Question 1

George buys an antique car for $20,000 and sells it ﬁve years later for just over $24,000. George's per-year rate of return is

Accepted Answer

A)   20 percent.
B)   12 percent.
C)   10 percent.
D)   4 percent.E) None of the above
F) B) and D)

Question 2

Which of the following ﬁnancial assets is considered to be essentially risk-free?

Accepted Answer

A)   gold
B)   stock in Fortune 500 companies
C)   real estate
D)   short-term U.S. government bondsE) None of the above
F) A) and B)

Question 3

A recession in an economy would be an example of a diversiﬁable risk.

Accepted Answer

A) True 
 B)False

Question 4

Which one of the following is a feature of all investments?

Accepted Answer

A)   The future payments are typically risky.
B)   The periodic payments they provide are regular.
C)   They typically are short term.
D)   They give the investor a stream of future payments, not just one payment.E) A) and C)
F) B) and D)

Question 5

At the end of 2017, U.S. households held approximately __________ in mutual funds.

Accepted Answer

A)   $5.3 billion
B)   $6 trillion
C)   $16.9 trillion
D)   $70 trillionE) B) and C)
F) A) and D)

Question 6

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 7

Diversiﬁcation is an investment strategy that seeks to reduce the overall risk in an investment
portfolio by selecting a group of assets whose risks differ from one another.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following would be the best brief deﬁnition of present value?

Accepted Answer

A)   assets minus liabilities incurred to acquire the assets
B)   beneﬁts of an investment minus its costs
C)   the sum of all the past values of an asset
D)   the current value of the expected future returns on an assetE) A) and D)
F) All of the above

Question 9

The vertical intercept of the Security Market Line (SML)  shows the

Accepted Answer

A)   amount of arbitrage.
B)   risk-free interest rate.
C)   beta of the market portfolio.
D)   risk premium for the market portfolio.E) B) and C)
F) A) and B)

Question 10

If an investment is 70 percent likely to return 10 percent per year and 30 percent likely to return 15 percent a year, then its average expected rate of return is

Accepted Answer

A)   10.5 percent.
B)   11.0 percent.
C)   11.5 percent.
D)   12.5 percent.E) A) and C)
F) None of the above

Question 11

Which three countries rank as the lowest risk countries and which three countries rank as the
highest risk countries according to the International Country Risk Guide? What types of risks are
included in this measure?

Accepted Answer

The three lowest risk countries to inves...

Question 12

(Last Word)  Before trading costs and management fees are taken into account, passively managed funds outperform actively managed funds by about ______ percent per year.

Accepted Answer

A)   5
B)   1
C)   zero
D)   3E) C) and D)
F) B) and C)

Question 13

The two most important investor preferences are a desire for high rates of return and a dislike of
inﬂation.

Accepted Answer

A) True 
 B)False

Question 14

Pavel is considering buying a $10,000 bond with no expiration date that generates yearly payments of $500. If the price of the bond were to fall to $9,000,

Accepted Answer

A)   the bond's rate of return would rise from 5 percent to 5.6 percent.
B)   the bond payments would fall to $450 per year.
C)   Pavel should deﬁnitely buy the bond because the price is lower.
D)   Pavel should deﬁnitely not buy the bond because the lower price means it is worth less.E) C) and D)
F) A) and D)

Question 15

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.E) A) and D)
F) None of the above

Question 16

Other factors constant, the present value will be larger,

Accepted Answer

A)   the smaller is the future value.
B)   the higher is the interest rate.
C)   the larger is the number of periods t.
D)   the shorter is the time period t.E) A) and B)
F) C) and D)

Question 17

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

Question 18

The rate of return on short-term U.S. government bonds is often referred to as the

Accepted Answer

A)   federal funds rate.
B)   discount rate.
C)   risk-free interest rate.
D)   yield rate.E) B) and C)
F) C) and D)

Question 19

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.E) A) and B)
F) None of the above

Question 20

Lucian buys a house for $400,000, rents it for one year for $1,500 per month, and sells it at the end of the year for $390,000. Lucian's rate of return

Accepted Answer

A)   is 2 percent.
B)   is 4.5 percent.
C)   is negative 2.5 percent.
D)   cannot be determined.E) None of the above
F) A) and D)

Exam 17: Financial Economics

Which three countries rank as the lowest risk countries and which three countries rank as the highest risk countries according to the International Country Risk Guide? What types of risks are included in this measure?

Correct AnswerverifiedThe three lowest risk countries to inves...View AnswerShow Answer

Lucian buys a house for $400,000, rents it for one year for $1,500 per month, and sells it at the end of the year for $390,000. Lucian's rate of return

Correct AnswerverifiedShow Answer

If an investment is 70 percent likely to return 10 percent per year and 30 percent likely to return 15 percent a year, then its average expected rate of return is

Correct AnswerverifiedShow Answer

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

The vertical intercept of the Security Market Line (SML) shows the

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

The rate of return on short-term U.S. government bonds is often referred to as the

Correct AnswerverifiedShow Answer

Other factors constant, the present value will be larger,

Correct AnswerverifiedShow Answer

The two most important investor preferences are a desire for high rates of return and a dislike of inﬂation.

Correct AnswerverifiedShow Answer

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

Which of the following ﬁnancial assets is considered to be essentially risk-free?

Correct AnswerverifiedShow Answer

(Last Word) Before trading costs and management fees are taken into account, passively managed funds outperform actively managed funds by about ______ percent per year.

Correct AnswerverifiedShow Answer

George buys an antique car for $20,000 and sells it ﬁve years later for just over $24,000. George's per-year rate of return is

Correct AnswerverifiedShow Answer

Which one of the following is a feature of all investments?

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

Which of the following would be the best brief deﬁnition of present value?

Correct AnswerverifiedShow Answer

Diversiﬁcation is an investment strategy that seeks to reduce the overall risk in an investment portfolio by selecting a group of assets whose risks differ from one another.

Correct AnswerverifiedShow Answer

Pavel is considering buying a $10,000 bond with no expiration date that generates yearly payments of $500. If the price of the bond were to fall to $9,000,

Correct AnswerverifiedShow Answer

At the end of 2017, U.S. households held approximately __________ in mutual funds.

Correct AnswerverifiedShow Answer

A recession in an economy would be an example of a diversiﬁable risk.

Correct AnswerverifiedShow Answer

Correct Answer
verified
The three lowest risk countries to inves...
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

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