Question 1

Rupert recently purchased a nonmaturing bond for $10,000 that pays $350 semiannual coupons.His expected rate of return per year on the bond is

Accepted Answer

A)  4 percent.
B)  7 percent.
C)  10 percent.
D)  12 percent.E) B) and D)
F) A) and D)

Question 2

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) None of the above
F) All of the above

Question 3

Actively managed funds consistently outperform index funds.

Accepted Answer

A) True 
 B)False

Question 4

If an asset has a risk-return combination that is above the Security Market Line (SML) , then arbitrage will make that asset's

Accepted Answer

A)  beta increase.
B)  beta decrease.
C)  average expected return increase.
D)  average expected return decrease.E) A) and D)
F) B) and C)

Question 5

The Security Market Line depicts the inverse relationship between the average expected rates of return and risk levels of financial assets.

Accepted Answer

A) True 
 B)False

Question 6

The average expected rate of return on an asset can be fully understood as the rate that compensates for risk.

Accepted Answer

A) True 
 B)False

Question 7

The concept of time preference in financial investing rests on the belief that people

Accepted Answer

A)  are indifferent between present and future consumption.
B)  are patient.
C)  are impatient.
D)  intentionally consume 50 percent of assets in the present and 50 percent in the future.E) C) and D)
F) All of the above

Question 8

A strategy that attempts to reduce the overall risk of an entire investment portfolio by investing in a variety of assets is called

Accepted Answer

A)  pooling.
B)  arbitrage.
C)  diversification.
D)  weighted average.E) B) and C)
F) A) and D)

Question 9

Suppose that Betty takes out a loan for $300 at an annually compounded interest rate of 6 percent to be repaid after five years.How much will be required to pay off the loan at the end of the five years?

Accepted Answer

A)  $401.47
B)  $390
C)  $393.54
D)  $408.75E) B) and C)
F) All of the above

Question 10

For any given financial asset, risk levels and average expected rates of return are

Accepted Answer

A)  independent of each other.
B)  negatively related because assets with higher average expected rates of return sell for higher prices, which are inversely related to risk.
C)  positively related because both are inversely related to the rate of inflation.
D)  positively related because investors must be compensated for taking greater risks.E) C) and D)
F) None of the above

Question 11

Risk in finance means that an asset

Accepted Answer

A)  does not pay dividends.
B)  does not pay capital gains.
C)  has a present value that is negative.
D)  has future payments that are uncertain.E) B) and C)
F) All of the above

Question 12

A bank account pays 4 percent interest per year.If you deposit $1,000 into this account at the start of each year for three years, how much will your account balance be at the end of three years?

Accepted Answer

A)  $3,122
B)  $3,246
C)  $3,600
D)  $4,206E) None of the above
F) A) and B)

Question 13

Brinley holds stock in large high-tech companies in his portfolio.The best way for Brinley to diversify his risk would be to buy

Accepted Answer

A)  more shares of the stock he already owns.
B)  shares in other large high-tech companies.
C)  bonds or stocks of small and medium-sized companies.
D)  bonds from the large high-tech companies already in his portfolio.E) None of the above
F) A) and D)

Question 14

Arbitrage equalizes rates of return across assets of a given beta.

Accepted Answer

A) True 
 B)False

Question 15

The Standard & Poor's 500 Index measures prices of the 500

Accepted Answer

A)  most purchased consumer goods in the United States.
B)  stocks of the largest companies in the United States.
C)  largest bonds trading in the United States.
D)  largest index funds trading in the United States.E) B) and C)
F) C) and D)

Question 16

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) B) and C)
F) A) and B)

Question 17

Which of the following is a difference between stocks and bonds?

Accepted Answer

A)  Bonds represent ownership; stocks represent debt.
B)  Bonds make interest payments; stocks pay dividends.
C)  Stock payouts are predictable; bond payouts are not.
D)  All of these are differences between stocks and bonds.E) B) and D)
F) B) and C)

Question 18

Which of the following is an economic investment?

Accepted Answer

A)  shares of corporate stock
B)  U.S.savings bonds
C)  newly built houses
D)  bonds issued by private corporationsE) A) and D)
F) None of the above

Question 19

What concept would be most consistent with the observation that people tend to be impatient and typically prefer to consume things in the present rather than the future?

