Question 1

One asset has a beta of 1.5 and another asset has a beta of 0.75. The difference in beta mean that the asset with a beta of 0.75 has:

Accepted Answer

A)  75 percent less nondiversifiable risk than the asset with a beta of 1.5 
B)  75 percent more nondiversifiable risk than the asset with a beta of 1.5 
C)  Twice as much nondiversifiable risk as the asset with a beta of 1.5 
D)  One-half of the nondiversifiable risk of the asset with a beta of 1.5 
A)  75 percent less nondiversifiable risk than the asset with a beta of 1.5 
B)  75 percent more nondiversifiable risk than the asset with a beta of 1.5 
C)  Twice as much nondiversifiable risk as the asset with a beta of 1.5 
D)  One-half of the nondiversifiable risk of the asset with a beta of 1.5

Question 2

Tracy won a $100 million jackpot. She can receive the jackpot as a $5 million payment each year for 20 years, or she can ask to receive the present value of all those payments all at once now. Assume an annual interest rate of 5 percent. If she decides to take the present value payment, about how much will she receive?

Accepted Answer

A)  $52.1 million 
B)  $62.3 million 
C)  $71.4 million 
D)  $78.6 million 
A)  $52.1 million 
B)  $62.3 million 
C)  $71.4 million 
D)  $78.6 million

Question 3

Risk in financial economics refers mainly to the chance that an investment could lose value.

Accepted Answer

A) True 
 B)False

Question 4

A manufacturing firm takes out a $500,000 loan to expand its plant. The loan has an annual interest rate of 7 percent. What would be the total compounded interest on the loan at the end of five years, excluding the principal?

Accepted Answer

A)  $175,000 
B)  $35,075 
C)  $150,750 
D)  $201,275 
A)  $175,000 
B)  $35,075 
C)  $150,750 
D)  $201,275

Question 5

Joseph is considering purchasing a condo. He has the option of buying one in Midtown with a present value of $150,000 or one in downtown with a future value of $200,000. If the current market interest rate is 5 percent and he wants to buy the home with the highest future value in 5 years, he should buy the condo in downtown.

Accepted Answer

A) True 
 B)False

Question 6

A key reason that actively managed funds have lower returns than index funds with a similar level of risk is that:

Accepted Answer

A)  Index funds require more buying and selling to generate their returns 
B)  Management and trading costs reduce the returns of actively managed funds 
C)  Index funds spend more on research and management 
D)  Diversification is more important to actively managed funds 
A)  Index funds require more buying and selling to generate their returns 
B)  Management and trading costs reduce the returns of actively managed funds 
C)  Index funds spend more on research and management 
D)  Diversification is more important to actively managed funds

Question 7

Short-term U.S. government securities are practically risk-free and thus their rates of return are payments solely for:

Accepted Answer

A)  Diversifiable risk 
B)  Time preference 
C)  Idiosyncratic risk 
D)  Pure profit 
A)  Diversifiable risk 
B)  Time preference 
C)  Idiosyncratic risk 
D)  Pure profit

Question 8

You believe that a certain asset, like a business or shop, is going to be worth $100 million in five years. If the interest rate is 5%, then that asset will be worth $75 million today.

Accepted Answer

A) True 
 B)False

Question 9

Investors evaluate an investment by estimating its average expected rate of return, and this estimation process assigns higher weights to:

Accepted Answer

A)  Higher returns 
B)  More likely outcomes 
C)  Higher risks 
D)  Smaller returns 
A)  Higher returns 
B)  More likely outcomes 
C)  Higher risks 
D)  Smaller returns

Question 10

When the Securities Market Line shifts up, the average expected rate of return on investment assets with given risk levels is increasing.

Accepted Answer

A) True 
 B)False

Question 11

You deposit $5,000 into a 10-year bank CD that pays 6.5% annual compound interest rate. When the CD matures in 10 years, you will get more than $9,000 from it.

