Question 1

The text argues that which statement is TRUE about Warren Buffett?

Accepted Answer

A)  His past performance has been purely a result of luck. 
B)  He has not been able to beat the market at any time. 
C)  He always beats the market using inside information. 
D)  It has become harder for him to beat the market over time. 
A)  His past performance has been purely a result of luck. 
B)  He has not been able to beat the market at any time. 
C)  He always beats the market using inside information. 
D)  It has become harder for him to beat the market over time.

Question 2

According to the rule of 70, a stock portfolio growing at a rate of 1.75% will double approximately every ______ years.

Accepted Answer

A)  5 
B)  10 
C)  20 
D)  40 
A)  5 
B)  10 
C)  20 
D)  40

Question 3

The secret to stock picking is to:

Accepted Answer

A)  pick one stock and hold it for a long time. 
B)  invest in a large basket of stocks from different sectors of the economy. 
C)  invest in stocks held by Berkshire-Hathaway. 
D)  invest in stocks from companies that sell green technologies. 
A)  pick one stock and hold it for a long time. 
B)  invest in a large basket of stocks from different sectors of the economy. 
C)  invest in stocks held by Berkshire-Hathaway. 
D)  invest in stocks from companies that sell green technologies.

Question 4

Diversification is an investment strategy to:

Accepted Answer

A)  maximize the return in stock investment. 
B)  minimize the risk in personal finance. 
C)  outperform the average stock market return. 
D)  reduce the risk of a given investment portfolio. 
A)  maximize the return in stock investment. 
B)  minimize the risk in personal finance. 
C)  outperform the average stock market return. 
D)  reduce the risk of a given investment portfolio.

Question 5

About the only way to beat a well-functioning market and make money in the short run is:
I. through the efficient markets hypothesis.
II. if one has insider information.
III. through extreme speed and foresight.

Accepted Answer

A)  I only 
B)  II and III only 
C)  II only 
D)  I, II, and III 
A)  I only 
B)  II and III only 
C)  II only 
D)  I, II, and III

Question 6

To diversify, a person who already holds stocks that move in the opposite direction of the stock market as a whole should:

Accepted Answer

A)  always buy more of the same stocks. 
B)  buy stocks that move in the same direction of the stock market as a whole. 
C)  buy stocks that have about the same expected returns as the stocks she already holds. 
D)  sell all her stocks immediately. 
A)  always buy more of the same stocks. 
B)  buy stocks that move in the same direction of the stock market as a whole. 
C)  buy stocks that have about the same expected returns as the stocks she already holds. 
D)  sell all her stocks immediately.

Question 7

The number of senior citizens will double by 2020, so investing in medical care and retirement homes is likely to generate above-normal market returns.

Accepted Answer

A) True 
 B)False

Question 8

In modern financial markets, it has become ______ to diversify one's portfolio.

Accepted Answer

A)  more difficult 
B)  easier 
C)  impossible 
D)  unavoidable 
A)  more difficult 
B)  easier 
C)  impossible 
D)  unavoidable

Question 9

Briefly list several important lessons for investing wisely that economics offers.

Accepted Answer

1. Passively managed funds outperform th

Question 10

When a speculative bubble bursts:

Accepted Answer

A)  people feel poorer because of lower stock prices and thus spend less. 
B)  employment usually increases. 
C)  there is minimal effect in the overall economy. 
D)  the effects are contained in the market whose prices have collapsed. 
A)  people feel poorer because of lower stock prices and thus spend less. 
B)  employment usually increases. 
C)  there is minimal effect in the overall economy. 
D)  the effects are contained in the market whose prices have collapsed.

Question 11

A speculative bubble is:

Accepted Answer

A)  a situation in which high stock prices cannot be explained by companies' prospects and profits. 
B)  easy to identify with technical analysis. 
C)  not based on psychological factors. 
D)  All of the answers are correct. 
A)  a situation in which high stock prices cannot be explained by companies' prospects and profits. 
B)  easy to identify with technical analysis. 
C)  not based on psychological factors. 
D)  All of the answers are correct.

Question 12

How long will it take an investment of $10,000 in a mutual fund that consistently earns an annual rate of return of 5% to double in value?

Accepted Answer

A)  5 years 
B)  14 years 
C)  70 years 
D)  350 years 
A)  5 years 
B)  14 years 
C)  70 years 
D)  350 years

Question 13

How do stock prices act as a signal for the future value of the firm?

Accepted Answer

A)  If firms merge, stock prices could rise indicating that the merger can result in greater profitability. 
B)  If stock prices rise, they could be indicating future profitability for the firm. 
C)  If stock prices fall, they could be indicating declining economic conditions. 
D)  All of these possibilities are correct. 
A)  If firms merge, stock prices could rise indicating that the merger can result in greater profitability. 
B)  If stock prices rise, they could be indicating future profitability for the firm. 
C)  If stock prices fall, they could be indicating declining economic conditions. 
D)  All of these possibilities are correct.

