Question 1

Investors face the risk that the economy could go into another recession. This risk is

Accepted Answer

A)   idiosyncratic.
B)   diversiﬁable.
C)   systemic.
D)   time preference.E) B) and C)
F) B) and D)

Question 2

Mutual fund managers tend to focus solely on the

Accepted Answer

A)   short-term (quarterly)  performance of the corporations whose securities they invest in.
B)   long-term performance of the corporations whose securities they invest in.
C)   assets of the corporations whose securities they invest in.
D)   liabilities of the corporations whose securities they invest in.E) B) and C)
F) B) and D)

Question 3

Refer to the graph. Suppose a particular ﬁnancial asset's risk and return proﬁle puts it at point E. The process of arbitrage will

Accepted Answer

A)   move the ﬁnancial asset to point G on the Security Market Line.
B)   move the ﬁnancial asset to point D.
C)   move the ﬁnancial asset to point F.
D)   not change the ﬁnancial asset's position on the Security Market Line.E) All of the above
F) A) and C)

Question 4

Xavier is a baseball player negotiating a contract to play for a team for one year. He is usually paid $10 million a year for playing, but the salary cap for his team means that he will have to be paid $5
Million this year and the remainder next year. If the interest rate is 8 percent, how much should that
Remaining amount be next year?

Accepted Answer

A)   $5.0 million
B)   $5.1 million
C)   $5.4 million
D)   $6.1 millionE) A) and B)
F) B) and D)

Question 5

Payments to holders of corporate bonds are known as dividends.

Accepted Answer

A) True 
 B)False

Question 6

"Don't put all your eggs in one basket." Interpret in terms of economic concepts.

Accepted Answer

This saying is referring to diversiﬁcati...

Question 7

Another name for diversiﬁable risk is

Accepted Answer

A)   systemic risk.
B)   inﬂation risk.
C)   idiosyncratic risk.
D)   cyclical risk.E) A) and B)
F) All of the above

Question 8

The so-called risk-free rate in ﬁnancial markets is indicated by the rate of return on short-term U.S.
government bonds.

Accepted Answer

A) True 
 B)False

Question 9

Suppose that some people invest $1,000 today in a ﬁnancial asset that will make one future payment. The longer they must wait for the future payment, the

Accepted Answer

A)   higher the future payment they will expect to receive.
B)   lower the future payment they will expect to receive.
C)   lower the risk of not receiving that future payment.
D)   more they will want to invest.E) A) and B)
F) A) and C)

Question 10

The Federal Reserve changes the risk-free interest rate most directly

Accepted Answer

A)   by changing the reserve requirement.
B)   by changing the federal funds rate.
C)   by changing the discount rate.
D)   with open-market operations.E) None of the above
F) All of the above

Question 11

Indy owns 100 shares of stock in Pet Mart Corporation that he purchased for $20 per share. Every year he has received, from company proﬁts, $1 for each share he owns. Indy should necessarily sell
His stock if

Accepted Answer

A)   the price falls below $20 per share.
B)   he expects the sum of future capital gains and dividends to be negative.
C)   the company stops paying dividends.
D)   any of these circumstances occur.E) A) and C)
F) None of the above

Question 12

Time value of money refers to the idea that a speciﬁc amount of money

Accepted Answer

A)   can be converted into other currencies in the foreign exchange market.
B)   is needed to purchase goods and services.
C)   is more valuable the sooner it is received.
D)   can buy less goods and services if inﬂation occurs over time.E) A) and D)
F) A) and C)

Question 13

What is ﬁnancial economics? What are the most important investor preferences?

Accepted Answer

Financial economics studies investor pre...

Question 14

$500 invested at an annual interest rate of 8 percent will be worth how much at the end of one year?

Accepted Answer

A)   $504
B)   $508
C)   $540
D)   $580E) A) and B)
F) A) and C)

Question 15

The risk-free interest rate is the rate on long-term U.S. government bonds.

Accepted Answer

A) True 
 B)False

Question 16

The risk-free market rate is essentially the rate of return that compensates solely for time
preference.

Accepted Answer

A) True 
 B)False

Question 17

Bond payments are generally more predictable than stocks because

Accepted Answer

A)   interest on bonds is not taxable.
B)   stock prices and dividends exhibit little volatility.
C)   bonds generate higher average rates of return.
D)   bond owners know the size and timing of payments they will receive.E) A) and B)
F) C) and D)

Question 18

A bond that pays no annual interest (or coupons)  and has a face value at maturity will fetch a price today that is equal to the

Accepted Answer

A)   future value of its face value.
B)   number of years in the life of the bond times its face value.
C)   present value of the number of years in the life of the bond times its face value.
D)   present value of its face value.E) A) and B)
F) A) and C)

Question 19

You deposit $5,000 in a 5-year bank CD that pays 3 percent interest per year. How much will you get from this deposit at maturity?

