Question 1

George buys an antique car for $20,000 and sells it five years later for just over $24,000.George's per-year rate of return is:

Accepted Answer

A)  20 percent. 
B)  12 percent. 
C)  10 percent. 
D)  4 percent. 
A)  20 percent. 
B)  12 percent. 
C)  10 percent. 
D)  4 percent. D

Question 2

Future value measures the present-day value of returns or costs expected to arrive in the future.

Accepted Answer

A) True 
 B)False  False

Question 3

According to The International Country Risk Guide,financial assets in:

Accepted Answer

A)  low-income economies tend to be less risky than in high-income economies. 
B)  low-income economies tend to be riskier than in high-income economies. 
C)  low-income economies tend to be about the same level of risk as in high-income economies. 
D)  all countries carry about the same level of risk. 
A)  low-income economies tend to be less risky than in high-income economies. 
B)  low-income economies tend to be riskier than in high-income economies. 
C)  low-income economies tend to be about the same level of risk as in high-income economies. 
D)  all countries carry about the same level of risk. B

Question 4

Which of the following statements is true about buying an old factory?

Accepted Answer

A)  It is a financial investment but not an economic investment. 
B)  It is an economic investment but not a financial investment. 
C)  It is both an economic and a financial investment. 
D)  It is neither an economic nor a financial investment. 
A)  It is a financial investment but not an economic investment. 
B)  It is an economic investment but not a financial investment. 
C)  It is both an economic and a financial investment. 
D)  It is neither an economic nor a financial investment.

Question 5

Ownership of a single corporation is represented by what investment?

Accepted Answer

A)  Stock. 
B)  Bonds. 
C)  Mutual funds. 
D)  Commercial paper. 
A)  Stock. 
B)  Bonds. 
C)  Mutual funds. 
D)  Commercial paper.

Question 6

Kelly buys a share of stock for $20 that she sells a year later for $15.Kelly's rate of return is:

Accepted Answer

A)  positive 33 percent. 
B)  negative 33.3 percent. 
C)  negative 25 percent. 
D)  negative 75 percent. 
A)  positive 33 percent. 
B)  negative 33.3 percent. 
C)  negative 25 percent. 
D)  negative 75 percent.

Question 7

Arbitrage causes an equalization of the _________ when assets are identical or nearly identical.

Accepted Answer

A)  levels of risk of assets 
B)  rates of return of assets 
C)  time when payments are made from assets 
D)  prices of assets 
A)  levels of risk of assets 
B)  rates of return of assets 
C)  time when payments are made from assets 
D)  prices of assets

Question 8

Payments to shareholders from corporate profits are known as:

Accepted Answer

A)  dividends. 
B)  capital gains. 
C)  interest. 
D)  appreciation. 
A)  dividends. 
B)  capital gains. 
C)  interest. 
D)  appreciation.

Question 9

Which of the following statements is true?

Accepted Answer

A)  Asset prices and average expected rates of return are directly related,but levels of nondiversifiable risk and average expected rates of return are inversely related. 
B)  Asset prices and average expected rates of return are inversely related,but levels of nondiversifiable risk and average expected rates of return are directly related. 
C)  Asset prices,average expected rates of return,and levels of nondiversifiable risk are all directly related. 
D)  Average expected rates of return are inversely related to both asset prices and levels of nondiversifiable risk. 
A)  Asset prices and average expected rates of return are directly related,but levels of nondiversifiable risk and average expected rates of return are inversely related. 
B)  Asset prices and average expected rates of return are inversely related,but levels of nondiversifiable risk and average expected rates of return are directly related. 
C)  Asset prices,average expected rates of return,and levels of nondiversifiable risk are all directly related. 
D)  Average expected rates of return are inversely related to both asset prices and levels of nondiversifiable risk.

Question 10

The price of an asset should:

Accepted Answer

A)  exactly equal the total present value of all of the asset's future payments. 
B)  exactly equal the total future value of all of the asset's future payments. 
C)  approximately equal X(1 + i)t,where X is the value of the asset,i is the interest rate,and t is the number of years. 
D)  exactly equal the total present and future value of all of the asset's future payments. 
A)  exactly equal the total present value of all of the asset's future payments. 
B)  exactly equal the total future value of all of the asset's future payments. 
C)  approximately equal X(1 + i)t,where X is the value of the asset,i is the interest rate,and t is the number of years. 
D)  exactly equal the total present and future value of all of the asset's future payments.

Question 11

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 12

Before trading costs and management fees are taken into account,passively managed funds outperform actively managed funds by about ______ percent per year.

Accepted Answer

A)  5 
B)  1 
C)  zero 
D)  3 
A)  5 
B)  1 
C)  zero 
D)  3

Question 13

What is the present value of $500 to be received eight years from now if the interest rate is 5 percent?

Accepted Answer

A)  $300. 
B)  $338.42. 
C)  $700. 
D)  $738.72. 
A)  $300. 
B)  $338.42. 
C)  $700. 
D)  $738.72.

