Question 1

What is the present value of $500 to be received eight years from now if the interest rate is 5 percent?

Accepted Answer

A)   $300.
B)   $338.42.
C)   $700.
D)   $738.72.E) A) and C)
F) A) and D)

Question 2

What is the present value of $5,000 to be received 10 years from now if the interest rate is 10 percent?

Accepted Answer

A)   $1,927.72.
B)   $500.
C)   $4,545.45.
D)   $12,968.71.E) None of the above
F) C) and D)

Question 3

Before trading costs and management fees are taken into account,passively managed funds outperform actively managed funds by about ______ percent per year.

Accepted Answer

A)   5
B)   1
C)   zero
D)   3E) B) and C)
F) A) and B)

Question 4

The Hazards,a professional baseball team,want to sign pitcher Alex McScoob to a two-year contract but,because of salary cap limitations,can only pay $8 million for the first year (Alex's market value is $10 million per year) .The Hazards offer to pay $8 million in year 1 and $13 million in year 2.Should Alex sign the contract?

Accepted Answer

A)   Yes,Alex is better off financially regardless of the interest rate.
B)   Yes,if the interest rate is less than 50 percent.
C)   Yes,but only if the team expects to be successful.
D)   Yes,but only if the interest rate is less than 10 percent.E) B) and C)
F) A) and B)

Question 5

Payments to shareholders from corporate profits are known as:

Accepted Answer

A)   dividends.
B)   capital gains.
C)   interest.
D)   appreciation.E) None of the above
F) C) and D)

Question 6

An expansionary monetary policy will shift the Security Market Line down.

Accepted Answer

A) True 
 B)False

Question 7

The price of an asset should:

Accepted Answer

A)   exactly equal the total present value of all of the asset's future payments.
B)   exactly equal the total future value of all of the asset's future payments.
C)   approximately equal X(1 + i) t,where X is the value of the asset,i is the interest rate,and t is the number of years.
D)   exactly equal the total present and future value of all of the asset's future payments.E) C) and D)
F) A) and B)

Question 8

George buys an antique car for $20,000 and sells it five years later for just over $24,000.George's per-year rate of return is:

Accepted Answer

A)   20 percent.
B)   12 percent.
C)   10 percent.
D)   4 percent.E) A) and D)
F) A) and C) D

Question 9

Future value measures the present-day value of returns or costs expected to arrive in the future.

Accepted Answer

A) True 
 B)False  False

Question 10

Which of the following statements is true?

Accepted Answer

A)   Asset prices and average expected rates of return are directly related,but levels of nondiversifiable risk and average expected rates of return are inversely related.
B)   Asset prices and average expected rates of return are inversely related,but levels of nondiversifiable risk and average expected rates of return are directly related.
C)   Asset prices,average expected rates of return,and levels of nondiversifiable risk are all directly related.
D)   Average expected rates of return are inversely related to both asset prices and levels of nondiversifiable risk.E) C) and D)
F) B) and D)

Question 11

Arbitrage equalizes rates of return across similar investments because:

Accepted Answer

A)   arbitrage also equalizes the prices of the assets.
B)   investors prefer diversity.
C)   investors will want to replace lower rate of return assets with those generating higher rates of return.
D)   investors will want to replace higher rate of return assets with those generating lower rates of return.E) B) and C)
F) A) and D)

Question 12

Ownership of a single corporation is represented by what investment?

Accepted Answer

A)   Stock.
B)   Bonds.
C)   Mutual funds.
D)   Commercial paper.E) All of the above
F) C) and D)

Question 13

Arbitrage causes an equalization of the _________ when assets are identical or nearly identical.

Accepted Answer

A)   levels of risk of assets
B)   rates of return of assets
C)   time when payments are made from assets
D)   prices of assetsE) C) and D)
F) B) and C)

Question 14

The current share price of a corporation's stock is determined by the:

Accepted Answer

A)   original purchase price multiplied by 1 plus the interest rate.
B)   present value of capital gains and dividends received by stock owners.
C)   expected interest and dividend payments.
D)   expected capital gains and dividends prospective buyers will earn.E) C) and D)
F) B) and D)

Question 15

Which of the following is not common to all investments?

