rate of 8 percent. If Susie plans to cash in the asset when it is worth $700, about how long Will she have to wait?

Why might a lottery winner decide to take a large lump-sum payment rather than receive installments of their winnings over time? How does the concept of present value inﬂuence this decision?

What is the risk-free interest rate?

Alma recently purchased a Mexican restaurant for $450,000, from which she expects to earn a monthly proﬁt of $1,500. Her expected annual rate of return is

A manufacturing ﬁrm takes out a $500,000 loan to expand its plant. The loan has an annual interest rate of 7 percent. What would be the total compounded interest on the loan at the end of ﬁve years, Excluding the principal?

Which of the following statements is true?

An investment's average expected rate of return is the

A change in Federal Reserve monetary policy will

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

According to the concept of the time value of money,

Which of the following is common to all investments?

A stockholder owning 5 percent of a company's stock

What concept would be most consistent with the observation that people tend to be impatient and typically prefer to consume things in the present rather than the future?

An expansionary monetary policy will shift the Security Market Line down.

Mark buys a bond for $8,000 and receives interest payments of $100 every three months. The interest rate on the bond is approximately

If investors have two identical assets that have different rates of return, the investors will sell the asset with the higher rate of return to buy the asset with the lower rate of return.

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

"Do not put all your eggs in one basket" is advice that seeks to reduce

In the accompanying graph, bracket A represents the

Risk in ﬁnance means

(Advanced analysis) Susie has $500 invested in a ﬁnancial asset earning an annually compounded interest rate of 8 percent. If Susie plans to cash in the asset when it is worth $700, about how long Will she have to wait?

Why might a lottery winner decide to take a large lump-sum payment rather than receive installments of their winnings over time? How does the concept of present value inﬂuence this decision?

What is the risk-free interest rate?

Alma recently purchased a Mexican restaurant for $450,000, from which she expects to earn a monthly proﬁt of $1,500. Her expected annual rate of return is

A manufacturing ﬁrm takes out a $500,000 loan to expand its plant. The loan has an annual interest rate of 7 percent. What would be the total compounded interest on the loan at the end of ﬁve years, Excluding the principal?

Which of the following statements is true?

An investment's average expected rate of return is the

A change in Federal Reserve monetary policy will

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

According to the concept of the time value of money,

Which of the following is common to all investments?

A stockholder owning 5 percent of a company's stock

What concept would be most consistent with the observation that people tend to be impatient and typically prefer to consume things in the present rather than the future?

An expansionary monetary policy will shift the Security Market Line down.

Mark buys a bond for $8,000 and receives interest payments of $100 every three months. The interest rate on the bond is approximately

If investors have two identical assets that have different rates of return, the investors will sell the asset with the higher rate of return to buy the asset with the lower rate of return.

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