Question 1

The steeper the Security Market Line:

Accepted Answer

A)  the lower the risk premium. 
B)  the more investors dislike risk. 
C)  the less investors are concerned about risk. 
D)  the greater the risk-free interest rate. 
A)  the lower the risk premium. 
B)  the more investors dislike risk. 
C)  the less investors are concerned about risk. 
D)  the greater the risk-free interest rate.

Question 2

"Default" occurs when:

Accepted Answer

A)  bond issuers fail to make promised payments. 
B)  corporations go bankrupt and stock becomes worthless. 
C)  bond purchasers fail to pay full price for a bond. 
D)  stocks are not federally insured. 
A)  bond issuers fail to make promised payments. 
B)  corporations go bankrupt and stock becomes worthless. 
C)  bond purchasers fail to pay full price for a bond. 
D)  stocks are not federally insured.

Question 3

The maximum amount of money that company shareholders can lose on their investment in the corporation is:

Accepted Answer

A)  whatever percent of their wealth equals their percent of ownership. 
B)  whatever they paid for the shares in the company. 
C)  whatever the corporation loses each year times the percent of ownership in the company. 
D)  zero. 
A)  whatever percent of their wealth equals their percent of ownership. 
B)  whatever they paid for the shares in the company. 
C)  whatever the corporation loses each year times the percent of ownership in the company. 
D)  zero.

Question 4

The rate of return on short-term U.S.government bonds is often referred to as the:

Accepted Answer

A)  federal funds rate. 
B)  discount rate. 
C)  risk-free interest rate. 
D)  yield rate. 
A)  federal funds rate. 
B)  discount rate. 
C)  risk-free interest rate. 
D)  yield rate.

Question 5

Brinley holds stock in large high-tech companies in his portfolio.The best way for Brinley to diversify his risk would be to buy:

Accepted Answer

A)  more shares of the stock he already owns. 
B)  shares in other large high-tech companies. 
C)  bonds or stocks of small and medium-sized companies. 
D)  bonds from the large high-tech companies already in his portfolio. 
A)  more shares of the stock he already owns. 
B)  shares in other large high-tech companies. 
C)  bonds or stocks of small and medium-sized companies. 
D)  bonds from the large high-tech companies already in his portfolio.

Question 6

Vilfredo is considering buying a house for $220,000 and renting it out for $2,000 per month.If the price suddenly jumps to $250,000,Vilfredo's expected yearly rate of return will:

Accepted Answer

A)  remain unchanged,as the house price and the rate of return are independent of each other. 
B)  be 13.6 percent. 
C)  fall from 9 percent to 8 percent. 
D)  fall from 10.9 percent to 9.6 percent. 
A)  remain unchanged,as the house price and the rate of return are independent of each other. 
B)  be 13.6 percent. 
C)  fall from 9 percent to 8 percent. 
D)  fall from 10.9 percent to 9.6 percent.

Question 7

$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 8

The present value of a future amount of money will be greater the:

Accepted Answer

A)  greater the interest rate. 
B)  greater the amount of time before the future payment is received. 
C)  lower the interest rate. 
D)  greater the rate of the expected rate of inflation. 
A)  greater the interest rate. 
B)  greater the amount of time before the future payment is received. 
C)  lower the interest rate. 
D)  greater the rate of the expected rate of inflation.

Question 9

The vertical intercept of the Security Market Line is determined by the:

Accepted Answer

A)  beta of the market portfolio. 
B)  discount rate. 
C)  risk-free interest rate. 
D)  risk premium. 
A)  beta of the market portfolio. 
B)  discount rate. 
C)  risk-free interest rate. 
D)  risk premium.

Question 10

Nondiversifiable risk refers to potential losses from:

Accepted Answer

A)  random fluctuations in specific stocks. 
B)  bad company policies. 
C)  portfolio management fraud. 
D)  events that move all investments in the same direction. 
A)  random fluctuations in specific stocks. 
B)  bad company policies. 
C)  portfolio management fraud. 
D)  events that move all investments in the same direction.

Question 11

Maria is looking to buy one of two houses to rent out for additional income.She determines that the first house,priced at $200,000,could rent for $1,500 per month.If the second house is priced at $280,000,how much rent would Maria have to charge to get an equivalent yearly rate of return?

Accepted Answer

A)  $2,100 per month. 
B)  $2,600 per month. 
C)  $2,800 per month. 
D)  It cannot be determined with the information given. 
A)  $2,100 per month. 
B)  $2,600 per month. 
C)  $2,800 per month. 
D)  It cannot be determined with the information given.

Question 12

Arbitrage occurs when investors try to profit from situations where:

Accepted Answer

A)  stock rates of return exceed bond rates of return. 
B)  bond rates of return exceed stock rates of return. 
C)  two identical assets have different rates of return. 
D)  returns on financial assets exceed returns on real assets. 
A)  stock rates of return exceed bond rates of return. 
B)  bond rates of return exceed stock rates of return. 
C)  two identical assets have different rates of return. 
D)  returns on financial assets exceed returns on real assets.

