Question 1

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. Refer to the information given.If Indy sells all his shares at a price of $30 per share,he will receive a:

Accepted Answer

A)   total capital gain of $10.
B)   dividend of $10 per share.
C)   total capital gain of $1,000.
D)   a capital gain of $30 per share.E) A) and B)
F) A) and C)

Question 2

The largest mutual fund,as of March 2013,held approximately _____ billion in assets under management.

Accepted Answer

A)   $75
B)   $90
C)   $130
D)   $180E) A) and B)
F) C) and D)

Question 3

Average expected rates of return and levels of risk are positively related.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A)   Bonds may be issued by corporations or government;stock is only issued by corporations.
B)   Stock may be issued by corporations or government;bonds are only issued by corporations.
C)   Bonds are only issued by government;stock is only issued by corporations.
D)   There is no difference in terms of who issues stocks and bonds.E) A) and B)
F) All of the above

Question 5

(Advanced analysis) Alex wants to have $800 saved up at the end of 10 years.If he deposits $500 today,what annually compounded rate of interest would he have to earn to reach his goal?

Accepted Answer

A)   4.8 percent.
B)   5.2 percent.
C)   5.7 percent.
D)   6.2 percent.E) None of the above
F) A) and B)

Question 6

Suppose stock A sells for $30 per share and pays dividends of $1 per share per year.Stock B sells for $40 per share and pays dividends of $2 per share per year.Through the process of arbitrage,we would expect the price of:

Accepted Answer

A)   stock A to fall and/or the price of stock B to rise.
B)   stock A to rise and/or the price of stock B to fall.
C)   both stocks to rise or fall together.
D)   neither stock to change.E) All of the above
F) None of the above

Question 7

$200 invested in a savings account paying an annual interest rate of 5 percent will be worth how much at the end of five years,assuming all interest earned remains in the account?

Accepted Answer

A)   $1,250.
B)   $250.
C)   $267.25.
D)   $255.26.E) A) and C)
F) C) and D)

Question 8

What is the difference between economic and financial investments?

Accepted Answer

A)   Financial investments are sensitive to interest rates;economic investments are not.
B)   Economic investments add to the capital stock of an economy;financial investments do not.
C)   Economic investments are expressed in real (inflation-adjusted) terms;financial investments are expressed in nominal terms.
D)   Financial investments include all purchases undertaken with the expectation of financial gain;economic investments include only purchases of new capital goods.E) A) and C)
F) A) and B)

Question 9

Suppose stock X has a beta of 2.5 and stock Y has a beta of 0.5.From this we can conclude that X has:

Accepted Answer

A)   5 times the nondiversifiable risk of the market portfolio.
B)   5 times the nondiversifiable risk of Y.
C)   2.5 times the nondiversifiable risk of Y.
D)   2.5 times the diversifiable risk of the market portfolio.E) C) and D)
F) B) and C)

Question 10

Suppose stock A sells for $50 per share and pays dividends of $2 per share per year.Stock B sells for $100 per share and pays dividends of $4 per share per year.Through the process of arbitrage,we would expect the price of:

Accepted Answer

A)   stock A to fall and/or the price of stock B to rise.
B)   stock A to rise and/or the price of stock B to fall.
C)   both stocks to rise or fall together.
D)   neither stock to change.E) None of the above
F) B) and C)

Question 11

Arbitrage equates rates of return across assets of all risk levels.

Accepted Answer

A) True 
 B)False

Question 12

Rates of return on short-term U.S.government bonds are compensation for:

Accepted Answer

A)   both the level of risk and the delaying of consumption.
B)   delaying consumption only.
C)   the level of risk only.
D)   factors other than risk and delaying consumption.E) B) and C)
F) C) and D)

Question 13

Which of the following equations shows how much X dollars will be worth if invested at an annual interest rate i for t years,if interest is compounded annually?

Accepted Answer

A)   (1 + i) tX
B)   X/(1 + i) t
C)   (1 + X) it
D)   (X + i) tE) All of the above
F) None of the above

Question 14

Compound interest refers to the multiple interest rates an investor will be paid in a diversified portfolio.

Accepted Answer

A) True 
 B)False

Question 15

Calculate the present value of an asset worth $2,000 four years from now if the interest rate is 6 percent.

Accepted Answer

A)   $2,480.
B)   $2,524.95.
C)   $1,584.19.
D)   $1,520.E) B) and D)
F) A) and C)

Question 16

Index funds consistently beat actively managed funds because actively managed funds incur greater management costs.