Accepted Answer

A)  future value
B)  present value
C)  time preference
D)  market portfolioE) B) and D)
F) A) and B)

Question 20

Bonds issued by the Federal government are riskier than bonds issued by corporations.

Accepted Answer

A) True 
 B)False

Exam 37: Financial Economics

Brinley holds stock in large high-tech companies in his portfolio.The best way for Brinley to diversify his risk would be to buy

Correct Answer
verified

The concept of time preference in financial investing rests on the belief that people

Correct Answer
verified

Bonds issued by the Federal government are riskier than bonds issued by corporations.

Correct Answer
verified

Which of the following is an economic investment?

Correct Answer
verified

Suppose that Betty takes out a loan for $300 at an annually compounded interest rate of 6 percent to be repaid after five years.How much will be required to pay off the loan at the end of the five years?

Correct Answer
verified

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

Correct Answer
verified

A bank account pays 4 percent interest per year.If you deposit $1,000 into this account at the start of each year for three years, how much will your account balance be at the end of three years?

Correct Answer
verified

Which of the following is a difference between stocks and bonds?

Correct Answer
verified

The average expected rate of return on an asset can be fully understood as the rate that compensates for risk.

Correct Answer
verified

Arbitrage equalizes rates of return across assets of a given beta.

Correct Answer
verified

Rupert recently purchased a nonmaturing bond for $10,000 that pays $350 semiannual coupons.His expected rate of return per year on the bond is

Correct Answer
verified

For any given financial asset, risk levels and average expected rates of return are

Correct Answer
verified

The Standard & Poor's 500 Index measures prices of the 500

Correct Answer
verified

Actively managed funds consistently outperform index funds.

Correct Answer
verified

Correct Answer
verified

What concept would be most consistent with the observation that people tend to be impatient and typically prefer to consume things in the present rather than the future?

Correct Answer
verified

A strategy that attempts to reduce the overall risk of an entire investment portfolio by investing in a variety of assets is called

Correct Answer
verified

Risk in finance means that an asset

Correct Answer
verified

If an asset has a risk-return combination that is above the Security Market Line (SML) , then arbitrage will make that asset's

Correct Answer
verified

The Security Market Line depicts the inverse relationship between the average expected rates of return and risk levels of financial assets.

Correct Answer
verified

Exam 37: Financial Economics

Brinley holds stock in large high-tech companies in his portfolio.The best way for Brinley to diversify his risk would be to buy

Correct AnswerverifiedShow Answer

The concept of time preference in financial investing rests on the belief that people

Correct AnswerverifiedShow Answer

Bonds issued by the Federal government are riskier than bonds issued by corporations.

Correct AnswerverifiedShow Answer

Which of the following is an economic investment?

Correct AnswerverifiedShow Answer

Suppose that Betty takes out a loan for $300 at an annually compounded interest rate of 6 percent to be repaid after five years.How much will be required to pay off the loan at the end of the five years?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A bank account pays 4 percent interest per year.If you deposit $1,000 into this account at the start of each year for three years, how much will your account balance be at the end of three years?

Correct AnswerverifiedShow Answer

Which of the following is a difference between stocks and bonds?

Correct AnswerverifiedShow Answer

The average expected rate of return on an asset can be fully understood as the rate that compensates for risk.

Correct AnswerverifiedShow Answer

Arbitrage equalizes rates of return across assets of a given beta.

Correct AnswerverifiedShow Answer

Rupert recently purchased a nonmaturing bond for $10,000 that pays $350 semiannual coupons.His expected rate of return per year on the bond is

Correct AnswerverifiedShow Answer

For any given financial asset, risk levels and average expected rates of return are

Correct AnswerverifiedShow Answer

The Standard & Poor's 500 Index measures prices of the 500

Correct AnswerverifiedShow Answer

Actively managed funds consistently outperform index funds.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

What concept would be most consistent with the observation that people tend to be impatient and typically prefer to consume things in the present rather than the future?

Correct AnswerverifiedShow Answer

A strategy that attempts to reduce the overall risk of an entire investment portfolio by investing in a variety of assets is called

Correct AnswerverifiedShow Answer

Risk in finance means that an asset

Correct AnswerverifiedShow Answer

If an asset has a risk-return combination that is above the Security Market Line (SML) , then arbitrage will make that asset's

Correct AnswerverifiedShow Answer

The Security Market Line depicts the inverse relationship between the average expected rates of return and risk levels of financial assets.

Correct AnswerverifiedShow Answer

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