Question 1

Rupert recently purchased a nonmaturing bond for $10,000 that pays $350 semiannual coupons.His expected rate of return per year on the bond is

Accepted Answer

A)  4 percent.
B)  7 percent.
C)  10 percent.
D)  12 percent.E) C) and D)
F) B) and D)

Question 2

Bonds issued by the Federal government are riskier than bonds issued by corporations.

Accepted Answer

A) True 
 B)False

Question 3

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) B) and C)

Question 4

The decision of the Federal Reserve to reduce the short-term interest rate will shift the Security Market Line upward.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following statements is true?

Accepted Answer

A)  Asset prices and average expected rates of return are directly related, but levels of nondiversifiable risk and average expected rates of return are inversely related.
B)  Asset prices and average expected rates of return are inversely related, but levels of nondiversifiable risk and average expected rates of return are directly related.
C)  Asset prices, average expected rates of return, and levels of nondiversifiable risk are all directly related.
D)  Average expected rates of return are inversely related to both asset prices and levels of nondiversifiable risk.E) A) and B)
F) B) and D)

Question 6

Refer to the graph.Each labeled point represents a different asset.For which of these assets would we expect arbitrage to cause movement to a different point?

Accepted Answer

A)  D and F
B)  G and H
C)  D, F, G and H
D)  D, E, and FE) A) and B)
F) A) and C)

Question 7

A bond that is currently selling at $1,000 offers to pay $50 annually.What is the percentage rate of return on the bond?

Accepted Answer

A)  5 percent
B)  10 percent
C)  20 percent
D)  50 percentE) A) and D)
F) A) and C)

Question 8

The beta for the market portfolio's level of nondiversifiable risk is

Accepted Answer

A)  zero.
B)  1.
C)  100.
D)  always fluctuating.E) A) and B)
F) B) and D)

Question 9

The concept of time preference in financial investing rests on the belief that people

Accepted Answer

A)  are indifferent between present and future consumption.
B)  are patient.
C)  are impatient.
D)  intentionally consume 50 percent of assets in the present and 50 percent in the future.E) A) and D)
F) All of the above

Question 10

Actively managed funds consistently outperform index funds.

Accepted Answer

A) True 
 B)False

Question 11

(Consider This)  According to critics, growth in the popularity of mutual funds has

Accepted Answer

A)  significantly increased market risk for investors.
B)  created more macroeconomic instability.
C)  led corporate management and fund managers to focus more on short-run share prices than long-run investor returns.
D)  discouraged average citizens from investing in stock and bond markets.E) B) and C)
F) A) and C)

Question 12

Tracy won a $100 million jackpot. She can receive the jackpot as a $5 million payment each year for 20 years, or she can ask to receive the present value of all those payments all at once now. Assume an annual interest rate of 5 percent. If she decides to take the present value payment, about how much will she receive?

Accepted Answer

A)  $52.1 million
B)  $62.3 million
C)  $71.4 million
D)  $78.6 millionE) A) and C)
F) B) and C)

Question 13

Financial investment refers to

Accepted Answer

A)  the same idea as economic investment.
B)  earning profits from producing goods and services.
C)  purchasing or building an asset for monetary gain.
D)  making new additions to the capital stock.E) B) and D)
F) All of the above

Question 14

Arbitrage occurs when

Accepted Answer

A)  bond and stock rates of return equalize.
B)  investors try to profit from selling a lower rate of return asset to buy one that is nearly identical but with a higher rate of return.
C)  rates of return across all stocks equalize.
D)  investors move from lower to higher rate of return assets, regardless of the comparability of the assets.E) All of the above
F) A) and D)

Question 15

Refer to the graph. A movement of the Security Market Line from SML2 to SML1 and of the highlighted asset from A2 to A1 would be caused by 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." class="answers-bank-image d-inline" rel="preload" > Refer to the graph. A movement of the Security Market Line from SML2 to SML1 and of the highlighted asset from A2 to A1 would be caused by

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

Question 16

You estimate that a piece of real estate for investment will be worth $700,000 in five years.The current interest rate is 3 percent.What is the present value of this investment?

Accepted Answer

A)  $604,000
B)  $624,000
C)  $680,000
D)  $700,000E) A) and B)
F) None of the above

Question 17

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 18

The risk premium is the rate that compensates for risk.

Accepted Answer

A) True 
 B)False

Question 19

Arbitrage causes an equalization of the when assets are identical or nearly identical.

