Question 1

Refer to the graph. Suppose a particular ﬁnancial asset's risk and return proﬁle puts it at point E. The process of arbitrage will

Accepted Answer

A)  move the ﬁnancial asset to point G on the Security Market Line. 
B)  move the ﬁnancial asset to point D. 
C)  move the ﬁnancial asset to point F. 
D)  not change the ﬁnancial asset's position on the Security Market Line. 
A)  move the ﬁnancial asset to point G on the Security Market Line. 
B)  move the ﬁnancial asset to point D. 
C)  move the ﬁnancial asset to point F. 
D)  not change the ﬁnancial asset's position on the Security Market Line.

Question 2

Investors face the risk that the economy could go into another recession. This risk is

Accepted Answer

A)  idiosyncratic. 
B)  diversiﬁable. 
C)  systemic. 
D)  time preference. 
A)  idiosyncratic. 
B)  diversiﬁable. 
C)  systemic. 
D)  time preference.

Question 3

Suppose that some people invest $1,000 today in a ﬁnancial asset that will make one future payment. The longer they must wait for the future payment, the

Accepted Answer

A)  higher the future payment they will expect to receive. 
B)  lower the future payment they will expect to receive. 
C)  lower the risk of not receiving that future payment. 
D)  more they will want to invest. 
A)  higher the future payment they will expect to receive. 
B)  lower the future payment they will expect to receive. 
C)  lower the risk of not receiving that future payment. 
D)  more they will want to invest.

Question 4

Refer to the graph. If a ﬁnancial asset's average expected rate of return and beta put it at point F,

Accepted Answer

A)  arbitrage will push down the price of the asset and lower the average expected rate of return to Y. 
B)  arbitrage will push up the price of the asset and lower the average expected rate of return to Y. 
C)  a restrictive monetary policy is needed to move the asset onto the Security Market Line. 
D)  an expansionary monetary policy is needed to move the asset onto the Security Market Line. 
A)  arbitrage will push down the price of the asset and lower the average expected rate of return to Y. 
B)  arbitrage will push up the price of the asset and lower the average expected rate of return to Y. 
C)  a restrictive monetary policy is needed to move the asset onto the Security Market Line. 
D)  an expansionary monetary policy is needed to move the asset onto the Security Market Line.

Question 5

$500 invested at an annual interest rate of 8 percent will be worth how much at the end of one year?

Accepted Answer

A)  $504 
B)  $508 
C)  $540 
D)  $580 
A)  $504 
B)  $508 
C)  $540 
D)  $580

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

The so-called risk-free rate in ﬁnancial markets is indicated by the rate of return on short-term U.S.
government bonds.

Accepted Answer

A) True 
 B)False

Question 8

Bond payments are generally more predictable than stocks because

Accepted Answer

A)  interest on bonds is not taxable. 
B)  stock prices and dividends exhibit little volatility. 
C)  bonds generate higher average rates of return. 
D)  bond owners know the size and timing of payments they will receive. 
A)  interest on bonds is not taxable. 
B)  stock prices and dividends exhibit little volatility. 
C)  bonds generate higher average rates of return. 
D)  bond owners know the size and timing of payments they will receive.

Question 9

You deposit $5,000 in a 5-year bank CD that pays 3 percent interest per year. How much will you get from this deposit at maturity?

Accepted Answer

A)  $5,155 
B)  $5,751 
C)  $5,796 
D)  $6,500 
A)  $5,155 
B)  $5,751 
C)  $5,796 
D)  $6,500

Question 10

"Don't put all your eggs in one basket." Interpret in terms of economic concepts.

Accepted Answer

This saying is referring to diversiﬁcati

Question 11

Payments to holders of corporate bonds are known as dividends.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

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. Indy should necessarily sell
His stock if

Accepted Answer

A)  the price falls below $20 per share. 
B)  he expects the sum of future capital gains and dividends to be negative. 
C)  the company stops paying dividends. 
D)  any of these circumstances occur. 
A)  the price falls below $20 per share. 
B)  he expects the sum of future capital gains and dividends to be negative. 
C)  the company stops paying dividends. 
D)  any of these circumstances occur.

Question 14

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

Accepted Answer

A)  by changing the reserve requirement. 
B)  by changing the federal funds rate. 
C)  by changing the discount rate. 
D)  with open-market operations. 
A)  by changing the reserve requirement. 
B)  by changing the federal funds rate. 
C)  by changing the discount rate. 
D)  with open-market operations.