Accepted Answer

A) True 
 B)False

Question 12

Matt, a star basketball player, is looking to join a new NBA team. The Bulls are offering him $24 million for one year. The Heat is offering him $10 million this year and $7.0 million in each of the next two years. The market interest rate is 5 percent. What is the present value of the offer from The Heat in millions (rounded to the nearest one hundred thousand dollars)?

Accepted Answer

A)  $22.5 million 
B)  $23.0 million 
C)  $24.0 million 
D)  $25.2 million 
A)  $22.5 million 
B)  $23.0 million 
C)  $24.0 million 
D)  $25.2 million

Question 13

Stocks represent a debt, and buyers of stock expect to earn interest.

Accepted Answer

A) True 
 B)False

Question 14

People tend to be impatient, and they typically prefer to:

Accepted Answer

A)  Save for later rather than spend now 
B)  Be paid to consume now rather than in the future 
C)  Be paid to consume in the future rather than now 
D)  Pay in order to consume in the future rather than now 
A)  Save for later rather than spend now 
B)  Be paid to consume now rather than in the future 
C)  Be paid to consume in the future rather than now 
D)  Pay in order to consume in the future rather than now

Question 15

Which one of the following is a feature of all investments?

Accepted Answer

A)  They provide regular interest payments 
B)  They are typically long term 
C)  They have minimal risk for future payments to be made 
D)  They give owners a chance to receive future payments 
A)  They provide regular interest payments 
B)  They are typically long term 
C)  They have minimal risk for future payments to be made 
D)  They give owners a chance to receive future payments

Question 16

Refer to the graph above. The point Y represents the:

Accepted Answer

A)  Rate of return for the market portfolio 
B)  Rate of return for the risk-free asset 
C)  Risk premium for the market portfolio 
D)  Compensation for time preference for a given asset 
A)  Rate of return for the market portfolio 
B)  Rate of return for the risk-free asset 
C)  Risk premium for the market portfolio 
D)  Compensation for time preference for a given asset

Question 17

If an amount "$AAA" today earns interest at a rate of "i"% per year, then the accumulated amount at the end of "n" years will be:

Accepted Answer

A)  $AAA × n × i 
B)  $AAA × in 
C)  ($AA
A) n × (1 + i) 
D)  $AAA × (1 + i)n 
A)  $AAA × n × i 
B)  $AAA × in 
C)  ($AA
A) n × (1 + i) 
D)  $AAA × (1 + i)n

Question 18

The so-called market portfolio used as a benchmark in financial economics is:

Accepted Answer

A)  The lowest risk portfolio 
B)  The most diversified portfolio 
C)  The portfolio with the highest expected return 
D)  The portfolio with zero systemic risk 
A)  The lowest risk portfolio 
B)  The most diversified portfolio 
C)  The portfolio with the highest expected return 
D)  The portfolio with zero systemic risk

Question 19

Susan recently purchased a home for $150,000. She plans to rent it out for $1,000 per month for a year. Had the house cost $200,000 instead, her expected rate of return would have:

Accepted Answer

A)  Decreased by 1 percentage point 
B)  Decreased by 2 percentage point 
C)  Increased by 2 percentage point 
D)  Increased by 3 percentage point 
A)  Decreased by 1 percentage point 
B)  Decreased by 2 percentage point 
C)  Increased by 2 percentage point 
D)  Increased by 3 percentage point

Question 20

The type of risk that pushes the returns from all investment in the same direction at the same time is:

Accepted Answer

A)  Idiosyncratic 
B)  Diversifiable 
C)  Systemic 
D)  Time preference 
A)  Idiosyncratic 
B)  Diversifiable 
C)  Systemic 
D)  Time preference

One asset has a beta of 1.5 and another asset has a beta of 0.75. The difference in beta mean that the asset with a beta of 0.75 has:

Risk in financial economics refers mainly to the chance that an investment could lose value.

A manufacturing firm takes out a $500,000 loan to expand its plant. The loan has an annual interest rate of 7 percent. What would be the total compounded interest on the loan at the end of five years, excluding the principal?