Question 14

What is the present value of $5,000 to be received 10 years from now if the interest rate is 10 percent?

Accepted Answer

A)  $1,927.72. 
B)  $500. 
C)  $4,545.45. 
D)  $12,968.71. 
A)  $1,927.72. 
B)  $500. 
C)  $4,545.45. 
D)  $12,968.71.

Question 15

Diversifiable risk refers to risk:

Accepted Answer

A)  faced by a portfolio in general. 
B)  that can be reduced with appropriate fiscal and monetary policy. 
C)  posed by business cycle fluctuations. 
D)  specific to a particular investment. 
A)  faced by a portfolio in general. 
B)  that can be reduced with appropriate fiscal and monetary policy. 
C)  posed by business cycle fluctuations. 
D)  specific to a particular investment.

Question 16

Which of the following is not common to all investments?

Accepted Answer

A)  Investors are required to pay some price to acquire them. 
B)  Owners are given the opportunity to receive future payments. 
C)  Future payments are typically risky. 
D)  Paying a positive rate of interest. 
A)  Investors are required to pay some price to acquire them. 
B)  Owners are given the opportunity to receive future payments. 
C)  Future payments are typically risky. 
D)  Paying a positive rate of interest.

Question 17

(Consider This)Ponzi schemes are investments in which:

Accepted Answer

A)  funds are invested solely in high-risk foreign financial assets. 
B)  all investors are guaranteed to lose money. 
C)  investors are unknowingly paid returns from funds contributed by new investors. 
D)  the profitability of the investments depends on whether the economy grows or is in recession. 
A)  funds are invested solely in high-risk foreign financial assets. 
B)  all investors are guaranteed to lose money. 
C)  investors are unknowingly paid returns from funds contributed by new investors. 
D)  the profitability of the investments depends on whether the economy grows or is in recession.

Question 18

Arbitrage equalizes rates of return across similar investments because:

Accepted Answer

A)  arbitrage also equalizes the prices of the assets. 
B)  investors prefer diversity. 
C)  investors will want to replace lower rate of return assets with those generating higher rates of return. 
D)  investors will want to replace higher rate of return assets with those generating lower rates of return. 
A)  arbitrage also equalizes the prices of the assets. 
B)  investors prefer diversity. 
C)  investors will want to replace lower rate of return assets with those generating higher rates of return. 
D)  investors will want to replace higher rate of return assets with those generating lower rates of return.

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

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.

George buys an antique car for $20,000 and sells it five years later for just over $24,000.George's per-year rate of return is:

Future value measures the present-day value of returns or costs expected to arrive in the future.

According to The International Country Risk Guide,financial assets in:

Which of the following statements is true about buying an old factory?

Ownership of a single corporation is represented by what investment?

Kelly buys a share of stock for $20 that she sells a year later for $15.Kelly's rate of return is:

Arbitrage causes an equalization of the _________ when assets are identical or nearly identical.

Payments to shareholders from corporate profits are known as:

Which of the following statements is true?

The price of an asset should:

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

Before trading costs and management fees are taken into account,passively managed funds outperform actively managed funds by about ______ percent per year.

What is the present value of $500 to be received eight years from now if the interest rate is 5 percent?

What is the present value of $5,000 to be received 10 years from now if the interest rate is 10 percent?

Diversifiable risk refers to risk:

Which of the following is not common to all investments?

(Consider This)Ponzi schemes are investments in which:

Arbitrage equalizes rates of return across similar investments because:

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

Income Inequality Poverty and Discrimination

Health Care

Immigration

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

The Balance of Payments, Exchange Rates, and Trade Deficits

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

The United States and the Global Economy

Filters

Exam 36: Financial Economics

George buys an antique car for $20,000 and sells it five years later for just over $24,000.George's per-year rate of return is:

Future value measures the present-day value of returns or costs expected to arrive in the future.

According to The International Country Risk Guide,financial assets in:

Which of the following statements is true about buying an old factory?

Ownership of a single corporation is represented by what investment?

Kelly buys a share of stock for $20 that she sells a year later for $15.Kelly's rate of return is:

Arbitrage causes an equalization of the _________ when assets are identical or nearly identical.

Payments to shareholders from corporate profits are known as:

Which of the following statements is true?

The price of an asset should:

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

Before trading costs and management fees are taken into account,passively managed funds outperform actively managed funds by about ______ percent per year.

What is the present value of $500 to be received eight years from now if the interest rate is 5 percent?

What is the present value of $5,000 to be received 10 years from now if the interest rate is 10 percent?

Diversifiable risk refers to risk:

Which of the following is not common to all investments?

(Consider This)Ponzi schemes are investments in which:

Arbitrage equalizes rates of return across similar investments because:

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

Income Inequality Poverty and Discrimination

Health Care

Immigration

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

The Balance of Payments, Exchange Rates, and Trade Deficits

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

The United States and the Global Economy

Filters