Question 14

Technical analysis:

Accepted Answer

A)  looks for patterns in stock prices. 
B)  can systematically beat market averages, according to research economists. 
C)  is useful for predicting when stocks will stay above certain price thresholds. 
D)  All of the answers are correct. 
A)  looks for patterns in stock prices. 
B)  can systematically beat market averages, according to research economists. 
C)  is useful for predicting when stocks will stay above certain price thresholds. 
D)  All of the answers are correct.

Question 15

In financial investment, a riskier asset typically has:

Accepted Answer

A)  a higher expected return. 
B)  a lower expected return. 
C)  the same expected return as a less risky asset. 
D)  a higher or lower expected return, depending on the industry. 
A)  a higher expected return. 
B)  a lower expected return. 
C)  the same expected return as a less risky asset. 
D)  a higher or lower expected return, depending on the industry.

Question 16

You are starting your first job after college and are looking for a mutual fund in which to invest some of your retirement savings. You research a number of mutual funds and find that fund A has generated above-normal returns for the past 2 years and has a highly respected fund manager. You also find that fund B has earned slightly below-average returns for the past 2 years, is being advertised as a good buy, and is expected to break through and earn high returns in the upcoming year. Based on the efficient markets hypothesis, which fund should you choose? Explain.

Accepted Answer

Based on the efficient markets

Question 17

Mutual funds help investors diversify their investments.

Accepted Answer

A) True 
 B)False

Question 18

Suppose you invest $1,000 in a mutual fund. If the annual return of that fund is 5%, how many years will it take before your fund is worth $2,000?

Accepted Answer

A)  10 years 
B)  14 years 
C)  20 years 
D)  never 
A)  10 years 
B)  14 years 
C)  20 years 
D)  never

Question 19

The BEST trading strategy is to:

Accepted Answer

A)  buy low and sell high. 
B)  buy high and sell low. 
C)  buy a couple of stocks and hold them for the long run. 
D)  buy a large bundle of stocks and hold them for the long run. 
A)  buy low and sell high. 
B)  buy high and sell low. 
C)  buy a couple of stocks and hold them for the long run. 
D)  buy a large bundle of stocks and hold them for the long run.

Question 20

All of the following are U.S. stock price indexes, EXCEPT:

Accepted Answer

A)  the Dow Jones Industrial. 
B)  the S&P 500. 
C)  the NASDAQ Composite. 
D)  the CPI. 
A)  the Dow Jones Industrial. 
B)  the S&P 500. 
C)  the NASDAQ Composite. 
D)  the CPI.

Exam 23: Stock Markets and Personal Finance

The text argues that which statement is TRUE about Warren Buffett?

According to the rule of 70, a stock portfolio growing at a rate of 1.75% will double approximately every ______ years.

The secret to stock picking is to:

Diversification is an investment strategy to:

About the only way to beat a well-functioning market and make money in the short run is: I. through the efficient markets hypothesis. II. if one has insider information. III. through extreme speed and foresight.

To diversify, a person who already holds stocks that move in the opposite direction of the stock market as a whole should:

The number of senior citizens will double by 2020, so investing in medical care and retirement homes is likely to generate above-normal market returns.

In modern financial markets, it has become ______ to diversify one's portfolio.

Briefly list several important lessons for investing wisely that economics offers.

When a speculative bubble bursts:

A speculative bubble is:

How long will it take an investment of $10,000 in a mutual fund that consistently earns an annual rate of return of 5% to double in value?

How do stock prices act as a signal for the future value of the firm?

Technical analysis:

In financial investment, a riskier asset typically has:

Mutual funds help investors diversify their investments.

Suppose you invest $1,000 in a mutual fund. If the annual return of that fund is 5%, how many years will it take before your fund is worth $2,000?

The BEST trading strategy is to:

All of the following are U.S. stock price indexes, EXCEPT:

The Big Ideas

The Power of Trade and Comparative

Supply and Demand

Equilibrium

Elasticity and Its Applications

Taxes and Subsidies

The Price System

Price Ceilings and Floors

International Trade

Externalities- When the Price Is Not Right

Costs and Profit Maximization Under Competition

Competition and the Invisible Hand

Monopoly

Price Discrimination

Oligopoly and Game Theory

Competing for Monopoly

Monopolistic Competition and Advertising

Labor Markets

Public Goods and the Tragedy of the Commons

Political Economy and Public Choice

Economics, Ethics, and Public Policy

Managing Incentives

Price Discrimination

Consumer Choice

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