A key reason that actively managed funds have lower returns than index funds with a similar level of risk is that:

Short-term U.S. government securities are practically risk-free and thus their rates of return are payments solely for:

You believe that a certain asset, like a business or shop, is going to be worth $100 million in five years. If the interest rate is 5%, then that asset will be worth $75 million today.

Investors evaluate an investment by estimating its average expected rate of return, and this estimation process assigns higher weights to:

When the Securities Market Line shifts up, the average expected rate of return on investment assets with given risk levels is increasing.

You deposit $5,000 into a 10-year bank CD that pays 6.5% annual compound interest rate. When the CD matures in 10 years, you will get more than $9,000 from it.

Stocks represent a debt, and buyers of stock expect to earn interest.

People tend to be impatient, and they typically prefer to:

Which one of the following is a feature of all investments?

Refer to the graph above. The point Y represents the:

If an amount "$AAA" today earns interest at a rate of "i"% per year, then the accumulated amount at the end of "n" years will be:

The so-called market portfolio used as a benchmark in financial economics is:

Susan recently purchased a home for $150,000. She plans to rent it out for $1,000 per month for a year. Had the house cost $200,000 instead, her expected rate of return would have:

The type of risk that pushes the returns from all investment in the same direction at the same time is:

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures: Public Goods and Externalities

Governments Role and Government Failure

An Introduction to Macroeconomics

Measuring Domestic Output and National Income

Economic Growth

Business Cycles, Unemployment, and Inflation

Basic Macroeconomic Relationships

The Aggregate Expenditures Model

Aggregate Demand and Aggregate Supply

Fiscal Policy, Deficits, and Debt

Money, Banking, and Financial Institutions

Money Creation

Interest Rates and Monetary Policy

Extending the Analysis of Aggregate Supply

Current Issues in Macro Theory and Policy

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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Exam 17: Financial Economics

One asset has a beta of 1.5 and another asset has a beta of 0.75. The difference in beta mean that the asset with a beta of 0.75 has:

Risk in financial economics refers mainly to the chance that an investment could lose value.

A manufacturing firm takes out a $500,000 loan to expand its plant. The loan has an annual interest rate of 7 percent. What would be the total compounded interest on the loan at the end of five years, excluding the principal?

A key reason that actively managed funds have lower returns than index funds with a similar level of risk is that:

Short-term U.S. government securities are practically risk-free and thus their rates of return are payments solely for:

You believe that a certain asset, like a business or shop, is going to be worth $100 million in five years. If the interest rate is 5%, then that asset will be worth $75 million today.

Investors evaluate an investment by estimating its average expected rate of return, and this estimation process assigns higher weights to:

When the Securities Market Line shifts up, the average expected rate of return on investment assets with given risk levels is increasing.

You deposit $5,000 into a 10-year bank CD that pays 6.5% annual compound interest rate. When the CD matures in 10 years, you will get more than $9,000 from it.

Stocks represent a debt, and buyers of stock expect to earn interest.

People tend to be impatient, and they typically prefer to:

Which one of the following is a feature of all investments?

Refer to the graph above. The point Y represents the:

If an amount "$AAA" today earns interest at a rate of "i"% per year, then the accumulated amount at the end of "n" years will be:

The so-called market portfolio used as a benchmark in financial economics is:

Susan recently purchased a home for $150,000. She plans to rent it out for $1,000 per month for a year. Had the house cost $200,000 instead, her expected rate of return would have:

The type of risk that pushes the returns from all investment in the same direction at the same time is:

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures: Public Goods and Externalities

Governments Role and Government Failure

An Introduction to Macroeconomics

Measuring Domestic Output and National Income

Economic Growth

Business Cycles, Unemployment, and Inflation

Basic Macroeconomic Relationships

The Aggregate Expenditures Model

Aggregate Demand and Aggregate Supply

Fiscal Policy, Deficits, and Debt

Money, Banking, and Financial Institutions

Money Creation

Interest Rates and Monetary Policy

Extending the Analysis of Aggregate Supply

Current Issues in Macro Theory and Policy

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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