Question 1

High fees:

Accepted Answer

A)  are not likely to generate higher returns in the long run because of the efficient markets hypothesis. 
B)  are not likely to generate higher returns in the long run because of diversification issues. 
C)  can often signal a higher-quality management and thus higher returns in the long run. 
D)  have little impact on your long-run returns to investing. 
A)  are not likely to generate higher returns in the long run because of the efficient markets hypothesis. 
B)  are not likely to generate higher returns in the long run because of diversification issues. 
C)  can often signal a higher-quality management and thus higher returns in the long run. 
D)  have little impact on your long-run returns to investing.

Question 2

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.

Question 3

According to the efficient markets hypothesis,:

Accepted Answer

A)  everyone can outperform the stock market indexes. 
B)  when one investor outperforms the stock market index,another investor must underperform. 
C)  ordinary investors should always follow the advice of market geniuses like Warren Buffet. 
D)  no investor can consistently outperform the stock market indexes. 
A)  everyone can outperform the stock market indexes. 
B)  when one investor outperforms the stock market index,another investor must underperform. 
C)  ordinary investors should always follow the advice of market geniuses like Warren Buffet. 
D)  no investor can consistently outperform the stock market indexes.

Question 4

A real return of 10% per year means that a $10,000 investment will grow to $20,000 in:

Accepted Answer

A)  10 years. 
B)  7 years. 
C)  15 years. 
D)  20 years. 
A)  10 years. 
B)  7 years. 
C)  15 years. 
D)  20 years.

Question 5

Speculative bubbles can make some people very rich and other people very poor.Explain why these bubbles are bad for the economy as a whole.What role does price as a conveyor of information play? Explain.

Accepted Answer

Speculative bubbles are bad for the econ

Question 6

The first secret to picking stocks is to pick many of them!

Accepted Answer

A) True 
 B)False

Question 7

The fact that the majority of stock mutual funds cannot outperform the stock market averages is consistent with:

Accepted Answer

A)  the no free lunch principle. 
B)  the risk-return trade-off principle. 
C)  the efficient markets hypothesis. 
D)  the active trading hypothesis. 
A)  the no free lunch principle. 
B)  the risk-return trade-off principle. 
C)  the efficient markets hypothesis. 
D)  the active trading hypothesis.

Question 8

The principle of compounding implies that:

Accepted Answer

A)  we should diversify enough so that the returns on different stocks will be the same at some time in the future. 
B)  any difference in the rate of investment returns will stay constant over time. 
C)  a small difference in the rate of investment returns makes no difference over a long period. 
D)  a small difference in the rate of investment returns can have a large difference over a long period. 
A)  we should diversify enough so that the returns on different stocks will be the same at some time in the future. 
B)  any difference in the rate of investment returns will stay constant over time. 
C)  a small difference in the rate of investment returns makes no difference over a long period. 
D)  a small difference in the rate of investment returns can have a large difference over a long period.

Question 9

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 10

When a stock has an average rate of return of 10% per year,then the value of the stock:

Accepted Answer

A)  triples in 5 years. 
B)  doubles in 7 years. 
C)  doubles in 10 years. 
D)  triples in 10 years. 
A)  triples in 5 years. 
B)  doubles in 7 years. 
C)  doubles in 10 years. 
D)  triples in 10 years.

Question 11

John Stossel followed his "dart picked" portfolio for a year and found it beat 90% of the experts.

Accepted Answer

A) True 
 B)False

Question 12

A mutual fund run by a manager who picks stocks is termed a(n)______ fund.

Accepted Answer

A)  active 
B)  passive 
C)  dormant 
D)  moving 
A)  active 
B)  passive 
C)  dormant 
D)  moving

Question 13

To say that a stock price is a signal means that:

Accepted Answer

A)  society can determine the value of a firm. 
B)  people transfer firm ownership via the signals. 
C)  lower stock prices imply better value. 
D)  speculative bubbles can be avoided. 
A)  society can determine the value of a firm. 
B)  people transfer firm ownership via the signals. 
C)  lower stock prices imply better value. 
D)  speculative bubbles can be avoided.