Accepted Answer

A) True 
 B)False

Question 17

Les buys a bond for $5,000.Every year that he holds the bond he will receive interest payments of $250.The interest rate on the bond:

Accepted Answer

A)   is 2 percent.
B)   is 5 percent.
C)   is 20 percent.
D)   cannot be determined.E) B) and C)
F) A) and C)

Exam 36: Financial Economics

Rates of return on short-term U.S.government bonds are compensation for:

Correct Answer
verified

The largest mutual fund,as of March 2013,held approximately _____ billion in assets under management.

Correct Answer
verified

Average expected rates of return and levels of risk are positively related.

Correct Answer
verified

Which of the following equations shows how much X dollars will be worth if invested at an annual interest rate i for t years,if interest is compounded annually?

Correct Answer
verified

(Advanced analysis) Alex wants to have $800 saved up at the end of 10 years.If he deposits $500 today,what annually compounded rate of interest would he have to earn to reach his goal?

Correct Answer
verified

Index funds consistently beat actively managed funds because actively managed funds incur greater management costs.

Correct Answer
verified

Suppose stock A sells for $30 per share and pays dividends of $1 per share per year.Stock B sells for $40 per share and pays dividends of $2 per share per year.Through the process of arbitrage,we would expect the price of:

Correct Answer
verified

Arbitrage equates rates of return across assets of all risk levels.

Correct Answer
verified

Suppose stock X has a beta of 2.5 and stock Y has a beta of 0.5.From this we can conclude that X has:

Correct Answer
verified

$200 invested in a savings account paying an annual interest rate of 5 percent will be worth how much at the end of five years,assuming all interest earned remains in the account?

Correct Answer
verified

What is the difference between economic and financial investments?

Correct Answer
verified

Suppose stock A sells for $50 per share and pays dividends of $2 per share per year.Stock B sells for $100 per share and pays dividends of $4 per share per year.Through the process of arbitrage,we would expect the price of:

Correct Answer
verified

Les buys a bond for $5,000.Every year that he holds the bond he will receive interest payments of $250.The interest rate on the bond:

Correct Answer
verified

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

Correct Answer
verified

Calculate the present value of an asset worth $2,000 four years from now if the interest rate is 6 percent.

Correct Answer
verified

Compound interest refers to the multiple interest rates an investor will be paid in a diversified portfolio.

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. Refer to the information given.If Indy sells all his shares at a price of $30 per share,he will receive a:

Correct Answer
verified

Exam 36: Financial Economics

Rates of return on short-term U.S.government bonds are compensation for:

Correct AnswerverifiedShow Answer

The largest mutual fund,as of March 2013,held approximately _____ billion in assets under management.

Correct AnswerverifiedShow Answer

Average expected rates of return and levels of risk are positively related.

Correct AnswerverifiedShow Answer

Which of the following equations shows how much X dollars will be worth if invested at an annual interest rate i for t years,if interest is compounded annually?

Correct AnswerverifiedShow Answer

(Advanced analysis) Alex wants to have $800 saved up at the end of 10 years.If he deposits $500 today,what annually compounded rate of interest would he have to earn to reach his goal?

Correct AnswerverifiedShow Answer

Index funds consistently beat actively managed funds because actively managed funds incur greater management costs.

Correct AnswerverifiedShow Answer

Suppose stock A sells for $30 per share and pays dividends of $1 per share per year.Stock B sells for $40 per share and pays dividends of $2 per share per year.Through the process of arbitrage,we would expect the price of:

Correct AnswerverifiedShow Answer

Arbitrage equates rates of return across assets of all risk levels.

Correct AnswerverifiedShow Answer

Suppose stock X has a beta of 2.5 and stock Y has a beta of 0.5.From this we can conclude that X has:

Correct AnswerverifiedShow Answer

$200 invested in a savings account paying an annual interest rate of 5 percent will be worth how much at the end of five years,assuming all interest earned remains in the account?

Correct AnswerverifiedShow Answer

What is the difference between economic and financial investments?

Correct AnswerverifiedShow Answer

Suppose stock A sells for $50 per share and pays dividends of $2 per share per year.Stock B sells for $100 per share and pays dividends of $4 per share per year.Through the process of arbitrage,we would expect the price of:

Correct AnswerverifiedShow Answer

Les buys a bond for $5,000.Every year that he holds the bond he will receive interest payments of $250.The interest rate on the bond:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Calculate the present value of an asset worth $2,000 four years from now if the interest rate is 6 percent.

Correct AnswerverifiedShow Answer

Compound interest refers to the multiple interest rates an investor will be paid in a diversified portfolio.

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. Refer to the information given.If Indy sells all his shares at a price of $30 per share,he will receive a:

Correct AnswerverifiedShow Answer

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