Accepted Answer

A)  levels of risk of assets
B)  rates of return of assets
C)  time when payments are made from assets
D)  prices of assetsE) B) and D)
F) A) and D)

Question 20

The Security Market Line is a straight line that plots how the average expected rates of return on assets and portfolios in an economy vary with their respective levels of nondiversifiable risk as measured by beta.

Accepted Answer

A) True 
 B)False

Exam 17: C: Financial Economics

The decision of the Federal Reserve to reduce the short-term interest rate will shift the Security Market Line upward.

Correct Answer
verified

^Refer^to^the^graph.^A^movement^of^the^Security^Market^Line^from^SML2 ^to^SML1 ^and^of^the^highlighted^asset^from^A2 ^to^A1 ^would^be^caused^by

Correct Answer
verified

The average expected rate of return is a

Correct Answer
verified

Rupert recently purchased a nonmaturing bond for $10,000 that pays $350 semiannual coupons.His expected rate of return per year on the bond is

Correct Answer
verified

The Security Market Line is a straight line that plots how the average expected rates of return on assets and portfolios in an economy vary with their respective levels of nondiversifiable risk as measured by beta.

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

Arbitrage occurs when

Correct Answer
verified

Arbitrage causes an equalization of the when assets are identical or nearly identical.

Correct Answer
verified

(Consider This) According to critics, growth in the popularity of mutual funds has

Correct Answer
verified

You estimate that a piece of real estate for investment will be worth $700,000 in five years.The current interest rate is 3 percent.What is the present value of this investment?

Correct Answer
verified

The concept of time preference in financial investing rests on the belief that people

Correct Answer
verified

Refer to the graph.Each labeled point represents a different asset.For which of these assets would we expect arbitrage to cause movement to a different point?

Correct Answer
verified

Which of the following statements is true?

Correct Answer
verified

The beta for the market portfolio's level of nondiversifiable risk is

Correct Answer
verified

Financial investment refers to

Correct Answer
verified

Correct Answer
verified

Actively managed funds consistently outperform index funds.

Correct Answer
verified

The risk premium is the rate that compensates for risk.

Correct Answer
verified

A bond that is currently selling at $1,000 offers to pay $50 annually.What is the percentage rate of return on the bond?

Correct Answer
verified

Bonds issued by the Federal government are riskier than bonds issued by corporations.

Correct Answer
verified

Exam 17: C: Financial Economics

The decision of the Federal Reserve to reduce the short-term interest rate will shift the Security Market Line upward.

Correct AnswerverifiedShow Answer

Refer to the graph. A movement of the Security Market Line from SML2 to SML1 and of the highlighted asset from A2 to A1 would be caused by

Correct AnswerverifiedShow Answer

The average expected rate of return is a

Correct AnswerverifiedShow Answer

Rupert recently purchased a nonmaturing bond for $10,000 that pays $350 semiannual coupons.His expected rate of return per year on the bond is

Correct AnswerverifiedShow Answer

The Security Market Line is a straight line that plots how the average expected rates of return on assets and portfolios in an economy vary with their respective levels of nondiversifiable risk as measured by beta.

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

Arbitrage occurs when

Correct AnswerverifiedShow Answer

Arbitrage causes an equalization of the when assets are identical or nearly identical.

Correct AnswerverifiedShow Answer

(Consider This) According to critics, growth in the popularity of mutual funds has

Correct AnswerverifiedShow Answer

You estimate that a piece of real estate for investment will be worth $700,000 in five years.The current interest rate is 3 percent.What is the present value of this investment?

Correct AnswerverifiedShow Answer

The concept of time preference in financial investing rests on the belief that people

Correct AnswerverifiedShow Answer

Refer to the graph.Each labeled point represents a different asset.For which of these assets would we expect arbitrage to cause movement to a different point?

Correct AnswerverifiedShow Answer

Which of the following statements is true?

Correct AnswerverifiedShow Answer

The beta for the market portfolio's level of nondiversifiable risk is

Correct AnswerverifiedShow Answer

Financial investment refers to

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Actively managed funds consistently outperform index funds.

Correct AnswerverifiedShow Answer

The risk premium is the rate that compensates for risk.

Correct AnswerverifiedShow Answer

A bond that is currently selling at $1,000 offers to pay $50 annually.What is the percentage rate of return on the bond?

Correct AnswerverifiedShow Answer

Bonds issued by the Federal government are riskier than bonds issued by corporations.

Correct AnswerverifiedShow Answer

Correct Answer
verified

^Refer^to^the^graph.^A^movement^of^the^Security^Market^Line^from^SML2 ^to^SML1 ^and^of^the^highlighted^asset^from^A2 ^to^A1 ^would^be^caused^by

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