Question 1

The formula for present value allows investors to:

Accepted Answer

A)   convert a given number of dollars in the future into its present equivalent.
B)   determine the future impact of inflation on a present amount of money.
C)   know which financial assets will provide the greatest future returns.
D)   do all of these.E) B) and C)
F) C) and D)

Question 2

Another name for diversifiable risk is:

Accepted Answer

A)   systemic risk.
B)   inflation risk.
C)   idiosyncratic risk.
D)   cyclical risk.E) C) and D)
F) B) and D)

Question 3

A portfolio of many different stocks and bonds protects against nondiversifiable risk.

Accepted Answer

A) True 
 B)False

Question 4

The line that depicts the relationship between the average expected rate of return and the risk level of a financial asset is known as the:

Accepted Answer

A)   Beta Line.
B)   Security Market Line.
C)   Risk Premium Line.
D)   Risk-Return Line.E) A) and B)
F) None of the above

Question 5

Professional athletes attempting only to maximize income will defer larger salaries if:

Accepted Answer

A)   deferred payouts are adjusted upward to compensate for forgone interest.
B)   it increases the team's chance to win.
C)   there is no chance of inflation.
D)   it allows them to stay in a city and not to have to move their family.E) A) and B)
F) A) and C)

Question 6

An asset's price and rate of return are directly related.

Accepted Answer

A) True 
 B)False

Question 7

$800 invested at an annually compounded interest rate of 6 percent will be worth how much at the end of 10 years?

Accepted Answer

A)   $1,280.
B)   $1,433.
C)   $1,417.
D)   $1,369.E) C) and D)
F) B) and D)

Question 8

Portfolio diversification eliminates all of the ___________ from a portfolio.

Accepted Answer

A)   risk
B)   diversifiable risk
C)   nondiversifiable risk
D)   risk from business cycle fluctuationsE) B) and C)
F) None of the above

Question 9

A change in Federal Reserve monetary policy will:

Accepted Answer

A)   have no effect on the Security Market Line.
B)   invert the Security Market Line.
C)   change the slope of the Security Market Line.
D)   cause a vertical shift of the Security Market Line.E) B) and D)
F) B) and C)

Question 10

Index funds are a portfolio of:

Accepted Answer

A)   bonds with rates of return fixed at 2 percentage points above the rate of inflation.
B)   mutual funds that track different indexes.
C)   stocks or bonds that exactly match a particular index.
D)   stocks guaranteed rates of return in excess of growth in the GDP price index.E) B) and C)
F) A) and D)

Question 11

Pigou buys a house for $500,000,rents it for $2,000 per month for four years,and then sells it for $600,000.What is Pigou's per-year rate of return?

Accepted Answer

A)   4.8 percent.
B)   9.8 percent.
C)   20 percent.
D)   39.2 percent.E) A) and B)
F) None of the above

Question 12

When a company declares bankruptcy,stockholders are the first to be paid when company assets are sold.

Accepted Answer

A) True 
 B)False

Question 13

The beta of an investment measures the probability-weighted expected rate of return of a portfolio.

Accepted Answer

A) True 
 B)False

Question 14

Investors diversify portfolios:

Accepted Answer

A)   because diversified portfolios pay the highest rates of return.
B)   because diversified portfolios are guaranteed not to lose money.
C)   to reduce the risk of losing their investment.
D)   to guarantee minimum returns on their investment.E) B) and C)
F) A) and D)

Question 15

Which of the following statements best reflects the concept of present value?

Accepted Answer

A)   "The savings bond I bought five years ago is now worth $1,000."
B)   "My $100 savings bond will be worth $200 in 10 years."
C)   "You owe me $500,due at the end of the year,but I will reduce your debt to $450 if you pay me now."
D)   "The $5,000 in my savings account is worth less today than five years ago because of inflation."E) B) and D)
F) A) and D)

Question 16

Actively managed funds consistently outperform index funds.

Accepted Answer

A) True 
 B)False

Question 17

(Advanced analysis) Indy has $2,000 invested in a financial asset earning an annually compounded interest rate of 6 percent.Approximately how many years will it take before Indy's investment is worth $5,000?

Accepted Answer

A)   25.
B)   10.5.
C)   12.8.
D)   15.7.E) A) and B)
F) A) and C)

Question 18

The beta for the market portfolio's level of nondiversifiable risk is:

Accepted Answer

A)   zero.
B)   1.
C)   100.
D)   always fluctuating.E) None of the above
F) B) and C)

Question 19

Arbitrage is the process by which investors simultaneously sell:

Accepted Answer

A)   assets with higher rates of return and buy otherwise identical assets with lower rates of return.
B)   assets with lower rates of return and buy otherwise identical assets with higher rates of return.
C)   riskier assets and buy less risky assets.
D)   less risky assets and buy riskier assets.E) C) and D)
F) B) and C)

Question 20

The two most important investor preferences are a desire for high rates of return and a dislike of inflation.

Accepted Answer

A) True 
 B)False

Exam 36: Financial Economics

A change in Federal Reserve monetary policy will:

Correct AnswerverifiedShow Answer

Professional athletes attempting only to maximize income will defer larger salaries if:

Correct AnswerverifiedShow Answer

(Advanced analysis) Indy has $2,000 invested in a financial asset earning an annually compounded interest rate of 6 percent.Approximately how many years will it take before Indy's investment is worth $5,000?

Correct AnswerverifiedShow Answer

Portfolio diversification eliminates all of the ___________ from a portfolio.

Correct AnswerverifiedShow Answer

The beta of an investment measures the probability-weighted expected rate of return of a portfolio.

Correct AnswerverifiedShow Answer

The beta for the market portfolio's level of nondiversifiable risk is:

Correct AnswerverifiedShow Answer

Another name for diversifiable risk is:

Correct AnswerverifiedShow Answer

Actively managed funds consistently outperform index funds.

Correct AnswerverifiedShow Answer

When a company declares bankruptcy,stockholders are the first to be paid when company assets are sold.

Correct AnswerverifiedShow Answer

Investors diversify portfolios:

Correct AnswerverifiedShow Answer

The formula for present value allows investors to:

Correct AnswerverifiedShow Answer

A portfolio of many different stocks and bonds protects against nondiversifiable risk.

Correct AnswerverifiedShow Answer

Index funds are a portfolio of:

Correct AnswerverifiedShow Answer

The line that depicts the relationship between the average expected rate of return and the risk level of a financial asset is known as the:

Correct AnswerverifiedShow Answer

$800 invested at an annually compounded interest rate of 6 percent will be worth how much at the end of 10 years?

Correct AnswerverifiedShow Answer

Pigou buys a house for $500,000,rents it for $2,000 per month for four years,and then sells it for $600,000.What is Pigou's per-year rate of return?

Correct AnswerverifiedShow Answer

Which of the following statements best reflects the concept of present value?

Correct AnswerverifiedShow Answer

The two most important investor preferences are a desire for high rates of return and a dislike of inflation.

Correct AnswerverifiedShow Answer

Arbitrage is the process by which investors simultaneously sell:

Correct AnswerverifiedShow Answer

An asset's price and rate of return are directly related.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified