Exam 10: Stock Markets and Personal Finance

According to the efficient markets hypothesis,the prices of traded assets,such as stocks and bonds,reflect all publicly traded information.

Diversification typically ______ portfolio risk.

NASDAQ stands for the National Association of Security Dealers Automated Quotations.

It is recommended that investors buy stocks from a large number of different companies,avoid high fees,and hold the stocks for a long period.

The investment approach of one of TIAA-CREF's mutual funds is: "[This fund]...seeks a favorable long-term rate of return from a diversified portfolio selected to track the overall market for common stocks publicly traded in the United States,as represented by a broad stock market index." This fund is a(n):

Financial returns on houses are _______ over long periods of time because part of the return on housing is from ________.

Which statement is NOT true?

In a typical year,passive infesting in the S&P 500 Index does not beat about 60% of all mutual funds.

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

One of the problems with investment advice that claims you should buy stock in a certain company or sector of the economy is that:

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

If the expected return on stocks is 10%,the monetary return from investing in art will be less than 10% because there is a fun return to art.

Suppose the benefit of owning a painting,in terms of your personal enjoyment,is worth 5% of the value of the painting.If the expected rate of return on stocks is 7%,then the painting should grow in value by _________ per year.

Paying an expert to help pick stocks will likely yield better returns than most alternative strategies for stock selection.

In a market of 2,000 investors who each year flip a coin to predict market success or failure,how many investors will have been consistently right after 5 years? (Assume the coin tosses yield heads exactly 50% of the time. )

The manager of a passive mutual fund:

In a stock market,a riskier stock typically has:

Which is an example of passive investing?

Roulette is a gambling game where a wheel with 37 (Fr. )or 38 (Am. )squares spins around in one direction and a ball runs along its circumference in the opposite direction.Eventually the ball loses momentum and lands in a square.Roulette wheels pay 35-to-1 on a winning square.In other words,a $10 bet on square 20 will pay $350 if the ball lands on square 20.Many people feel this is an excellent payout and thus consider it superior to other games with lower payouts.Why is this payout less of a good deal than some might think?

If a person follows a buy-and-hold strategy,she will initially hold stocks: