Question 1

Stock markets are a way of:

Accepted Answer

A)  making everyone rich. 
B)  raising capital for new investments. 
C)  equalizing the distribution of wealth. 
D)  securing long-term savings. 
A)  making everyone rich. 
B)  raising capital for new investments. 
C)  equalizing the distribution of wealth. 
D)  securing long-term savings.

Question 2

An individual who buys__________ has a poor diversification strategy.

Accepted Answer

A)  stock in gun manufacturing, ammunitions, and rifle companies 
B)  stock in textbook publishing, tea and coffee production, and the technology sector 
C)  T-bills, corporate bonds, and technology stocks 
D)  government bonds, technology stocks, and agricultural stocks 
A)  stock in gun manufacturing, ammunitions, and rifle companies 
B)  stock in textbook publishing, tea and coffee production, and the technology sector 
C)  T-bills, corporate bonds, and technology stocks 
D)  government bonds, technology stocks, and agricultural stocks

Question 3

John Stossel's investment strategy of ______ beat 90% of the experts' portfolios.

Accepted Answer

A)  buying low-priced but high-valued stocks 
B)  picking the highest-priced stocks 
C)  picking stocks by throwing darts at a newspaper's stock page 
D)  buying stocks of companies with newly released products 
A)  buying low-priced but high-valued stocks 
B)  picking the highest-priced stocks 
C)  picking stocks by throwing darts at a newspaper's stock page 
D)  buying stocks of companies with newly released products

Question 4

The risk-return trade-off is an example of:

Accepted Answer

A)  the sunk cost principle. 
B)  the no free lunch principle. 
C)  the capitalist principle. 
D)  the inelastic principle. 
A)  the sunk cost principle. 
B)  the no free lunch principle. 
C)  the capitalist principle. 
D)  the inelastic principle.

Question 5

Over time, ______ to beat the market.

Accepted Answer

A)  all forms of technical analysis are shown 
B)  some forms of technical analysis are shown 
C)  no forms of technical analysis are shown 
D)  technical analysis has been abandoned as a means 
A)  all forms of technical analysis are shown 
B)  some forms of technical analysis are shown 
C)  no forms of technical analysis are shown 
D)  technical analysis has been abandoned as a means

Question 6

A mutual fund is:

Accepted Answer

A)  an investment fund that pools money from many investors and invests that money in the stocks of many firms. 
B)  generally a share of company stock owned by multiple people. 
C)  a company that specializes in lending new businesses money. 
D)  the source of funds that banks use to make home and automobile loans. 
A)  an investment fund that pools money from many investors and invests that money in the stocks of many firms. 
B)  generally a share of company stock owned by multiple people. 
C)  a company that specializes in lending new businesses money. 
D)  the source of funds that banks use to make home and automobile loans.

Question 7

The NASDAQ:

Accepted Answer

A)  weights individual stocks equally. 
B)  gives greater weight to larger stocks than does the Dow. 
C)  gives greater weight to high-tech stocks than does the Dow. 
D)  has 30 stocks. 
A)  weights individual stocks equally. 
B)  gives greater weight to larger stocks than does the Dow. 
C)  gives greater weight to high-tech stocks than does the Dow. 
D)  has 30 stocks.

Question 8

The efficient markets hypothesis is the idea that:

Accepted Answer

A)  asset prices represent all publicly available information. 
B)  stock values revert to their historical mean values. 
C)  the prices of assets are systemically biased, allowing savvy investors to make above-market returns by exploiting the efficiency losses. 
D)  stock buyers are more likely to assess financial information more efficiently than the sellers of stocks. 
A)  asset prices represent all publicly available information. 
B)  stock values revert to their historical mean values. 
C)  the prices of assets are systemically biased, allowing savvy investors to make above-market returns by exploiting the efficiency losses. 
D)  stock buyers are more likely to assess financial information more efficiently than the sellers of stocks.

Question 9

According to the rule of 70, a stock portfolio growing at a rate of 3.5% will double approximately every ______ years.

Accepted Answer

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

Question 10

The textbook recommends buying mutual funds that:

Accepted Answer

A)  charge high commissions. 
B)  charge large management fees. 
C)  have high loads. 
D)  have the lowest fees. 
A)  charge high commissions. 
B)  charge large management fees. 
C)  have high loads. 
D)  have the lowest fees.

Question 11

No investor will ever be able to consistently beat the market.

