Question 1

A mutual fund is a good way for an investor to diversify in investment because:

Accepted Answer

A)  a mutual fund consists of a large number of stocks so the cost of buying all of them at the same time is lower. 
B)  when the prices of risky stocks go up, the prices of less risky stocks must go down. 
C)  not all stock prices move up or down at the same time. 
D)  there are many buyers of a mutual fund so that the risk is spread across all the buyers. 
A)  a mutual fund consists of a large number of stocks so the cost of buying all of them at the same time is lower. 
B)  when the prices of risky stocks go up, the prices of less risky stocks must go down. 
C)  not all stock prices move up or down at the same time. 
D)  there are many buyers of a mutual fund so that the risk is spread across all the buyers.

Question 2

Investing in antique guitars:

Accepted Answer

A)  is likely to bring high returns because many people enjoy playing guitar. 
B)  will not bring high returns because fun activities yield lower financial returns. 
C)  is a good idea because they "ain't making any more." 
D)  None of the answers is correct. 
A)  is likely to bring high returns because many people enjoy playing guitar. 
B)  will not bring high returns because fun activities yield lower financial returns. 
C)  is a good idea because they "ain't making any more." 
D)  None of the answers is correct.

Question 3

The way you can take advantage of information that other people do not have is to start buying or selling large numbers of shares.

Accepted Answer

A) True 
 B)False

Question 4

The efficient markets hypothesis says that the ______ value of traded assets reflects all ______ information.

Accepted Answer

A)  current; privately held 
B)  past; publicly available 
C)  current; publicly available 
D)  past; privately held 
A)  current; privately held 
B)  past; publicly available 
C)  current; publicly available 
D)  past; privately held

Question 5

If the efficient markets hypothesis holds, then only investors with inside information can earn a return higher than the stock market average return.

Accepted Answer

A) True 
 B)False

Question 6

Passively investing in the S&P 500 Index:

Accepted Answer

A)  provides rates of return that are approximately 5% higher than the Dow Jones Industrial Average Index. 
B)  beats the rate of returns of the majority of all mutual funds in a typical year. 
C)  is a strategy that is less profitable over the long-term than investing in actively managed funds. 
D)  provides rates of return that are about 20% lower than the Dow Jones Industrial Average Index. 
A)  provides rates of return that are approximately 5% higher than the Dow Jones Industrial Average Index. 
B)  beats the rate of returns of the majority of all mutual funds in a typical year. 
C)  is a strategy that is less profitable over the long-term than investing in actively managed funds. 
D)  provides rates of return that are about 20% lower than the Dow Jones Industrial Average Index.

Question 7

Historically, stocks offer __________ returns than bonds in the long run.

Accepted Answer

A)  higher 
B)  lower 
C)  the same 
D)  None of the answers is correct. It depends on the types of stocks or bonds. 
A)  higher 
B)  lower 
C)  the same 
D)  None of the answers is correct. It depends on the types of stocks or bonds.

Question 8

Which statement is NOT true?

Accepted Answer

A)  Portfolio managers should diversify investments. 
B)  The promise of higher returns is accompanied by higher risk. 
C)  A single investor can consistently beat the market over the long term. 
D)  Active stock markets are an important part of the economy. 
A)  Portfolio managers should diversify investments. 
B)  The promise of higher returns is accompanied by higher risk. 
C)  A single investor can consistently beat the market over the long term. 
D)  Active stock markets are an important part of the economy.

Question 9

The disaster at Chernobyl caused the price of oil to:

Accepted Answer

A)  increase. 
B)  decrease. 
C)  remain the same. 
D)  change in an indeterminate direction. 
A)  increase. 
B)  decrease. 
C)  remain the same. 
D)  change in an indeterminate direction.

Question 10

The expected return on different assets, after adjusting for risk, will be equal to zero.

Accepted Answer

A) True 
 B)False

Question 11

The risk-return trade-off says that higher risk is associated with lower expected returns.

