Question 1

A promised amount $FV n years into the future is worth how much today, if the interest rate is i percent per year?

Accepted Answer

A)  $FVn/(1 + i) n
B)  ($FV/n)  (i percent) 
C)  (1 + i) n/$FV D. [$FV/(1 + i) ]nD) A) and C)
E) B) and C)

Question 2

A stockholder owning 5 percent of a company's stock

Accepted Answer

A)  is guaranteed to receive 5 percent of the company's yearly profits.
B)  is personally responsible for 5 percent of the debts if the company goes bankrupt.
C)  has 5 percent of her personal assets vulnerable if the company goes bankrupt.
D)  gets 5 percent of the votes at the shareholders' meetings.E) B) and C)
F) A) and B)

Question 3

The market portfolio would have a beta of

Accepted Answer

A)  0.
B)  1.0.
C)  100.
D)  any value.E) None of the above
F) B) and C)

Question 4

Denny buys a rare coin for $200 and sells the coin one year later for $220.Denny's rate of return is

Accepted Answer

A)  10 percent.
B)  20 percent.
C)  91 percent.
D)  110 percent.E) A) and D)
F) B) and D)

Question 5

In the accompanying graph, bracket B represents the

Accepted Answer

A)  amount of arbitrage for this asset.
B)  rate of return for the market portfolio.
C)  risk premium for an asset's risk level.
D)  compensation for time preference for an asset.E) A) and B)
F) A) and D)

Question 6

The average expected rate of return is a

Accepted Answer

A)  volume-weighted average.
B)  price-weighted average.
C)  probability-weighted average.
D)  value-weighted average.E) A) and C)
F) None of the above

Question 7

The vertical intercept of the Security Market Line is determined by the

Accepted Answer

A)  beta of the market portfolio.
B)  discount rate.
C)  risk-free interest rate.
D)  risk premium.E) B) and C)
F) A) and B)

Question 8

If the demand for an asset increases, its price will

Accepted Answer

A)  increase and the rate of return for new investors of this asset will increase.
B)  decrease and the rate of return for new investors of this asset will increase.
C)  decrease and the rate of return for new investors of this asset will decrease.
D)  increase and the rate of return for new investors of this asset will decrease.E) All of the above
F) A) and B)

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

The buying and selling activities that tend to equalize the rates of return on identical or nearly identical assets is called

Accepted Answer

A)  beta.
B)  risk.
C)  arbitrage.
D)  diversification.E) None of the above
F) C) and D)

Question 11

Which one of the following is a feature of all investments?

Accepted Answer

A)  The future payments are typically risky.
B)  The periodic payments they provide are regular.
C)  They typically are short term.
D)  They give the investor a stream of future payments, not just one payment.E) All of the above
F) A) and B)

Question 12

Which institution is least likely to default on a bond?

Accepted Answer

A)  local government
B)  small corporation
C)  U.S.federal government
D)  large corporationE) A) and D)
F) A) and C)

Question 13

Nondiversifiable risk refers to potential losses from

Accepted Answer

A)  random fluctuations in specific stocks.
B)  bad company policies.
C)  portfolio management fraud.
D)  events that move all investments in the same direction.E) C) and D)
F) A) and D)

Question 14

Which of the following is a popular type of investment?

Accepted Answer

A)  dividends
B)  portfolios
C)  mutual funds
D)  capital gainsE) A) and B)
F) A) and C)

Question 15

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

Question 16

The estimated value of all financial assets held by U.S.households and nonprofit organizations in 2015 was about

Accepted Answer

A)  $8.1 trillion.
B)  $17.9 trillion.
C)  $54 trillion.
D)  $70 trillion.E) B) and C)
F) A) and D)

Question 17

If the Federal Reserve uses open-market operations to lower the interest rate on short-term U.S.government bonds, then, as a consequence, asset prices

Accepted Answer

A)  increase and the average expected rate of return on assets decreases.
B)  decrease and the average expected rate of return on assets increases.
C)  increase and the average expected rate of return on assets increases.
D)  decrease and the average expected rate of return on assets decreases.E) A) and D)
F) A) and C)

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

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) All of the above
F) None of the above

Question 20

Because of arbitrage, any given financial asset will be expected to return to the Security Market Line.

Accepted Answer

A) True 
 B)False

Exam 17: Part C: Financial Economics

The buying and selling activities that tend to equalize the rates of return on identical or nearly identical assets is called

Correct AnswerverifiedShow Answer

A stockholder owning 5 percent of a company's stock

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If the Federal Reserve uses open-market operations to lower the interest rate on short-term U.S.government bonds, then, as a consequence, asset prices

Correct AnswerverifiedShow Answer

The vertical intercept of the Security Market Line is determined by the

Correct AnswerverifiedShow Answer

If the demand for an asset increases, its price will

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which institution is least likely to default on a bond?

Correct AnswerverifiedShow Answer

A promised amount $FV n years into the future is worth how much today, if the interest rate is i percent per year?

Correct AnswerverifiedShow Answer

The market portfolio would have a beta of

Correct AnswerverifiedShow Answer

The average expected rate of return is a

Correct AnswerverifiedShow Answer

Nondiversifiable risk refers to potential losses from

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

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Which of the following is a popular type of investment?

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The estimated value of all financial assets held by U.S.households and nonprofit organizations in 2015 was about

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According to The International Country Risk Guide, financial assets in

Correct AnswerverifiedShow Answer

In the accompanying graph, bracket B represents the

Correct AnswerverifiedShow Answer

Which one of the following is a feature of all investments?

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Denny buys a rare coin for $200 and sells the coin one year later for $220.Denny's rate of return is

Correct AnswerverifiedShow Answer

Because of arbitrage, any given financial asset will be expected to return to the Security Market Line.

Correct AnswerverifiedShow Answer

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