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)    $FVn/(1+i) n\$ F V _ { n } / ( 1 + i )  ^ { n }$FVn​/(1+i) n 
B)     ($FV/ n )  (i percent)  	ext { (\$FV/ } n 	ext { )  (i percent)  } ($FV/ n )  (i percent)   
C)    (1+i) n/$FV( 1 + i )  ^ { n } / \$ F V(1+i) n/$FV 
D)    [$FV/(1+i) ]n[ \$ \mathrm { FV } / ( 1 + i )  ] ^ { n }[$FV/(1+i) ]nE) A) and B)
F) A) and C)

Question 2

Which of the following is a popular type of investment?

Accepted Answer

A)   dividends
B)   portfolios
C)   mutual funds
D)   capital gainsE) C) and D)
F) All of the above

Question 3

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

Question 4

A portfolio of many different stocks and bonds protects against nondiversiﬁable risk.

Accepted Answer

A) True 
 B)False

Question 5

Why is it diﬃcult for most investors to take advantage of arbitrage opportunities?

Accepted Answer

It is diﬃcult to engage in arbitrage bec...

Question 6

Karen holds a $100 bond that pays $10 per year in interest. The minimum price Karen would have to be offered before she would sell the bond

Accepted Answer

A)   is $110.
B)   is $125.
C)   is $140.
D)   depends on rates of return she could earn on other, similar investments.E) A) and B)
F) C) and D)

Question 7

Terri buys a house for $200,000 and expects to sell it in three years for $300,000. Her expected percentage rate of return over that three-year period is

Accepted Answer

A)   25 percent.
B)   33 percent.
C)   50 percent.
D)   67 percent.E) A) and C)
F) B) and C)

Question 8

What concept describes how quickly an investment increases in value when interest is paid not only on the original amount invested, but also on the accumulated interest payments?

Accepted Answer

A)   present value
B)   future value
C)   compound interest
D)   real rate of interestE) B) and D)
F) A) and B)

Question 9

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 B)
F) A) and C)

Question 10

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

Question 11

A mutual fund company uses the funds of its investors to

Accepted Answer

A)   produce goods and services for consumers.
B)   buy stocks and bonds.
C)   build factories and other infrastructure.
D)   buy capital and other resources for other ﬁrms.E) B) and D)
F) B) and C)

Question 12

What is a bond? How does it differ from a stock?

Accepted Answer

Bonds are debt contracts that are issued...

Question 13

The Standard & Poor's 500 Index measures prices of the 500

Accepted Answer

A)   most purchased consumer goods in the United States.
B)   stocks of the largest companies in the United States.
C)   largest bonds trading in the United States.
D)   largest index funds trading in the United States.E) None of the above
F) A) and B)

Question 14

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

Question 15

Refer to the graph. Consider asset D. We would expect arbitrage to

Accepted Answer

A)   increase the risk level of D.
B)   increase the price of D.
C)   lower the price of D.
D)   increase both the expected return and risk level of D.E) A) and B)
F) None of the above

Question 16

Joe and Linda have the opportunity to purchase a new home. The house in Glen Oaks is currently worth $250,000 but is predicted to be worth $270,000 in a year. What is the rate of appreciation for
The house from one year to the next?

Accepted Answer

A)   5 percent
B)   6 percent
C)   7 percent
D)   8 percentE) B) and C)
F) All of the above

Question 17

Accepted Answer

A)   expansionary monetary policy and arbitrage, respectively.
B)   arbitrage and expansionary monetary policy, respectively.
C)   restrictive monetary policy and arbitrage, respectively.
D)   arbitrage and restrictive monetary policy, respectively.E) All of the above
F) None of the above

Question 18

An investor owns bond #1, which has a rate of return of 10 percent, but a similar bond #2 has an 11 percent return and equal risk. By selling bond #1 and buying bond #2 to earn a higher return, the
Investor is engaging in

Accepted Answer

A)   pooling.
B)   arbitrage.
C)   diversiﬁcation.
D)   time preference.E) B) and C)
F) A) and D)

Question 19

Kick is looking to play for a U.S. MLS team. D.C. United is offering him $50 million for his ﬁrst year. The Chicago Fire is offering him $25 million his ﬁrst year and $10 million per year for the following
Three years. The market interest rate is 5 percent. Which offer is the better deal in terms of present
Value in millions?

