Question 1

The U.S.federal government is unlikely to default on its bond payments because:

Accepted Answer

A)  if necessary,it can print the money needed to make payments on time. 
B)  its bond payments are insured. 
C)  the U.S.federal budget usually runs a surplus,providing ample funds for repaying debt. 
D)  of all of these. 
A)  if necessary,it can print the money needed to make payments on time. 
B)  its bond payments are insured. 
C)  the U.S.federal budget usually runs a surplus,providing ample funds for repaying debt. 
D)  of all of these.

Question 2

Investment returns:

Accepted Answer

A)  are always positive. 
B)  are only received when an asset is sold. 
C)  are only received when there is stream of multiple payments generated by the asset. 
D)  can be received either through the sale of an asset or as a stream of payments. 
A)  are always positive. 
B)  are only received when an asset is sold. 
C)  are only received when there is stream of multiple payments generated by the asset. 
D)  can be received either through the sale of an asset or as a stream of payments.

Question 3

The present value of a stream of lottery payments is less than the size of the stated jackpot.

Accepted Answer

A) True 
 B)False

Question 4

If a corporation goes bankrupt:

Accepted Answer

A)  neither stockholders nor bondholders receive any money. 
B)  stockholders get paid from the sale of company assets before bondholders do. 
C)  bondholders get paid from the sale of company assets before stockholders do. 
D)  stockholders must honor the debts to bondholders out of personal assets if necessary. 
A)  neither stockholders nor bondholders receive any money. 
B)  stockholders get paid from the sale of company assets before bondholders do. 
C)  bondholders get paid from the sale of company assets before stockholders do. 
D)  stockholders must honor the debts to bondholders out of personal assets if necessary.

Question 5

Joan buys a house for $250,000,rents it for two years for $1,000 per month,and sells it at the end of those two years for $300,000.Joan's per-year rate of return is:

Accepted Answer

A)  4.8 percent. 
B)  14.8 percent. 
C)  20 percent. 
D)  29.6 percent. 
A)  4.8 percent. 
B)  14.8 percent. 
C)  20 percent. 
D)  29.6 percent.

Question 6

Actively managed funds:

Accepted Answer

A)  generate lower costs than passively managed funds. 
B)  generally outperform passively managed funds. 
C)  generally perform the same as passively managed funds. 
D)  are generally outperformed by passively managed funds. 
A)  generate lower costs than passively managed funds. 
B)  generally outperform passively managed funds. 
C)  generally perform the same as passively managed funds. 
D)  are generally outperformed by passively managed funds.

Question 7

(Advanced analysis)Kara has $2,000 to invest today that she wants to grow to $3,000 in five years.What annually compounded rate of interest would she have to earn to reach her goal?

Accepted Answer

A)  4.6 percent. 
B)  6.5 percent. 
C)  8.4 percent. 
D)  9.3 percent. 
A)  4.6 percent. 
B)  6.5 percent. 
C)  8.4 percent. 
D)  9.3 percent.

Question 8

In general,risk levels and average expected rates of return are:

Accepted Answer

A)  not related. 
B)  inversely related. 
C)  directly related. 
D)  as often inversely related as they are directly related. 
A)  not related. 
B)  inversely related. 
C)  directly related. 
D)  as often inversely related as they are directly related.

Question 9

The process of arbitrage:

Accepted Answer

A)  raises or lowers the average expected rate of return of a financial asset with a given level of risk. 
B)  vertically shifts the Security Market Line. 
C)  moves a financial asset along the Security Market Line. 
D)  pushes all financial assets to the same average expected rate of return and risk level. 
A)  raises or lowers the average expected rate of return of a financial asset with a given level of risk. 
B)  vertically shifts the Security Market Line. 
C)  moves a financial asset along the Security Market Line. 
D)  pushes all financial assets to the same average expected rate of return and risk level.

Question 10

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 11

Mutual funds may contain:

Accepted Answer

A)  stocks only. 
B)  bonds only. 
C)  either stocks or bonds. 
D)  neither stocks nor bonds. 
A)  stocks only. 
B)  bonds only. 
C)  either stocks or bonds. 
D)  neither stocks nor bonds.

Question 12

Which of the following is a difference between stocks and bonds?