Accepted Answer

A)   Investors are required to pay some price to acquire them.
B)   Owners are given the opportunity to receive future payments.
C)   Future payments are typically risky.
D)   Paying a positive rate of interest.E) B) and C)
F) C) and D)

Question 16

Diversifiable risk refers to risk:

Accepted Answer

A)   faced by a portfolio in general.
B)   that can be reduced with appropriate fiscal and monetary policy.
C)   posed by business cycle fluctuations.
D)   specific to a particular investment.E) All of the above
F) A) and B)

Question 17

(Consider This) Ponzi schemes are investments in which:

Accepted Answer

A)   funds are invested solely in high-risk foreign financial assets.
B)   all investors are guaranteed to lose money.
C)   investors are unknowingly paid returns from funds contributed by new investors.
D)   the profitability of the investments depends on whether the economy grows or is in recession.E) All of the above
F) B) and C)

Question 18

According to The International Country Risk Guide,financial assets in:

Accepted Answer

A)   low-income economies tend to be less risky than in high-income economies.
B)   low-income economies tend to be riskier than in high-income economies.
C)   low-income economies tend to be about the same level of risk as in high-income economies.
D)   all countries carry about the same level of risk.E) B) and C)
F) A) and D) B

Question 19

Which of the following statements is true about buying an old factory?

Accepted Answer

A)   It is a financial investment but not an economic investment.
B)   It is an economic investment but not a financial investment.
C)   It is both an economic and a financial investment.
D)   It is neither an economic nor a financial investment.E) None of the above
F) All of the above

Question 20

Kelly buys a share of stock for $20 that she sells a year later for $15.Kelly's rate of return is:

Accepted Answer

A)   positive 33 percent.
B)   negative 33.3 percent.
C)   negative 25 percent.
D)   negative 75 percent.E) A) and D)
F) C) and D)

Exam 36: Financial Economics

What is the present value of $500 to be received eight years from now if the interest rate is 5 percent?

Correct Answer
verified

What is the present value of $5,000 to be received 10 years from now if the interest rate is 10 percent?

Correct Answer
verified

Before trading costs and management fees are taken into account,passively managed funds outperform actively managed funds by about ______ percent per year.

Correct Answer
verified

Correct Answer
verified

Payments to shareholders from corporate profits are known as:

Correct Answer
verified

An expansionary monetary policy will shift the Security Market Line down.

Correct Answer
verified

The price of an asset should:

Correct Answer
verified

George buys an antique car for $20,000 and sells it five years later for just over $24,000.George's per-year rate of return is:

Correct Answer
verified
D

Future value measures the present-day value of returns or costs expected to arrive in the future.

Correct Answer
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False

Which of the following statements is true?

Correct Answer
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Arbitrage equalizes rates of return across similar investments because:

Correct Answer
verified

Ownership of a single corporation is represented by what investment?

Correct Answer
verified

Arbitrage causes an equalization of the _________ when assets are identical or nearly identical.

Correct Answer
verified

The current share price of a corporation's stock is determined by the:

Correct Answer
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Which of the following is not common to all investments?

Correct Answer
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Diversifiable risk refers to risk:

Correct Answer
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(Consider This) Ponzi schemes are investments in which:

Correct Answer
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According to The International Country Risk Guide,financial assets in:

Correct Answer
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B

Which of the following statements is true about buying an old factory?

Correct Answer
verified

Kelly buys a share of stock for $20 that she sells a year later for $15.Kelly's rate of return is:

Correct Answer
verified

Exam 36: Financial Economics

What is the present value of $500 to be received eight years from now if the interest rate is 5 percent?

Correct AnswerverifiedShow Answer

What is the present value of $5,000 to be received 10 years from now if the interest rate is 10 percent?

Correct AnswerverifiedShow Answer

Before trading costs and management fees are taken into account,passively managed funds outperform actively managed funds by about ______ percent per year.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Payments to shareholders from corporate profits are known as:

Correct AnswerverifiedShow Answer

An expansionary monetary policy will shift the Security Market Line down.

Correct AnswerverifiedShow Answer

The price of an asset should:

Correct AnswerverifiedShow Answer

George buys an antique car for $20,000 and sells it five years later for just over $24,000.George's per-year rate of return is:

Correct AnswerverifiedD

Future value measures the present-day value of returns or costs expected to arrive in the future.

Correct AnswerverifiedFalse

Which of the following statements is true?

Correct AnswerverifiedShow Answer

Arbitrage equalizes rates of return across similar investments because:

Correct AnswerverifiedShow Answer

Ownership of a single corporation is represented by what investment?

Correct AnswerverifiedShow Answer

Arbitrage causes an equalization of the _________ when assets are identical or nearly identical.

Correct AnswerverifiedShow Answer

The current share price of a corporation's stock is determined by the:

Correct AnswerverifiedShow Answer

Which of the following is not common to all investments?

Correct AnswerverifiedShow Answer

Diversifiable risk refers to risk:

Correct AnswerverifiedShow Answer

(Consider This) Ponzi schemes are investments in which:

Correct AnswerverifiedShow Answer

According to The International Country Risk Guide,financial assets in:

Correct AnswerverifiedB

Which of the following statements is true about buying an old factory?

Correct AnswerverifiedShow Answer

Kelly buys a share of stock for $20 that she sells a year later for $15.Kelly's rate of return is:

Correct AnswerverifiedShow Answer

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D

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False

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B

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