Question 1

What is the difference between economic and financial investments?

Accepted Answer

A)  Financial investments are sensitive to interest rates;economic investments are not. 
B)  Economic investments add to the capital stock of an economy;financial investments do not. 
C)  Economic investments are expressed in real (inflation-adjusted)terms;financial investments are expressed in nominal terms. 
D)  Financial investments include all purchases undertaken with the expectation of financial gain;economic investments include only purchases of new capital goods. 
A)  Financial investments are sensitive to interest rates;economic investments are not. 
B)  Economic investments add to the capital stock of an economy;financial investments do not. 
C)  Economic investments are expressed in real (inflation-adjusted)terms;financial investments are expressed in nominal terms. 
D)  Financial investments include all purchases undertaken with the expectation of financial gain;economic investments include only purchases of new capital goods.

Question 2

Arbitrage equates rates of return across assets of all risk levels.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following equations shows how much X dollars will be worth if invested at an annual interest rate i for t years,if interest is compounded annually?

Accepted Answer

A)  (1 + i)tX 
B)  X/(1 + i)t 
C)  (1 + X)it 
D)  (X + i)t 
A)  (1 + i)tX 
B)  X/(1 + i)t 
C)  (1 + X)it 
D)  (X + i)t

Question 4

Average expected rates of return and levels of risk are positively related.

Accepted Answer

A) True 
 B)False

Question 5

Suppose stock A sells for $30 per share and pays dividends of $1 per share per year.Stock B sells for $40 per share and pays dividends of $2 per share per year.Through the process of arbitrage,we would expect the price of:

Accepted Answer

A)  stock A to fall and/or the price of stock B to rise. 
B)  stock A to rise and/or the price of stock B to fall. 
C)  both stocks to rise or fall together. 
D)  neither stock to change. 
A)  stock A to fall and/or the price of stock B to rise. 
B)  stock A to rise and/or the price of stock B to fall. 
C)  both stocks to rise or fall together. 
D)  neither stock to change.

Question 6

(Advanced analysis)Alex wants to have $800 saved up at the end of 10 years.If he deposits $500 today,what annually compounded rate of interest would he have to earn to reach his goal?

Accepted Answer

A)  4.8 percent. 
B)  5.2 percent. 
C)  5.7 percent. 
D)  6.2 percent. 
A)  4.8 percent. 
B)  5.2 percent. 
C)  5.7 percent. 
D)  6.2 percent.

Question 7

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. Refer to the information given.If Indy sells all his shares at a price of $30 per share,he will receive a:

Accepted Answer

A)  total capital gain of $10. 
B)  dividend of $10 per share. 
C)  total capital gain of $1,000. 
D)  a capital gain of $30 per share. 
A)  total capital gain of $10. 
B)  dividend of $10 per share. 
C)  total capital gain of $1,000. 
D)  a capital gain of $30 per share.

Question 8

Suppose stock A sells for $50 per share and pays dividends of $2 per share per year.Stock B sells for $100 per share and pays dividends of $4 per share per year.Through the process of arbitrage,we would expect the price of:

Accepted Answer

A)  stock A to fall and/or the price of stock B to rise. 
B)  stock A to rise and/or the price of stock B to fall. 
C)  both stocks to rise or fall together. 
D)  neither stock to change. 
A)  stock A to fall and/or the price of stock B to rise. 
B)  stock A to rise and/or the price of stock B to fall. 
C)  both stocks to rise or fall together. 
D)  neither stock to change.

Question 9

Les buys a bond for $5,000.Every year that he holds the bond he will receive interest payments of $250.The interest rate on the bond:

Accepted Answer

A)  is 2 percent. 
B)  is 5 percent. 
C)  is 20 percent. 
D)  cannot be determined. 
A)  is 2 percent. 
B)  is 5 percent. 
C)  is 20 percent. 
D)  cannot be determined.

Question 10

The largest mutual fund,as of March 2013,held approximately _____ billion in assets under management.

Accepted Answer

A)  $75 
B)  $90 
C)  $130 
D)  $180 
A)  $75 
B)  $90 
C)  $130 
D)  $180

Question 11

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

Accepted Answer

A)  Bonds may be issued by corporations or government;stock is only issued by corporations. 
B)  Stock may be issued by corporations or government;bonds are only issued by corporations. 
C)  Bonds are only issued by government;stock is only issued by corporations. 
D)  There is no difference in terms of who issues stocks and bonds. 
A)  Bonds may be issued by corporations or government;stock is only issued by corporations. 
B)  Stock may be issued by corporations or government;bonds are only issued by corporations. 
C)  Bonds are only issued by government;stock is only issued by corporations. 
D)  There is no difference in terms of who issues stocks and bonds.

Question 12

Compound interest refers to the multiple interest rates an investor will be paid in a diversified portfolio.

Accepted Answer

A) True 
 B)False

Question 13

Calculate the present value of an asset worth $2,000 four years from now if the interest rate is 6 percent.