Accepted Answer

A)   $5,155
B)   $5,751
C)   $5,796
D)   $6,500E) B) and C)
F) A) and B)

Question 20

Refer to the graph. If a ﬁnancial asset's average expected rate of return and beta put it at point F,

Accepted Answer

A)   arbitrage will push down the price of the asset and lower the average expected rate of return to Y.
B)   arbitrage will push up the price of the asset and lower the average expected rate of return to Y.
C)   a restrictive monetary policy is needed to move the asset onto the Security Market Line.
D)   an expansionary monetary policy is needed to move the asset onto the Security Market Line.E) A) and B)
F) B) and C)

Exam 17: Financial Economics

You deposit $5,000 in a 5-year bank CD that pays 3 percent interest per year. How much will you get from this deposit at maturity?

Correct Answer
verified

Indy owns 100 shares of stock in Pet Mart Corporation that he purchased for $20 per share. Every year he has received, from company proﬁts, $1 for each share he owns. Indy should necessarily sell His stock if

Correct Answer
verified

Refer to the graph. Suppose a particular ﬁnancial asset's risk and return proﬁle puts it at point E. The process of arbitrage will

Correct Answer
verified

A bond that pays no annual interest (or coupons) and has a face value at maturity will fetch a price today that is equal to the

Correct Answer
verified

Payments to holders of corporate bonds are known as dividends.

Correct Answer
verified

$500 invested at an annual interest rate of 8 percent will be worth how much at the end of one year?

Correct Answer
verified

Suppose that some people invest $1,000 today in a ﬁnancial asset that will make one future payment. The longer they must wait for the future payment, the

Correct Answer
verified

The Federal Reserve changes the risk-free interest rate most directly

Correct Answer
verified

What is ﬁnancial economics? What are the most important investor preferences?

Correct Answer
verified
Financial economics studies investor pre...
View Answer

Correct Answer
verified

Time value of money refers to the idea that a speciﬁc amount of money

Correct Answer
verified

Mutual fund managers tend to focus solely on the

Correct Answer
verified

The so-called risk-free rate in ﬁnancial markets is indicated by the rate of return on short-term U.S. government bonds.

Correct Answer
verified

The risk-free market rate is essentially the rate of return that compensates solely for time preference.

Correct Answer
verified

Refer to the graph. If a ﬁnancial asset's average expected rate of return and beta put it at point F,

Correct Answer
verified

"Don't put all your eggs in one basket." Interpret in terms of economic concepts.

Correct Answer
verified
This saying is referring to diversiﬁcati...
View Answer

Investors face the risk that the economy could go into another recession. This risk is

Correct Answer
verified

Bond payments are generally more predictable than stocks because

Correct Answer
verified

The risk-free interest rate is the rate on long-term U.S. government bonds.

Correct Answer
verified

Another name for diversiﬁable risk is

Correct Answer
verified

Exam 17: Financial Economics

You deposit $5,000 in a 5-year bank CD that pays 3 percent interest per year. How much will you get from this deposit at maturity?

Correct AnswerverifiedShow Answer

Indy owns 100 shares of stock in Pet Mart Corporation that he purchased for $20 per share. Every year he has received, from company proﬁts, $1 for each share he owns. Indy should necessarily sell His stock if

Correct AnswerverifiedShow Answer

Refer to the graph. Suppose a particular ﬁnancial asset's risk and return proﬁle puts it at point E. The process of arbitrage will

Correct AnswerverifiedShow Answer

A bond that pays no annual interest (or coupons) and has a face value at maturity will fetch a price today that is equal to the

Correct AnswerverifiedShow Answer

Payments to holders of corporate bonds are known as dividends.

Correct AnswerverifiedShow Answer

$500 invested at an annual interest rate of 8 percent will be worth how much at the end of one year?

Correct AnswerverifiedShow Answer

Suppose that some people invest $1,000 today in a ﬁnancial asset that will make one future payment. The longer they must wait for the future payment, the

Correct AnswerverifiedShow Answer

The Federal Reserve changes the risk-free interest rate most directly

Correct AnswerverifiedShow Answer

What is ﬁnancial economics? What are the most important investor preferences?

Correct AnswerverifiedFinancial economics studies investor pre...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Time value of money refers to the idea that a speciﬁc amount of money

Correct AnswerverifiedShow Answer

Mutual fund managers tend to focus solely on the

Correct AnswerverifiedShow Answer

The so-called risk-free rate in ﬁnancial markets is indicated by the rate of return on short-term U.S. government bonds.

Correct AnswerverifiedShow Answer

The risk-free market rate is essentially the rate of return that compensates solely for time preference.

Correct AnswerverifiedShow Answer

Refer to the graph. If a ﬁnancial asset's average expected rate of return and beta put it at point F,

Correct AnswerverifiedShow Answer

"Don't put all your eggs in one basket." Interpret in terms of economic concepts.

Correct AnswerverifiedThis saying is referring to diversiﬁcati...View AnswerShow Answer

Investors face the risk that the economy could go into another recession. This risk is

Correct AnswerverifiedShow Answer

Bond payments are generally more predictable than stocks because

Correct AnswerverifiedShow Answer

The risk-free interest rate is the rate on long-term U.S. government bonds.

Correct AnswerverifiedShow Answer

Another name for diversiﬁable risk is

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
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Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Financial economics studies investor pre...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
This saying is referring to diversiﬁcati...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified