Question 1

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

Question 2

Vilfredo is considering buying a house for $220,000 and renting it out for $2,000 per month.If the price suddenly jumps to $250,000, Vilfredo's expected yearly rate of return will

Accepted Answer

A)  remain unchanged, as the house price and the rate of return are independent of each other.
B)  be 13.6 percent.
C)  fall from 9 percent to 8 percent.
D)  fall from 10.9 percent to 9.6 percent.E) A) and B)
F) C) and D)

Question 3

A stock investor may expect returns in the form of

Accepted Answer

A)  present and future values.
B)  interest and dividends.
C)  interest and capital gains.
D)  dividends and capital gains.E) A) and B)
F) A) and C)

Question 4

The process by which investors seek to profit by simultaneously selling an asset with a lower rate of return and buying an otherwise identical asset with a higher rate of return is known as

Accepted Answer

A)  hedging the market.
B)  passive fund management.
C)  arbitrage.
D)  portfolio balancing.E) A) and D)
F) All of the above

Question 5

If an asset has a beta of 1.5, it has 50 percent more nondiversifiable risk than the market portfolio.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is common to all investments?

Accepted Answer

A)  The investment pays interest.
B)  Some price must be paid to acquire them.
C)  Owners are guaranteed future payments.
D)  Government insurance backs them.E) None of the above
F) B) and C)

Question 7

When shares of stock are sold for more than the price at which they were purchased, the difference received by the seller is referred to as

Accepted Answer

A)  a dividend.
B)  a capital gain.
C)  interest.
D)  economic profit.E) A) and C)
F) A) and B)

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

Mutual funds allow individuals to own corporate stocks or bonds indirectly.

Accepted Answer

A) True 
 B)False

Question 10

The compensation for bearing more risk in owning an asset is a higher rate of return for the asset.

Accepted Answer

A) True 
 B)False

Question 11

At the end of 2015, U.S.households and nonprofit organizations held approximately in mutual funds.

Accepted Answer

A)  $5.3 billion
B)  $6 trillion
C)  $8.1 trillion
D)  $70 trillionE) C) and D)
F) A) and D)

Question 12

The risk premium is the rate that compensates for risk.

Accepted Answer

A) True 
 B)False

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

The expected rate of return from an investment is

Accepted Answer

A)  the rate that compensates for time preference only.
B)  the rate that compensates for risk only.
C)  the rate that compensates for time preference plus the rate that compensates for risk.
D)  the rate that compensates for time preference minus the rate that compensates for risk.E) A) and C)
F) All of the above

Question 15

The present value of a future amount of money will be greater the

Accepted Answer

A)  greater the interest rate.
B)  greater the amount of time before the future payment is received.
C)  lower the interest rate.
D)  greater the rate of the expected rate of inflation.E) C) and D)
F) None of the above

Question 16

Roger has the opportunity to invest $100,000 in two different assets.The investment in Asset #1 will have a present value of $120,000.The investment in Asset #2 is expected to have a future value of $140,000 in four years.If the market interest rate is 5 percent a year, which one would be the better investment?

Accepted Answer

A)  Asset #2, because its future value is greater than the present value of Asset #1
B)  Asset #1, because its present value is greater than the future value of Asset #2
C)  Asset #2, because its present value is greater than the present value of Asset #1
D)  Asset #1, because its present value is greater than the present value of Asset #2E) B) and C)
F) A) and B)

Question 17

What is the present value of $5,000 to be received 10 years from now if the interest rate is 10 percent?

Accepted Answer

A)  $1,927.72
B)  $500
C)  $4,545.45
D)  $12,968.71E) C) and D)
F) B) and D)

Question 18

An investor wants to invest in the oil industry but does not know which major companies will produce the greatest return.As a result, the investor buys shares in several oil companies.By buying several companies to reduce risk, the investor is seeking to reduce

Accepted Answer

A)  systemic risk.
B)  the risk premium.
C)  idiosyncratic risk.
D)  nondiversifiable risk.E) C) and D)
F) A) and D)

Question 19

Bond payments are generally more predictable than stocks because

Accepted Answer

A)  interest on bonds is not taxable.
B)  stock prices and dividends exhibit little volatility.
C)  bonds generate higher average rates of return.
D)  bond owners know the size and timing of payments they will receive.E) C) and D)
F) A) 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) All of the above
F) A) and B)

Exam 37: Financial Economics

Which of the following is common to all investments?

