Question 1

People tend to be impatient, and they typically prefer to

Accepted Answer

A)  save for later rather than spend now.
B)  be paid to consume now rather than in the future.
C)  be paid to consume in the future rather than now.
D)  pay in order to consume in the future rather than now.E) C) and D)
F) All of the above

Question 2

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

Question 3

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.Indy should necessarily sell his stock if

Accepted Answer

A)  the price falls below $20 per share.
B)  he expects the sum of future capital gains and dividends to be negative.
C)  the company stops paying dividends.
D)  any of these circumstances occur.E) B) and C)
F) All of the above

Question 4

Pavel is considering buying a $10,000 bond with no expiration date that generates yearly payments of $500.If the price of the bond were to fall to $9,000,

Accepted Answer

A)  the bond's rate of return would rise from 5 percent to 5.6 percent.
B)  the bond payments would fall to $450 per year.
C)  Pavel should definitely buy the bond because the price is lower.
D)  Pavel should definitely not buy the bond because the lower price means it is worth less.E) A) and B)
F) A) and D)

Question 5

An asset with a beta of 0.5 has

Accepted Answer

A)  5 percent more risk than a risk-free asset.
B)  50 percent more risk than a risk-free asset.
C)  half the nondiversifiable risk as a market portfolio.
D)  5 times the nondiversifiable risk as a market portfolio.E) A) and C)
F) B) and C)

Question 6

What is the present value of $500 to be received eight years from now if the interest rate is 5 percent?

Accepted Answer

A)  $300
B)  $338.42
C)  $700
D)  $738.72E) None of the above
F) A) and B)

Question 7

Which of the following is not common to all investments?

Accepted Answer

A)  Investors are required to pay some price to acquire them.
B)  Owners are given the opportunity to receive future payments.
C)  Future payments are typically risky.
D)  The investment pays a positive rate of interest.E) B) and D)
F) B) and C)

Question 8

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

Accepted Answer

A)  Stocks are issued for a fixed period; bonds are not.
B)  Stocks pay interest; bonds pay dividends.
C)  Bond payouts are more predictable than payouts from stocks.
D)  Bonds represent ownership; stocks represent debt.E) A) and B)
F) B) and C)

Question 9

The current price of an asset is equal to the future value of its expected returns or income streams.

Accepted Answer

A) True 
 B)False

Question 10

An asset's price and rate of return

Accepted Answer

A)  are independent of each other.
B)  can be either inversely or directly related.
C)  are inversely related.
D)  are directly related.E) A) and B)
F) B) and D)

Question 11

Which of the following statements is true about investing in stocks and bonds?

Accepted Answer

A)  Issuers of stocks can default on their stock obligations.
B)  Investing in stocks involves less risk because the future payments are less uncertain.
C)  In case of bankruptcy, bondholders get paid first ahead of stockholders.
D)  Bankruptcy occurs when the issuing firm is unable to fulfill its stock obligations.E) A) and C)
F) C) and D)

Question 12

The maximum amount of money that company shareholders can lose on their investment in the corporation is

Accepted Answer

A)  whatever percentage of their wealth equals their percentage of ownership.
B)  whatever they paid for the shares in the company.
C)  whatever the corporation loses each year times the percentage of ownership in the company.
D)  zero.E) None of the above
F) A) and B)

Question 13

Two investments, X and Y, have beta values of 0.1 and 3.0 respectively.Based on this, we can claim that, relative to the market portfolio,

Accepted Answer

A)  both have more nondiversifiable risk than the market portfolio.
B)  both have less nondiversifiable risk than the market portfolio.
C)  X has more nondiversifiable risk and Y has less nondiversifiable risk than the market portfolio.
D)  X has less nondiversifiable risk and Y has more nondiversifiable risk than the market portfolio.E) C) and D)
F) A) and C)

Question 14

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

Accepted Answer

A)  They provide regular interest payments.
B)  They are typically long term.
C)  They have minimal risk for future payments to be made.
D)  They give owners a chance to receive future payments.E) B) and C)
F) A) and D)

Question 15

The risk-free interest rate is the rate on long-term U.S.government bonds.

Accepted Answer

A) True 
 B)False

Question 16

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

Question 17

The rate of return on short-term U.S.government bonds is often referred to as the

Accepted Answer

A)  federal funds rate.
B)  discount rate.
C)  risk-free interest rate.
D)  yield rate.E) None of the above
F) All of the above

Question 18

If investors started to prefer investing in more ethical companies, then it would be expected that the stock prices for those companies would

Accepted Answer

A)  increase, and the rates of return would decrease relative to other companies.
B)  increase, and the rates of return would increase relative to other companies.
C)  increase, but the rates of return would stay the same relative to other companies.
D)  decrease, and the rates of return would decrease relative to other companies.E) C) and D)
F) B) and C)

Question 19

According to economists, the two factors most important to personal investment decisions are

Accepted Answer

A)  rates of return and the rate of interest.
B)  rates of return and the rate of inflation.
C)  returns and diversifiable risk.
D)  returns and nondiversifiable risk.E) B) and C)
F) B) and D)

Question 20

$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)  $1,369E) A) and C)
F) All of the above

Exam 17: Part C: Financial Economics

$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

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

The current price of an asset is equal to the future value of its expected returns or income streams.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Two investments, X and Y, have beta values of 0.1 and 3.0 respectively.Based on this, we can claim that, relative to the market portfolio,

Correct AnswerverifiedShow Answer

An asset's price and rate of return

Correct AnswerverifiedShow Answer

Pavel is considering buying a $10,000 bond with no expiration date that generates yearly payments of $500.If the price of the bond were to fall to $9,000,

Correct AnswerverifiedShow Answer

The maximum amount of money that company shareholders can lose on their investment in the corporation is

Correct AnswerverifiedShow Answer

The rate of return on short-term U.S.government bonds is often referred to as the

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If investors started to prefer investing in more ethical companies, then it would be expected that the stock prices for those companies would

Correct AnswerverifiedShow Answer

People tend to be impatient, and they typically prefer to

Correct AnswerverifiedShow Answer

An asset with a beta of 0.5 has

Correct AnswerverifiedShow Answer

According to economists, the two factors most important to personal investment decisions are

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

What is the present value of $500 to be received eight years from now if the interest rate is 5 percent?

Correct AnswerverifiedShow Answer

Which of the following statements is true about investing in stocks and bonds?

Correct AnswerverifiedShow Answer

Which of the following is not common to all investments?

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The risk-free interest rate is the rate on long-term U.S.government bonds.

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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.Indy should necessarily sell his stock if

Correct AnswerverifiedShow Answer

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