Question 13

For heavily traded assets like stocks and bonds,arbitrage:

Accepted Answer

A)  will equalize rates of return across all stocks and bonds. 
B)  will drive up rates of return on all assets. 
C)  is a lengthy process because of the large volume of transactions. 
D)  will often equalize rates of return among similar assets within minutes. 
A)  will equalize rates of return across all stocks and bonds. 
B)  will drive up rates of return on all assets. 
C)  is a lengthy process because of the large volume of transactions. 
D)  will often equalize rates of return among similar assets within minutes.

Question 14

Arbitrage occurs when:

Accepted Answer

A)  bond and stock rates of return equalize. 
B)  investors try to profit from selling a lower rate of return asset to buy one that is nearly identical but with a higher rate of return. 
C)  rates of return across all stocks equalize. 
D)  investors move from lower to higher rate of return assets,regardless of the comparability of the assets. 
A)  bond and stock rates of return equalize. 
B)  investors try to profit from selling a lower rate of return asset to buy one that is nearly identical but with a higher rate of return. 
C)  rates of return across all stocks equalize. 
D)  investors move from lower to higher rate of return assets,regardless of the comparability of the assets.

Question 15

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.

Question 16

The beta for an asset considered to be risk-free:

Accepted Answer

A)  can be any positive number. 
B)  is negative. 
C)  equals zero. 
D)  equals 1. 
A)  can be any positive number. 
B)  is negative. 
C)  equals zero. 
D)  equals 1.

Question 17

Katie buys a house for $200,000 and rents it for $1,000 per month.Katie's annual rate of return:

Accepted Answer

A)  is 0.5 percent. 
B)  is 5 percent. 
C)  is 6 percent. 
D)  cannot be determined until she sells the house. 
A)  is 0.5 percent. 
B)  is 5 percent. 
C)  is 6 percent. 
D)  cannot be determined until she sells the house.

Question 18

The estimated value of all financial assets held by U.S.households and nonprofit organizations in 2012 was about:

Accepted Answer

A)  $5.3 trillion. 
B)  $15.7 trillion. 
C)  $45 trillion. 
D)  $54 trillion. 
A)  $5.3 trillion. 
B)  $15.7 trillion. 
C)  $45 trillion. 
D)  $54 trillion.

Question 19

Economic investment refers to the buying or selling of any asset in expectation of a financial gain.

Accepted Answer

A) True 
 B)False

Question 20

Pavel is considering buying a $10,000 bond with no expiration date that generates yearly payments of $500.If the price of the bond were to fall to $9,000:

Accepted Answer

A)  the bond's rate of return would rise from 5 percent to 5.6 percent. 
B)  the bond payments would fall to $450 per year. 
C)  Pavel should definitely buy the bond because the price is lower. 
D)  Pavel should definitely not buy the bond because the lower price means it is worth less. 
A)  the bond's rate of return would rise from 5 percent to 5.6 percent. 
B)  the bond payments would fall to $450 per year. 
C)  Pavel should definitely buy the bond because the price is lower. 
D)  Pavel should definitely not buy the bond because the lower price means it is worth less.

Exam 36: Financial Economics

The steeper the Security Market Line:

"Default" occurs when:

The maximum amount of money that company shareholders can lose on their investment in the corporation is:

The rate of return on short-term U.S.government bonds is often referred to as the:

Brinley holds stock in large high-tech companies in his portfolio.The best way for Brinley to diversify his risk would be to buy:

Vilfredo is considering buying a house for $220,000 and renting it out for $2,000 per month.If the price suddenly jumps to $250,000,Vilfredo's expected yearly rate of return will:

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

The present value of a future amount of money will be greater the:

The vertical intercept of the Security Market Line is determined by the:

Nondiversifiable risk refers to potential losses from:

Maria is looking to buy one of two houses to rent out for additional income.She determines that the first house,priced at $200,000,could rent for $1,500 per month.If the second house is priced at $280,000,how much rent would Maria have to charge to get an equivalent yearly rate of return?

Arbitrage occurs when investors try to profit from situations where:

For heavily traded assets like stocks and bonds,arbitrage:

Arbitrage occurs when:

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 beta for an asset considered to be risk-free:

Katie buys a house for $200,000 and rents it for $1,000 per month.Katie's annual rate of return:

The estimated value of all financial assets held by U.S.households and nonprofit organizations in 2012 was about:

Economic investment refers to the buying or selling of any asset in expectation of a financial gain.

Pavel is considering buying a $10,000 bond with no expiration date that generates yearly payments of $500.If the price of the bond were to fall to $9,000:

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

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