Accepted Answer

A)  Stocks are issued for a fixed period;bonds are not. 
B)  Stocks pay interest;bonds pay dividends. 
C)  Bond payouts are more predictable than payouts from stocks. 
D)  Bonds represent ownership;stocks represent debt. 
A)  Stocks are issued for a fixed period;bonds are not. 
B)  Stocks pay interest;bonds pay dividends. 
C)  Bond payouts are more predictable than payouts from stocks. 
D)  Bonds represent ownership;stocks represent debt.

Question 13

Because of arbitrage,any given financial asset will be expected to return to the Security Market Line.

Accepted Answer

A) True 
 B)False

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

If investors are reasonably tolerant of risk,the Security Market Line will be relatively flat.

Accepted Answer

A) True 
 B)False

Question 16

Jacob is holding an investment he bought for $1,000 that has a 60 percent chance of gaining $200 in value and a 40 percent chance of losing $40.Jacob's average expected rate of return on this investment is:

Accepted Answer

A)  8 percent. 
B)  10.4 percent. 
C)  12.2 percent. 
D)  24 percent. 
A)  8 percent. 
B)  10.4 percent. 
C)  12.2 percent. 
D)  24 percent.

Question 17

Hermione is considering an investment that has a ¾ chance of paying a 10 percent rate of return and a ¼ chance of paying 2 percent.What is the average expected rate of return on the investment?

Accepted Answer

A)  2 percent. 
B)  6 percent. 
C)  8 percent. 
D)  10 percent. 
A)  2 percent. 
B)  6 percent. 
C)  8 percent. 
D)  10 percent.

Question 18

Alex wants to borrow $1,000 from Kara.If he repays the loan in one year,Kara would require him to pay 5 percent interest on the loan.If Alex wants to repay the loan over three years,but Kara strongly prefers present to future consumption,we would expect the interest rate on a three-year loan to be:

Accepted Answer

A)  lower than for a one-year loan. 
B)  greater than for a one-year loan. 
C)  the same as for a one-year loan. 
D)  higher if Kara expected there to be no inflation over the loan repayment period. 
A)  lower than for a one-year loan. 
B)  greater than for a one-year loan. 
C)  the same as for a one-year loan. 
D)  higher if Kara expected there to be no inflation over the loan repayment period.

Question 19

Present value is best defined as the:

Accepted Answer

A)  worth or value today of future expected returns or costs. 
B)  worth in the future of a current flow of returns or costs. 
C)  current worth of a financial asset purchased in the past. 
D)  expected future value of a financial asset purchased today. 
A)  worth or value today of future expected returns or costs. 
B)  worth in the future of a current flow of returns or costs. 
C)  current worth of a financial asset purchased in the past. 
D)  expected future value of a financial asset purchased today.

Question 20

Index funds are an example of passively managed funds.

Accepted Answer

A) True 
 B)False

Exam 36: Financial Economics

The U.S.federal government is unlikely to default on its bond payments because:

Investment returns:

The present value of a stream of lottery payments is less than the size of the stated jackpot.

If a corporation goes bankrupt:

Joan buys a house for $250,000,rents it for two years for $1,000 per month,and sells it at the end of those two years for $300,000.Joan's per-year rate of return is:

Actively managed funds:

(Advanced analysis)Kara has $2,000 to invest today that she wants to grow to $3,000 in five years.What annually compounded rate of interest would she have to earn to reach her goal?

In general,risk levels and average expected rates of return are:

The process of arbitrage:

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:

Mutual funds may contain:

Which of the following is a difference between stocks and bonds?

Because of arbitrage,any given financial asset will be expected to return to the Security Market Line.

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

If investors are reasonably tolerant of risk,the Security Market Line will be relatively flat.

Jacob is holding an investment he bought for $1,000 that has a 60 percent chance of gaining $200 in value and a 40 percent chance of losing $40.Jacob's average expected rate of return on this investment is:

Hermione is considering an investment that has a ¾ chance of paying a 10 percent rate of return and a ¼ chance of paying 2 percent.What is the average expected rate of return on the investment?

Alex wants to borrow $1,000 from Kara.If he repays the loan in one year,Kara would require him to pay 5 percent interest on the loan.If Alex wants to repay the loan over three years,but Kara strongly prefers present to future consumption,we would expect the interest rate on a three-year loan to be:

Present value is best defined as the:

Index funds are an example of passively managed funds.

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