Accepted Answer

A)   D.C. United, because it will pay him $50 million compared with $48.1 million from Chicago Fire
B)   D.C. United, because it will pay him $50 million compared with $46.8 million from Chicago Fire
C)   Chicago Fire, because it will pay him $52.2 million compared with $50 million from D.C. United
D)   Chicago Fire, because it will pay him $55 million compared with $50 million from D.C. UnitedE) C) and D)
F) A) and D)

Question 20

An asset's price and rate of return are directly related.

Accepted Answer

A) True 
 B)False

Exam 17: Financial Economics

Refer to the graph. Consider asset D. We would expect arbitrage to

Correct Answer
verified

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

Correct Answer
verified

An asset's price and rate of return are directly related.

Correct Answer
verified

Terri buys a house for $200,000 and expects to sell it in three years for $300,000. Her expected percentage rate of return over that three-year period is

Correct Answer
verified

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 Answer
verified

Correct Answer
verified

Why is it diﬃcult for most investors to take advantage of arbitrage opportunities?

Correct Answer
verified
It is diﬃcult to engage in arbitrage bec...
View Answer

Karen holds a $100 bond that pays $10 per year in interest. The minimum price Karen would have to be offered before she would sell the bond

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

Joe and Linda have the opportunity to purchase a new home. The house in Glen Oaks is currently worth $250,000 but is predicted to be worth $270,000 in a year. What is the rate of appreciation for The house from one year to the next?

Correct Answer
verified

What is a bond? How does it differ from a stock?

Correct Answer
verified
Bonds are debt contracts that are issued...
View Answer

The Standard & Poor's 500 Index measures prices of the 500

Correct Answer
verified

A mutual fund company uses the funds of its investors to

Correct Answer
verified

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

Correct Answer
verified

Which of the following is a popular type of investment?

Correct Answer
verified

What concept describes how quickly an investment increases in value when interest is paid not only on the original amount invested, but also on the accumulated interest payments?

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

A portfolio of many different stocks and bonds protects against nondiversiﬁable risk.

Correct Answer
verified

An investor owns bond #1, which has a rate of return of 10 percent, but a similar bond #2 has an 11 percent return and equal risk. By selling bond #1 and buying bond #2 to earn a higher return, the Investor is engaging in

Correct Answer
verified

Exam 17: Financial Economics

Refer to the graph. Consider asset D. We would expect arbitrage to

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

An asset's price and rate of return are directly related.

Correct AnswerverifiedShow Answer

Terri buys a house for $200,000 and expects to sell it in three years for $300,000. Her expected percentage rate of return over that three-year period is

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

Correct AnswerverifiedShow Answer

Why is it diﬃcult for most investors to take advantage of arbitrage opportunities?

Correct AnswerverifiedIt is diﬃcult to engage in arbitrage bec...View AnswerShow Answer

Karen holds a $100 bond that pays $10 per year in interest. The minimum price Karen would have to be offered before she would sell the bond

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

Joe and Linda have the opportunity to purchase a new home. The house in Glen Oaks is currently worth $250,000 but is predicted to be worth $270,000 in a year. What is the rate of appreciation for The house from one year to the next?

Correct AnswerverifiedShow Answer

What is a bond? How does it differ from a stock?

Correct AnswerverifiedBonds are debt contracts that are issued...View AnswerShow Answer

The Standard & Poor's 500 Index measures prices of the 500

Correct AnswerverifiedShow Answer

A mutual fund company uses the funds of its investors to

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

Which of the following is a popular type of investment?

Correct AnswerverifiedShow Answer

What concept describes how quickly an investment increases in value when interest is paid not only on the original amount invested, but also on the accumulated interest payments?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A portfolio of many different stocks and bonds protects against nondiversiﬁable risk.

Correct AnswerverifiedShow Answer

An investor owns bond #1, which has a rate of return of 10 percent, but a similar bond #2 has an 11 percent return and equal risk. By selling bond #1 and buying bond #2 to earn a higher return, the Investor is engaging in

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
It is diﬃcult to engage in arbitrage bec...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Bonds are debt contracts that are issued...
View 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