Accepted Answer

A) True 
 B)False

Question 12

When a stock index rises, it means that:

Accepted Answer

A)  all stocks on the index have risen in value. 
B)  the weighted average of all stock prices in the index has risen. 
C)  all stocks on that index are equally weighted. 
D)  All of the answers are correct. 
A)  all stocks on the index have risen in value. 
B)  the weighted average of all stock prices in the index has risen. 
C)  all stocks on that index are equally weighted. 
D)  All of the answers are correct.

Question 13

The riskiest stocks are those that have a high positive correlation with the market as a whole.

Accepted Answer

A) True 
 B)False

Question 14

According to the rule of 70, if the interest rate on a bank deposit is 5% per year, how long will it take for the bank deposit to double in value?

Accepted Answer

A)  25 years 
B)  20 years 
C)  14 years 
D)  It depends on the amount of bank deposit. 
A)  25 years 
B)  20 years 
C)  14 years 
D)  It depends on the amount of bank deposit.

Question 15

Some skeptical economists say that successful brokers like Warren Buffett are:

Accepted Answer

A)  able to see the future. 
B)  just lucky. 
C)  incredibly smart at picking winning stocks. 
D)  likely to remain successful. 
A)  able to see the future. 
B)  just lucky. 
C)  incredibly smart at picking winning stocks. 
D)  likely to remain successful.

Question 16

Which is helpful in stock investment strategies?

Accepted Answer

A)  buying undervalued stocks 
B)  holding stocks for a long period of time 
C)  lucky picks 
D)  All of the answers are correct. 
A)  buying undervalued stocks 
B)  holding stocks for a long period of time 
C)  lucky picks 
D)  All of the answers are correct.

Question 17

Figure: Risk   Refer to the figure. Which curve in the diagram correctly identifies the relationship between risk and return?

Accepted Answer

A)  A 
B)  B 
C)  C 
D)  D 
A)  A 
B)  B 
C)  C 
D)  D

Question 18

Someone who purchased stock in___________ seems to have followed a diversification strategy.

Accepted Answer

A)  lumber, paper, and furniture companies 
B)  oil, telecommunications, and clothing companies 
C)  silicon chips, computer, and cell phone companies 
D)  cat food, dog food, and dog bone companies 
A)  lumber, paper, and furniture companies 
B)  oil, telecommunications, and clothing companies 
C)  silicon chips, computer, and cell phone companies 
D)  cat food, dog food, and dog bone companies

Question 19

Compared to stocks, art investments have _____ monetary returns because they offer ______ nonpecuniary returns.

Accepted Answer

A)  lower; lower 
B)  higher; higher 
C)  lower; higher 
D)  higher; lower 
A)  lower; lower 
B)  higher; higher 
C)  lower; higher 
D)  higher; lower

Question 20

Which of the following is TRUE of mutual funds?
I. Active funds generally give higher returns than passive funds.
II. Most mutual funds generally give higher returns than broad stock indexes.

Accepted Answer

A)  I only 
B)  II only 
C)  both I and II 
D)  neither I nor II 
A)  I only 
B)  II only 
C)  both I and II 
D)  neither I nor II

Exam 23: Stock Markets and Personal Finance

Stock markets are a way of:

An individual who buys__________ has a poor diversification strategy.

John Stossel's investment strategy of ______ beat 90% of the experts' portfolios.

The risk-return trade-off is an example of:

Over time, ______ to beat the market.

A mutual fund is:

The NASDAQ:

The efficient markets hypothesis is the idea that:

According to the rule of 70, a stock portfolio growing at a rate of 3.5% will double approximately every ______ years.

The textbook recommends buying mutual funds that:

No investor will ever be able to consistently beat the market.

When a stock index rises, it means that:

The riskiest stocks are those that have a high positive correlation with the market as a whole.

According to the rule of 70, if the interest rate on a bank deposit is 5% per year, how long will it take for the bank deposit to double in value?

Some skeptical economists say that successful brokers like Warren Buffett are:

Which is helpful in stock investment strategies?

Figure: Risk Refer to the figure. Which curve in the diagram correctly identifies the relationship between risk and return?

Someone who purchased stock in___________ seems to have followed a diversification strategy.

Compared to stocks, art investments have _____ monetary returns because they offer ______ nonpecuniary returns.

Which of the following is TRUE of mutual funds? I. Active funds generally give higher returns than passive funds. II. Most mutual funds generally give higher returns than broad stock indexes.

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

Compared to stocks, art investments have _ monetary returns because they offer __ nonpecuniary returns.