Question 15

Mutual fund managers tend to focus solely on the

Accepted Answer

A)  short-term (quarterly) performance of the corporations whose securities they invest in. 
B)  long-term performance of the corporations whose securities they invest in. 
C)  assets of the corporations whose securities they invest in. 
D)  liabilities of the corporations whose securities they invest in. 
A)  short-term (quarterly) performance of the corporations whose securities they invest in. 
B)  long-term performance of the corporations whose securities they invest in. 
C)  assets of the corporations whose securities they invest in. 
D)  liabilities of the corporations whose securities they invest in.

Question 16

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 17

Xavier is a baseball player negotiating a contract to play for a team for one year. He is usually paid $10 million a year for playing, but the salary cap for his team means that he will have to be paid $5
Million this year and the remainder next year. If the interest rate is 8 percent, how much should that
Remaining amount be next year?

Accepted Answer

A)  $5.0 million 
B)  $5.1 million 
C)  $5.4 million 
D)  $6.1 million 
A)  $5.0 million 
B)  $5.1 million 
C)  $5.4 million 
D)  $6.1 million

Question 18

Another name for diversiﬁable risk is

Accepted Answer

A)  systemic risk. 
B)  inﬂation risk. 
C)  idiosyncratic risk. 
D)  cyclical risk. 
A)  systemic risk. 
B)  inﬂation risk. 
C)  idiosyncratic risk. 
D)  cyclical risk.

Question 19

What is ﬁnancial economics? What are the most important investor preferences?

Accepted Answer

Financial economics studies investor pre

Question 20

A bond that pays no annual interest (or coupons) and has a face value at maturity will fetch a price today that is equal to the

Accepted Answer

A)  future value of its face value. 
B)  number of years in the life of the bond times its face value. 
C)  present value of the number of years in the life of the bond times its face value. 
D)  present value of its face value. 
A)  future value of its face value. 
B)  number of years in the life of the bond times its face value. 
C)  present value of the number of years in the life of the bond times its face value. 
D)  present value of its face value.

Refer to the graph. Suppose a particular ﬁnancial asset's risk and return proﬁle puts it at point E. The process of arbitrage will

Investors face the risk that the economy could go into another recession. This risk is

Suppose that some people invest $1,000 today in a ﬁnancial asset that will make one future payment. The longer they must wait for the future payment, the

Refer to the graph. If a ﬁnancial asset's average expected rate of return and beta put it at point F,

$500 invested at an annual interest rate of 8 percent will be worth how much at the end of one year?

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

The so-called risk-free rate in ﬁnancial markets is indicated by the rate of return on short-term U.S. government bonds.

Bond payments are generally more predictable than stocks because

You deposit $5,000 in a 5-year bank CD that pays 3 percent interest per year. How much will you get from this deposit at maturity?

"Don't put all your eggs in one basket." Interpret in terms of economic concepts.

Payments to holders of corporate bonds are known as dividends.

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

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. Indy should necessarily sell His stock if

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

Mutual fund managers tend to focus solely on the

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

Another name for diversiﬁable risk is

What is ﬁnancial economics? What are the most important investor preferences?

A bond that pays no annual interest (or coupons) and has a face value at maturity will fetch a price today that is equal to the

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

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Exam 17: Financial Economics

Refer to the graph. Suppose a particular ﬁnancial asset's risk and return proﬁle puts it at point E. The process of arbitrage will

Investors face the risk that the economy could go into another recession. This risk is

Suppose that some people invest $1,000 today in a ﬁnancial asset that will make one future payment. The longer they must wait for the future payment, the

Refer to the graph. If a ﬁnancial asset's average expected rate of return and beta put it at point F,

$500 invested at an annual interest rate of 8 percent will be worth how much at the end of one year?

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

The so-called risk-free rate in ﬁnancial markets is indicated by the rate of return on short-term U.S. government bonds.

Bond payments are generally more predictable than stocks because

You deposit $5,000 in a 5-year bank CD that pays 3 percent interest per year. How much will you get from this deposit at maturity?

"Don't put all your eggs in one basket." Interpret in terms of economic concepts.

Payments to holders of corporate bonds are known as dividends.

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

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. Indy should necessarily sell His stock if

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

Mutual fund managers tend to focus solely on the

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

Another name for diversiﬁable risk is

What is ﬁnancial economics? What are the most important investor preferences?

A bond that pays no annual interest (or coupons) and has a face value at maturity will fetch a price today that is equal to the

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