Question 14

Which statement is TRUE?

Accepted Answer

A)  One should avoid investing in bonds because they give lower returns than do stocks. 
B)  If you need your money for something in 2 years,avoid putting it in stocks. 
C)  Retirees should allocate more of their investments to stocks. 
D)  Recent college graduates should allocate more of their money to bonds than to stocks. 
A)  One should avoid investing in bonds because they give lower returns than do stocks. 
B)  If you need your money for something in 2 years,avoid putting it in stocks. 
C)  Retirees should allocate more of their investments to stocks. 
D)  Recent college graduates should allocate more of their money to bonds than to stocks.

Question 15

An efficient stock market means that:

Accepted Answer

A)  it is difficult to outperform the market,since stock prices convey all relevant public information about a company. 
B)  traders with inside information cannot even outperform market averages. 
C)  new information is slowly reflected in stock prices. 
D)  All of the answers are correct. 
A)  it is difficult to outperform the market,since stock prices convey all relevant public information about a company. 
B)  traders with inside information cannot even outperform market averages. 
C)  new information is slowly reflected in stock prices. 
D)  All of the answers are correct.

Question 16

Over a 10-year span,the S&P 500 Index fund outperforms about ______ of all active funds.

Accepted Answer

A)  37% 
B)  57% 
C)  77% 
D)  97% 
A)  37% 
B)  57% 
C)  77% 
D)  97%

Question 17

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

Question 18

"Buy and hold" involves buying stocks and holding them:

Accepted Answer

A)  until a cheaper stock comes along. 
B)  for a time proportional to the real interest rate. 
C)  until the price increases even just a little. 
D)  for the long run. 
A)  until a cheaper stock comes along. 
B)  for a time proportional to the real interest rate. 
C)  until the price increases even just a little. 
D)  for the long run.

Question 19

The field of technical analysis:

Accepted Answer

A)  has been able to beat the market in the long run if enough data is analyzed. 
B)  has been unable to consistently beat the market. 
C)  is also known as active investing. 
D)  is difficult since stock market data is hard to come by. 
A)  has been able to beat the market in the long run if enough data is analyzed. 
B)  has been unable to consistently beat the market. 
C)  is also known as active investing. 
D)  is difficult since stock market data is hard to come by.

Question 20

Someone offers you a hot tip that promises a large payoff in the stock market.How would you respond to this person,based on the simple and practical guidance found in this chapter?

Accepted Answer

Answers will vary.The best answer is the

Exam 10: Stock Markets and Personal Finance

High fees:

Which statement is consistent with the efficient markets hypothesis?

According to the efficient markets hypothesis,:

A real return of 10% per year means that a $10,000 investment will grow to $20,000 in:

Speculative bubbles can make some people very rich and other people very poor.Explain why these bubbles are bad for the economy as a whole.What role does price as a conveyor of information play? Explain.

The first secret to picking stocks is to pick many of them!

The fact that the majority of stock mutual funds cannot outperform the stock market averages is consistent with:

The principle of compounding implies that:

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

When a stock has an average rate of return of 10% per year,then the value of the stock:

John Stossel followed his "dart picked" portfolio for a year and found it beat 90% of the experts.

A mutual fund run by a manager who picks stocks is termed a(n)______ fund.

To say that a stock price is a signal means that:

Which statement is TRUE?

An efficient stock market means that:

Over a 10-year span,the S&P 500 Index fund outperforms about ______ of all active funds.

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.

"Buy and hold" involves buying stocks and holding them:

The field of technical analysis:

Someone offers you a hot tip that promises a large payoff in the stock market.How would you respond to this person,based on the simple and practical guidance found in this chapter?

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