Question 1

Stock investors can earn a return from stocks only in the form of dividends.

Accepted Answer

A) True 
 B)False

Question 2

The steeper the Security Market Line,

Accepted Answer

A)   the lower the risk premium.
B)   the more investors dislike risk.
C)   the less investors are concerned about risk.
D)   the greater the risk-free interest rate.

Question 3

You would like to have $50,000 for a new car in six years. If you deposit money today in a bank CD that pays 4 percent per year, how much must your deposit be?

Accepted Answer

A)   $38,050
B)   $39,516
C)   $40,323
D)   $42,108

Question 4

The limited liability rule means that if a corporation goes bankrupt,

Accepted Answer

A)   shareholders are responsible for all the debts of the ﬁrm.
B)   bondholders are responsible for all the debts of the ﬁrm.
C)   shareholders can only lose the amount they invested.
D)   bondholders only lose the face value of the bond.

Question 5

"Default" occurs when

Accepted Answer

A)   bond issuers fail to make promised payments.
B)   corporations go bankrupt and stock becomes worthless.
C)   bond purchasers fail to pay full price for a bond.
D)   stocks are not federally insured.

Question 6

The largest mutual fund, as of March 2019, held approximately _____ billion in assets under management.

Accepted Answer

A)   $170
B)   $90
C)   $47
D)   $260

Question 7

Which of the following is an economic investment?

Accepted Answer

A)   shares of corporate stock
B)   U.S. savings bonds
C)   newly built houses
D)   bonds issued by private corporations

Question 8

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.

Question 9

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

Accepted Answer

A)   greater the interest rate.
B)   less the amount of time before the future payment is received.
C)   more the amount of time before the future payment is received.
D)   greater the expected rate of inﬂation.

Question 10

The vertical intercept of the Security Market Line is determined by the

Accepted Answer

A)   beta of the market portfolio.
B)   discount rate.
C)   risk-free interest rate.
D)   risk premium.

Question 11

Which of the following is both an economic and a ﬁnancial investment?

Accepted Answer

A)   government building a new road
B)   Boeing Corporation building a new factory
C)   a private citizen buying corporate stock
D)   the Federal Reserve buying bonds from commercial banks

Question 12

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.

Question 13

(Last Word)  Before being adjusted for costs,

Accepted Answer

A)   actively managed funds outperform index funds.
B)   actively managed funds and index funds perform about the same.
C)   index funds outperform actively managed funds.
D)   arbitrage equalizes the average expected rates of return and beta levels on index and actively managed funds.

Question 14

Arbitrage equates rates of return across assets of all risk levels.

Accepted Answer

A) True 
 B)False

Question 15

What are the distinguishing features of a stock? What happens to stockholders if the corporation
fails?

Accepted Answer

Stock is an ownership share in a corpora...

Question 16

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 17

If i is the interest rate and X is the number of dollars to be received after t years, the formula to calculate the present value of a future payment is

Accepted Answer

A)    (1+i) tX( 1 + i )  ^ { t } X(1+i) tX 
B)    X/(1+i) tX / ( 1 + i )  ^ { t }X/(1+i) t 
C)    it/(1+X) i ^ { t } / ( 1 + X ) it/(1+X)  
D)    (X/i) t( X /i )  t(X/i) t

Question 18

Distinguish between the two main kinds of mutual funds.

Accepted Answer

The two main kinds of mutual funds are a...

Question 19

Short-term U.S. government bonds are considered to be risk-free.

Accepted Answer

A) True 
 B)False

Question 20

When a company declares bankruptcy, stockholders are the ﬁrst to be paid when company assets
are sold.

Accepted Answer

A) True 
 B)False

Exam 17: Financial Economics

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 vertical intercept of the Security Market Line is determined by the

Correct AnswerverifiedShow Answer

If i is the interest rate and X is the number of dollars to be received after t years, the formula to calculate the present value of a future payment is

Correct AnswerverifiedShow Answer

Which of the following is an economic investment?

Correct AnswerverifiedShow Answer

What are the distinguishing features of a stock? What happens to stockholders if the corporation fails?

Correct AnswerverifiedStock is an ownership share in a corpora...View AnswerShow Answer

The limited liability rule means that if a corporation goes bankrupt,

Correct AnswerverifiedShow Answer

"Default" occurs when

Correct AnswerverifiedShow Answer

Which of the following is both an economic and a ﬁnancial investment?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Arbitrage equates rates of return across assets of all risk levels.

Correct AnswerverifiedShow Answer

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

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

You would like to have $50,000 for a new car in six years. If you deposit money today in a bank CD that pays 4 percent per year, how much must your deposit be?

Correct AnswerverifiedShow Answer

Stock investors can earn a return from stocks only in the form of dividends.

Correct AnswerverifiedShow Answer

When a company declares bankruptcy, stockholders are the ﬁrst to be paid when company assets are sold.

Correct AnswerverifiedShow Answer

(Last Word) Before being adjusted for costs,

Correct AnswerverifiedShow Answer

The largest mutual fund, as of March 2019, held approximately _____ billion in assets under management.

Correct AnswerverifiedShow Answer

Short-term U.S. government bonds are considered to be risk-free.

Correct AnswerverifiedShow Answer

Distinguish between the two main kinds of mutual funds.

Correct AnswerverifiedThe two main kinds of mutual funds are a...View AnswerShow Answer

The steeper the Security Market Line,

Correct AnswerverifiedShow Answer

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Stock is an ownership share in a corpora...
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Correct Answer
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The two main kinds of mutual funds are a...
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Correct Answer
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