Correct Answer
verified

What is the present value of $5,000 to be received 10 years from now if the interest rate is 10 percent?

Correct Answer
verified

The expected rate of return from an investment is

Correct Answer
verified

The risk premium is the rate that compensates for risk.

Correct Answer
verified

Vilfredo is considering buying a house for $220,000 and renting it out for $2,000 per month.If the price suddenly jumps to $250,000, Vilfredo's expected yearly rate of return will

Correct Answer
verified

Correct Answer
verified

Bond payments are generally more predictable than stocks because

Correct Answer
verified

The process by which investors seek to profit by simultaneously selling an asset with a lower rate of return and buying an otherwise identical asset with a higher rate of return is known as

Correct Answer
verified

A stock investor may expect returns in the form of

Correct Answer
verified

The compensation for bearing more risk in owning an asset is a higher rate of return for the asset.

Correct Answer
verified

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

Correct Answer
verified

Mutual funds allow individuals to own corporate stocks or bonds indirectly.

Correct Answer
verified

An asset with a beta of 0.5 has

Correct Answer
verified

The present value of a future amount of money will be greater the

Correct Answer
verified

At the end of 2015, U.S.households and nonprofit organizations held approximately in mutual funds.

Correct Answer
verified

When shares of stock are sold for more than the price at which they were purchased, the difference received by the seller is referred to as

Correct Answer
verified

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

Correct Answer
verified

$800 invested at an annually compounded interest rate of 6 percent will be worth how much at the end of 10 years?

Correct Answer
verified

An investor wants to invest in the oil industry but does not know which major companies will produce the greatest return.As a result, the investor buys shares in several oil companies.By buying several companies to reduce risk, the investor is seeking to reduce

Correct Answer
verified

If an asset has a beta of 1.5, it has 50 percent more nondiversifiable risk than the market portfolio.

Correct Answer
verified

Exam 37: Financial Economics

Which of the following is common to all investments?

Correct AnswerverifiedShow Answer

What is the present value of $5,000 to be received 10 years from now if the interest rate is 10 percent?

Correct AnswerverifiedShow Answer

The expected rate of return from an investment is

Correct AnswerverifiedShow Answer

The risk premium is the rate that compensates for risk.

Correct AnswerverifiedShow Answer

Vilfredo is considering buying a house for $220,000 and renting it out for $2,000 per month.If the price suddenly jumps to $250,000, Vilfredo's expected yearly rate of return will

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Bond payments are generally more predictable than stocks because

Correct AnswerverifiedShow Answer

The process by which investors seek to profit by simultaneously selling an asset with a lower rate of return and buying an otherwise identical asset with a higher rate of return is known as

Correct AnswerverifiedShow Answer

A stock investor may expect returns in the form of

Correct AnswerverifiedShow Answer

The compensation for bearing more risk in owning an asset is a higher rate of return for the asset.

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

Mutual funds allow individuals to own corporate stocks or bonds indirectly.

Correct AnswerverifiedShow Answer

An asset with a beta of 0.5 has

Correct AnswerverifiedShow Answer

The present value of a future amount of money will be greater the

Correct AnswerverifiedShow Answer

At the end of 2015, U.S.households and nonprofit organizations held approximately in mutual funds.

Correct AnswerverifiedShow Answer

When shares of stock are sold for more than the price at which they were purchased, the difference received by the seller is referred to as

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

$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

An investor wants to invest in the oil industry but does not know which major companies will produce the greatest return.As a result, the investor buys shares in several oil companies.By buying several companies to reduce risk, the investor is seeking to reduce

Correct AnswerverifiedShow Answer

If an asset has a beta of 1.5, it has 50 percent more nondiversifiable risk than the market portfolio.

Correct AnswerverifiedShow Answer

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