Accepted Answer

A)  $2,480. 
B)  $2,524.95. 
C)  $1,584.19. 
D)  $1,520. 
A)  $2,480. 
B)  $2,524.95. 
C)  $1,584.19. 
D)  $1,520.

Question 14

Suppose stock X has a beta of 2.5 and stock Y has a beta of 0.5.From this we can conclude that X has:

Accepted Answer

A)  5 times the nondiversifiable risk of the market portfolio. 
B)  5 times the nondiversifiable risk of Y. 
C)  2.5 times the nondiversifiable risk of Y. 
D)  2.5 times the diversifiable risk of the market portfolio. 
A)  5 times the nondiversifiable risk of the market portfolio. 
B)  5 times the nondiversifiable risk of Y. 
C)  2.5 times the nondiversifiable risk of Y. 
D)  2.5 times the diversifiable risk of the market portfolio.

Question 15

Index funds consistently beat actively managed funds because actively managed funds incur greater management costs.

Accepted Answer

A) True 
 B)False

Question 16

$200 invested in a savings account paying an annual interest rate of 5 percent will be worth how much at the end of five years,assuming all interest earned remains in the account?

Accepted Answer

A)  $1,250. 
B)  $250. 
C)  $267.25. 
D)  $255.26. 
A)  $1,250. 
B)  $250. 
C)  $267.25. 
D)  $255.26.

Question 17

Rates of return on short-term U.S.government bonds are compensation for:

Accepted Answer

A)  both the level of risk and the delaying of consumption. 
B)  delaying consumption only. 
C)  the level of risk only. 
D)  factors other than risk and delaying consumption. 
A)  both the level of risk and the delaying of consumption. 
B)  delaying consumption only. 
C)  the level of risk only. 
D)  factors other than risk and delaying consumption.

What is the difference between economic and financial investments?

Arbitrage equates rates of return across assets of all risk levels.

Which of the following equations shows how much X dollars will be worth if invested at an annual interest rate i for t years,if interest is compounded annually?

Average expected rates of return and levels of risk are positively related.

Suppose stock A sells for $30 per share and pays dividends of $1 per share per year.Stock B sells for $40 per share and pays dividends of $2 per share per year.Through the process of arbitrage,we would expect the price of:

(Advanced analysis)Alex wants to have $800 saved up at the end of 10 years.If he deposits $500 today,what annually compounded rate of interest would he have to earn to reach his goal?

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. Refer to the information given.If Indy sells all his shares at a price of $30 per share,he will receive a:

Suppose stock A sells for $50 per share and pays dividends of $2 per share per year.Stock B sells for $100 per share and pays dividends of $4 per share per year.Through the process of arbitrage,we would expect the price of:

Les buys a bond for $5,000.Every year that he holds the bond he will receive interest payments of $250.The interest rate on the bond:

The largest mutual fund,as of March 2013,held approximately _____ billion in assets under management.

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

Compound interest refers to the multiple interest rates an investor will be paid in a diversified portfolio.

Calculate the present value of an asset worth $2,000 four years from now if the interest rate is 6 percent.

Suppose stock X has a beta of 2.5 and stock Y has a beta of 0.5.From this we can conclude that X has:

Index funds consistently beat actively managed funds because actively managed funds incur greater management costs.

$200 invested in a savings account paying an annual interest rate of 5 percent will be worth how much at the end of five years,assuming all interest earned remains in the account?

Rates of return on short-term U.S.government bonds are compensation for:

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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Exam 36: Financial Economics

What is the difference between economic and financial investments?

Arbitrage equates rates of return across assets of all risk levels.

Which of the following equations shows how much X dollars will be worth if invested at an annual interest rate i for t years,if interest is compounded annually?

Average expected rates of return and levels of risk are positively related.

Suppose stock A sells for $30 per share and pays dividends of $1 per share per year.Stock B sells for $40 per share and pays dividends of $2 per share per year.Through the process of arbitrage,we would expect the price of:

(Advanced analysis)Alex wants to have $800 saved up at the end of 10 years.If he deposits $500 today,what annually compounded rate of interest would he have to earn to reach his goal?

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. Refer to the information given.If Indy sells all his shares at a price of $30 per share,he will receive a:

Suppose stock A sells for $50 per share and pays dividends of $2 per share per year.Stock B sells for $100 per share and pays dividends of $4 per share per year.Through the process of arbitrage,we would expect the price of:

Les buys a bond for $5,000.Every year that he holds the bond he will receive interest payments of $250.The interest rate on the bond:

The largest mutual fund,as of March 2013,held approximately _____ billion in assets under management.

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

Compound interest refers to the multiple interest rates an investor will be paid in a diversified portfolio.

Calculate the present value of an asset worth $2,000 four years from now if the interest rate is 6 percent.

Suppose stock X has a beta of 2.5 and stock Y has a beta of 0.5.From this we can conclude that X has:

Index funds consistently beat actively managed funds because actively managed funds incur greater management costs.

$200 invested in a savings account paying an annual interest rate of 5 percent will be worth how much at the end of five years,assuming all interest earned remains in the account?

Rates of return on short-term U.S.government bonds are compensation for:

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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