Accepted Answer

A) True 
 B)False

Question 12

Mutual funds primarily offer the service of diversification of investments.

Accepted Answer

A) True 
 B)False

Question 13

To follow the buy and hold strategy, an investor must buy stocks when they are at low prices and hold them only when the prices are rising.

Accepted Answer

A) True 
 B)False

Question 14

Discuss the main reason why it is "hard to beat the market" in financial investment?

Accepted Answer

According to the efficient markets hypot

Question 15

The risk-return trade-off refers to the fact that:

Accepted Answer

A)  low risk means high potential returns. 
B)  high risk means low potential returns. 
C)  high risk means high potential returns. 
D)  low risk can be eliminated by high returns. 
A)  low risk means high potential returns. 
B)  high risk means low potential returns. 
C)  high risk means high potential returns. 
D)  low risk can be eliminated by high returns.

Question 16

One best reduces risk by buying ______ stocks in ______ sectors.

Accepted Answer

A)  few; a few 
B)  few; many 
C)  many; few 
D)  many; many 
A)  few; a few 
B)  few; many 
C)  many; few 
D)  many; many

Question 17

Stockbrokers make _____ commissions the _____ their clients buy and sell stocks.

Accepted Answer

A)  lower; more frequently 
B)  higher; more frequently 
C)  higher; less frequently 
D)  zero; more frequently 
A)  lower; more frequently 
B)  higher; more frequently 
C)  higher; less frequently 
D)  zero; more frequently

Question 18

According to the rule of 70, a stock portfolio growing at a rate of 7% will double approximately every ______ years.

Accepted Answer

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

Question 19

In a given year, the S&P 500 Index fund outperforms about ______ of all active funds.

Accepted Answer

A)  20% 
B)  40% 
C)  60% 
D)  80% 
A)  20% 
B)  40% 
C)  60% 
D)  80%

Question 20

Which statement is consistent with the efficient markets hypothesis?

Accepted Answer

A)  The majority of stock mutual funds cannot outperform stock composite indexes. 
B)  No mutual funds can outperform stock composite indexes at any time. 
C)  No one can earn a return in the stock market. 
D)  Technical analysis is the only way to beat the market over time. 
A)  The majority of stock mutual funds cannot outperform stock composite indexes. 
B)  No mutual funds can outperform stock composite indexes at any time. 
C)  No one can earn a return in the stock market. 
D)  Technical analysis is the only way to beat the market over time.

Exam 23: Stock Markets and Personal Finance

A mutual fund is a good way for an investor to diversify in investment because:

Investing in antique guitars:

The way you can take advantage of information that other people do not have is to start buying or selling large numbers of shares.

The efficient markets hypothesis says that the ______ value of traded assets reflects all ______ information.

If the efficient markets hypothesis holds, then only investors with inside information can earn a return higher than the stock market average return.

Passively investing in the S&P 500 Index:

Historically, stocks offer __________ returns than bonds in the long run.

Which statement is NOT true?

The disaster at Chernobyl caused the price of oil to:

The expected return on different assets, after adjusting for risk, will be equal to zero.

The risk-return trade-off says that higher risk is associated with lower expected returns.

Mutual funds primarily offer the service of diversification of investments.

To follow the buy and hold strategy, an investor must buy stocks when they are at low prices and hold them only when the prices are rising.

Discuss the main reason why it is "hard to beat the market" in financial investment?

The risk-return trade-off refers to the fact that:

One best reduces risk by buying ______ stocks in ______ sectors.

Stockbrokers make _____ commissions the _____ their clients buy and sell stocks.

According to the rule of 70, a stock portfolio growing at a rate of 7% will double approximately every ______ years.

In a given year, the S&P 500 Index fund outperforms about ______ of all active funds.

Which statement is consistent with the efficient markets hypothesis?

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

Filters

The efficient markets hypothesis says that the value of traded assets reflects all information.

One best reduces risk by buying stocks in sectors.

Stockbrokers make _ commissions the _ their clients buy and sell stocks.