Question 1

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.

Question 2

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.

Question 3

One statistic that quantifies the risk of an investment is

Accepted Answer

A)  alpha.
B)  beta.
C)  gamma.
D)  the average expected rate of return.

Question 4

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 interest

Question 5

$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)  $1,369

Question 6

Diversification in one's investments reduces

Accepted Answer

A)  idiosyncratic risk.
B)  pooling risk.
C)  systemic risk.
D)  time preference risk.

Question 7

Suppose that Betty takes out a loan for $300 at an annually compounded interest rate of 6 percent to be repaid after five years.How much will be required to pay off the loan at the end of the five years?

Accepted Answer

A)  $401.47
B)  $390
C)  $393.54
D)  $408.75

Question 8

Payments to shareholders from corporate profits are known as

Accepted Answer

A)  dividends.
B)  capital gains.
C)  interest.
D)  appreciation. A

Question 9

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 trillion

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

Kelly buys a share of stock for $20 that she sells a year later for $15.Kelly's rate of return is

Accepted Answer

A)  positive 33 percent.
B)  negative 33.3 percent.
C)  negative 25 percent.
D)  negative 75 percent.

Question 12

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.

Question 13

Which institution is least likely to default on a bond?

Accepted Answer

A)  local government
B)  small corporation
C)  U.S.federal government
D)  large corporation

Question 14

Burt bought a house for $250,000 and plans to rent it out for $2,000 per month.His expected annual rate of return from renting the house is approximately

Accepted Answer

A)  8.0 percent.
B)  9.6 percent.
C)  19.2 percent.
D)  20 percent.

Question 15

Refer to the graph.If a financial asset's average expected rate of return and beta put it at point F,

Accepted Answer

A)  arbitrage will push down the price of the asset and lower the average expected rate of return to Y.
B)  arbitrage will push up the price of the asset and lower the average expected rate of return to Y.
C)  a restrictive monetary policy is needed to move the asset onto the Security Market Line.
D)  an expansionary monetary policy is needed to move the asset onto the Security Market Line.

Question 16

Arbitrage is the process by which investors simultaneously sell

Accepted Answer

A)  assets with higher rates of return and buy otherwise identical assets with lower rates of return.
B)  assets with lower rates of return and buy otherwise identical assets with higher rates of return.
C)  riskier assets and buy less risky assets.
D)  less risky assets and buy riskier assets. B

Question 17

The estimated value of all financial assets held by U.S.households and nonprofit organizations in 2015 was about

Accepted Answer

A)  $8.1 trillion.
B)  $17.9 trillion.
C)  $54 trillion.
D)  $70 trillion.

Question 18

Rates of return on short-term U.S.government bonds are compensation for

Accepted Answer

A)  both the level of risk and the delaying of consumption.
B)  delaying consumption only.
C)  the level of risk only.
D)  factors other than risk and delaying consumption.

Question 19

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. B

Question 20

Rick recently purchased a convenience store for $500,000.He expects monthly profits to be $10,000 in the next year.If a recession had struck, Rick had instead paid $300,000, and his monthly profits were reduced to $6,000, his expected rate of return would have

Accepted Answer

A)  increased by 2 percentage points.
B)  increased by 3 percentage points.
C)  decreased by 2 percentage points.
D)  remained the same.

Exam 17: C: Financial Economics

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

A stock investor may expect returns in the form of

Correct AnswerverifiedShow Answer

One statistic that quantifies the risk of an investment is

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

$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

Diversification in one's investments reduces

Correct AnswerverifiedShow Answer

Suppose that Betty takes out a loan for $300 at an annually compounded interest rate of 6 percent to be repaid after five years.How much will be required to pay off the loan at the end of the five years?

Correct AnswerverifiedShow Answer

Payments to shareholders from corporate profits are known as

Correct AnswerverifiedA

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Kelly buys a share of stock for $20 that she sells a year later for $15.Kelly's rate of return is

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

Which institution is least likely to default on a bond?

Correct AnswerverifiedShow Answer

Burt bought a house for $250,000 and plans to rent it out for $2,000 per month.His expected annual rate of return from renting the house is approximately

Correct AnswerverifiedShow Answer

Refer to the graph.If a financial asset's average expected rate of return and beta put it at point F,

Correct AnswerverifiedShow Answer

Arbitrage is the process by which investors simultaneously sell

Correct AnswerverifiedB

The estimated value of all financial assets held by U.S.households and nonprofit organizations in 2015 was about

Correct AnswerverifiedShow Answer

Rates of return on short-term U.S.government bonds are compensation for

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 AnswerverifiedB

Rick recently purchased a convenience store for $500,000.He expects monthly profits to be $10,000 in the next year.If a recession had struck, Rick had instead paid $300,000, and his monthly profits were reduced to $6,000, his expected rate of return would have

Correct AnswerverifiedShow Answer

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A

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B

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B

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