Question 1

One reason why stock picking cannot work well in the long run is that:

Accepted Answer

A)  the stock market is controlled by a small number of investors. 
B)  stock market information is widely available. 
C)  there is always inside information that most investors do not have. 
D)  the stock market is heavily regulated by the government. 
A)  the stock market is controlled by a small number of investors. 
B)  stock market information is widely available. 
C)  there is always inside information that most investors do not have. 
D)  the stock market is heavily regulated by the government.

Question 2

A stock that has a high covariance with market conditions is considered risky because:

Accepted Answer

A)  the stock belongs to a small company. 
B)  the stock does not fluctuate in value. 
C)  the stock moves against the market. 
D)  when the market is declining that stock will decline too. 
A)  the stock belongs to a small company. 
B)  the stock does not fluctuate in value. 
C)  the stock moves against the market. 
D)  when the market is declining that stock will decline too.

Question 3

High returns reward savers for bearing high risks.

Accepted Answer

A) True 
 B)False

Question 4

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 5

All of the following are economic roles of the stock market,EXCEPT that it:

Accepted Answer

A)  is an alternative to gambling. 
B)  channels funds from savers to firms that need capital. 
C)  provides valuable information about how firms are run. 
D)  helps finance new firms. 
A)  is an alternative to gambling. 
B)  channels funds from savers to firms that need capital. 
C)  provides valuable information about how firms are run. 
D)  helps finance new firms.

Question 6

Approximately how many years will it take for an investment of $1,000 that yields 5% a year to double in value?

Accepted Answer

A)  10 
B)  14 
C)  20 
D)  35 
A)  10 
B)  14 
C)  20 
D)  35

Question 7

Consider the market for ABC Company's stock.What should happen to the stock for ABC Company after a merger with a highly successful supply firm is announced?

Accepted Answer

A)  The demand for the stock would shift to the left. 
B)  The demand for the stock would shift to the right. 
C)  The supply of the stock would shift to the left. 
D)  The supply of the stock would shift to the right. 
A)  The demand for the stock would shift to the left. 
B)  The demand for the stock would shift to the right. 
C)  The supply of the stock would shift to the left. 
D)  The supply of the stock would shift to the right.

Question 8

A stock market bubble is a rise in stock prices that is not reflective of the underlying fundamentals of the company.

Accepted Answer

A) True 
 B)False

Question 9

According to the efficient markets hypothesis,investors who trade stocks actively earn higher than average returns.

Accepted Answer

A) True 
 B)False

Question 10

The efficient markets hypothesis implies that active investing strategies can outperform passive investing strategies.

Accepted Answer

A) True 
 B)False

Question 11

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 12

A diversified portfolio reduces risk.

Accepted Answer

A) True 
 B)False

Question 13

Mutual funds help investors diversify their investments.

Accepted Answer

A) True 
 B)False

Question 14

The Dow Jones Industrial Average:

Accepted Answer

A)  weights larger companies' stocks more than small companies' stocks. 
B)  has stocks from thousands of companies. 
C)  has stocks from 500 companies. 
D)  has stocks from 30 companies. 
A)  weights larger companies' stocks more than small companies' stocks. 
B)  has stocks from thousands of companies. 
C)  has stocks from 500 companies. 
D)  has stocks from 30 companies.

Question 15

During the price rise associated with a speculative bubble,capital is invested:

Accepted Answer

A)  efficiently. 
B)  in areas where it is not valuable. 
C)  with less risk than usual. 
D)  to prepare for another wave of price rises. 
A)  efficiently. 
B)  in areas where it is not valuable. 
C)  with less risk than usual. 
D)  to prepare for another wave of price rises.

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

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 18

Discuss the different ways that a person can diversify.

Accepted Answer

A person can diversify in many ways.For

Question 19

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 20

Which statement is TRUE regarding active investing?

Accepted Answer

A)  Active investing typically has higher average returns than passive investing. 
B)  Active investing and passive investing typically have equal returns on average. 
C)  Active investments typically have higher fees and lower returns on average than passive investments. 
D)  Active investing has been shown to be the only type of investing that can consistently "beat the market." 
A)  Active investing typically has higher average returns than passive investing. 
B)  Active investing and passive investing typically have equal returns on average. 
C)  Active investments typically have higher fees and lower returns on average than passive investments. 
D)  Active investing has been shown to be the only type of investing that can consistently "beat the market."

Exam 10: Stock Markets and Personal Finance

One reason why stock picking cannot work well in the long run is that:

A stock that has a high covariance with market conditions is considered risky because:

High returns reward savers for bearing high risks.

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

All of the following are economic roles of the stock market,EXCEPT that it:

Approximately how many years will it take for an investment of $1,000 that yields 5% a year to double in value?

Consider the market for ABC Company's stock.What should happen to the stock for ABC Company after a merger with a highly successful supply firm is announced?

A stock market bubble is a rise in stock prices that is not reflective of the underlying fundamentals of the company.

According to the efficient markets hypothesis,investors who trade stocks actively earn higher than average returns.

The efficient markets hypothesis implies that active investing strategies can outperform passive investing strategies.

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

A diversified portfolio reduces risk.

Mutual funds help investors diversify their investments.

The Dow Jones Industrial Average:

During the price rise associated with a speculative bubble,capital is invested:

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

The secret to stock picking is to:

Discuss the different ways that a person can diversify.

Technical analysis:

Which statement is TRUE regarding active investing?

The Big Ideas

The Power of Trade

Supply and Demand

Equilibrium- How Supply and Demand

Price Ceilings and Floors

GDP and the Measurement of Progress

The Wealth of Nations and Economic Growth

Growth,capital Accumulation

Saving,investment,and the Financial System

Unemployment and Labor Force Participation

Inflation and the Quantity Theory of Money

Business Fluctuations

Transmission and Amplification Mechanisms

The Federal Reserve System

Monetary Policy

The Federal Budget- Taxes and Spending

Fiscal Policy

International Trade

International Finance

Political Economy and Public Choice

Filters

One best reduces risk by buying stocks in sectors.