Question 1

The intercept of the Security Market Line at any point in time is determined primarily by

Accepted Answer

A)  the prime interest rate.
B)  Federal Reserve monetary policy.
C)  the average beta of the market.
D)  investor tolerance of risk.E) B) and C)
F) A) and D)

Question 2

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) None of the above
F) B) and C)

Question 3

Stock investors can earn a return from stocks only in the form of dividends.

Accepted Answer

A) True 
 B)False

Question 4

Other factors constant, the future value will be smaller,

Accepted Answer

A)  the larger is its present value.
B)  the higher is the interest rate.
C)  the shorter is the time period t.
D)  the larger is the number of periods.E) All of the above
F) B) and C)

Question 5

The key difference between bonds and stocks is that stocks' income streams are more predictable than those of bonds.

Accepted Answer

A) True 
 B)False

Question 6

You deposit $5,000 in a 5-year bank CD that pays 3 percent interest per year.How much will you get from this deposit at maturity?

Accepted Answer

A)  $5,155
B)  $5,751
C)  $5,796
D)  $6,500E) B) and C)
F) All of the above

Question 7

(Last Word)  Actively managed funds

Accepted Answer

A)  generate lower costs than passively managed funds.
B)  generally outperform passively managed funds.
C)  generally perform the same as passively managed funds.
D)  are generally outperformed by passively managed funds.E) B) and C)
F) A) and B)

Question 8

Short-term U.S.government securities are practically risk-free, and thus their rates of return are payments solely for

Accepted Answer

A)  diversifiable risk.
B)  time preference.
C)  idiosyncratic risk.
D)  pure profit.E) B) and D)
F) None of the above

Question 9

Arbitrage will cause a shift in the Security Market Line.

Accepted Answer

A) True 
 B)False

Question 10

"Default" occurs when

Accepted Answer

A)  bond issuers fail to make promised payments.
B)  corporations go bankrupt and stock becomes worthless.
C)  bond purchasers fail to pay full price for a bond.
D)  stocks are not federally insured.E) All of the above
F) B) and C)

Question 11

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

Question 12

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

Question 13

When the Security Market Line shifts up, the average expected rate of return on investment assets with given risk levels is increasing.

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) C) and D)
F) All of the above

Question 15

Mark buys a bond for $8,000 and receives interest payments of $100 every three months.The interest rate on the bond is approximately

Accepted Answer

A)  1.3 percent.
B)  2 percent.
C)  5 percent.
D)  20 percent.E) All of the above
F) None of the above

Question 16

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

Question 17

Refer to the graph.Each labeled point represents a different asset.For which of these assets would we not expect arbitrage to change the average expected rate of return?

Accepted Answer

A)  E only
B)  D, E, and F
C)  E, G, and H
D)  D, E, F, G, and HE) A) and C)
F) A) and B)

Question 18

Which one of the following is an example of an economic investment?

Accepted Answer

A)  putting money in a bank CD
B)  buying a corporate bond or stock
C)  purchasing shares of a mutual fund
D)  building a new bank officeE) B) and C)
F) All of the above

Question 19

The so-called market portfolio used as a benchmark in financial economics is

Accepted Answer

A)  the lowest risk portfolio.
B)  the most diversified portfolio.
C)  the portfolio with the highest expected return.
D)  the portfolio with zero systemic risk.E) A) and B)
F) A) and C)

Question 20

Susan recently purchased a home for $150,000.She plans to rent it out for $1,000 per month for a year.Had the house cost $200,000 instead, her expected rate of return would have

Accepted Answer

A)  decreased by 1 percentage point.
B)  decreased by 2 percentage points.
C)  increased by 2 percentage points.
D)  increased by 3 percentage points.E) A) and C)
F) A) and B)

Exam 17: Part C: Financial Economics

The intercept of the Security Market Line at any point in time is determined primarily by

Correct AnswerverifiedShow Answer

The price of an asset should

Correct AnswerverifiedShow Answer

Short-term U.S.government securities are practically risk-free, and thus their rates of return are payments solely for

Correct AnswerverifiedShow Answer

"Default" occurs when

Correct AnswerverifiedShow Answer

Which one of the following is an example of an economic investment?

Correct AnswerverifiedShow Answer

Other factors constant, the future value will be smaller,

Correct AnswerverifiedShow Answer

Investors diversify portfolios

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Mark buys a bond for $8,000 and receives interest payments of $100 every three months.The interest rate on the bond is approximately

Correct AnswerverifiedShow Answer

(Last Word) Actively managed funds

Correct AnswerverifiedShow Answer

Refer to the graph.Each labeled point represents a different asset.For which of these assets would we not expect arbitrage to change the average expected rate of return?

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

The so-called market portfolio used as a benchmark in financial economics is

Correct AnswerverifiedShow Answer

When the Security Market Line shifts up, the average expected rate of return on investment assets with given risk levels is increasing.

Correct AnswerverifiedShow Answer

Susan recently purchased a home for $150,000.She plans to rent it out for $1,000 per month for a year.Had the house cost $200,000 instead, her expected rate of return would have

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Arbitrage will cause a shift in the Security Market Line.

Correct AnswerverifiedShow Answer

You deposit $5,000 in a 5-year bank CD that pays 3 percent interest per year.How much will you get from this deposit at maturity?

Correct AnswerverifiedShow Answer

The key difference between bonds and stocks is that stocks' income streams are more predictable than those of bonds.

Correct AnswerverifiedShow Answer

Stock investors can earn a return from stocks only in the form of dividends.

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