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 so-called market portfolio used as a benchmark in financial economics is

Accepted Answer

A)  the lowest risk portfolio.
B)  the most diversified portfolio.
C)  the portfolio with the highest expected return.
D)  the portfolio with zero systemic risk.E) C) and D)
F) A) and D) B

Question 3

Mutual fund managers tend to focus on the long-term performance of the corporations in whose securities they are invested, rather than their short-term quarterly performance.

Accepted Answer

A) True 
 B)False  False

Question 4

The Security Market Line shows the positive relationship between the average expected rates of return and levels of diversifiable risk of financial assets.

Accepted Answer

A) True 
 B)False

Question 5

Shawna bought an antique table for $200 last year and is now selling it for $250.Her rate of return on the table is

Accepted Answer

A)  10 percent.
B)  20 percent.
C)  25 percent.
D)  30 percent.E) All of the above
F) A) and B)

Question 6

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 D)
F) B) and C)

Question 7

(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) A) and C)
F) B) and C)

Question 8

Payments to holders of corporate bonds are known as dividends.

Accepted Answer

A) True 
 B)False

Question 9

Investors evaluate an investment by estimating its average expected rate of return, and this estimation process assigns higher weights to

Accepted Answer

A)  higher returns.
B)  more likely outcomes.
C)  higher risks.
D)  smaller returns.E) B) and C)
F) A) and D)

Question 10

What do bonds represent?

Accepted Answer

A)  shares of ownership in a corporation and a guaranteed stream of profits
B)  shares of ownership in a corporation and an entitlement to its future profits
C)  debt contracts with corporations or governments and regular interest payments on the loan
D)  debt contracts with corporations or governments and some unspecified interest payments on the loanE) B) and C)
F) A) and B)

Question 11

$500 invested at an annual interest rate of 8 percent will be worth how much at the end of one year?

Accepted Answer

A)  $504
B)  $508
C)  $540
D)  $580E) B) and C)
F) A) and C)

Question 12

Which of the following is a popular type of investment?

Accepted Answer

A)  dividends
B)  portfolios
C)  mutual funds
D)  capital gainsE) B) and D)
F) A) and B) C

Question 13

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 14

Index funds are a portfolio of

Accepted Answer

A)  bonds with rates of return fixed at 2 percentage points above the rate of inflation.
B)  mutual funds that track different indexes.
C)  stocks or bonds that exactly match a particular index.
D)  stocks guaranteed rates of return in excess of growth in the GDP price index.E) A) and B)
F) A) and C)

Question 15

The Security Market Line depicts the relationship between the

Accepted Answer

A)  average expected rate of return on stocks and the average expected rate of return on bonds.
B)  average expected rate of return of a financial asset and the discount rate.
C)  risk level of a financial asset and the prime interest rate.
D)  average expected rate of return and risk level of a financial asset.E) C) and D)
F) B) and C)

Question 16

(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) A) and C)

Question 17

Which of the following statements is true?

Accepted Answer

A)  Passively managed funds do not pay dividends.
B)  Passively managed funds have only one asset in their portfolio.
C)  Actively managed funds constantly buy or sell assets to generate better returns.
D)  Actively managed funds adjust assets to match the performance of a particular index.E) B) and C)
F) A) and B)

Question 18

Thea buys a house for $250,000, rents it for two years for $1,000 per month, and sells it at the end of those two years for $300,000.Thea's per-year rate of return is

Accepted Answer

A)  4.8 percent.
B)  14.8 percent.
C)  20 percent.
D)  29.6 percent.E) All of the above
F) None of the above

Question 19

Matt, a star basketball player, is looking to join a new NBA team.The Bulls are offering him $24 million for one year.The Heat is offering him $10 million this year and $7.0 million in each of the next two years.The market interest rate is 5 percent.What is the present value of the offer from The Heat in millions (rounded to the nearest one hundred thousand dollars) ?

Accepted Answer

A)  $22.5 million
B)  $23.0 million
C)  $24.0 million
D)  $25.2 millionE) B) and C)
F) A) and D)

Question 20

Future value measures the present-day value of returns or costs expected to arrive in the future.

Accepted Answer

A) True 
 B)False

Exam 37: Financial Economics

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

Correct Answer
verified

The so-called market portfolio used as a benchmark in financial economics is

Correct Answer
verified
B

Mutual fund managers tend to focus on the long-term performance of the corporations in whose securities they are invested, rather than their short-term quarterly performance.

Correct Answer
verified
False

The Security Market Line shows the positive relationship between the average expected rates of return and levels of diversifiable risk of financial assets.

Correct Answer
verified

Shawna bought an antique table for $200 last year and is now selling it for $250.Her rate of return on the table is

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

Payments to holders of corporate bonds are known as dividends.

Correct Answer
verified

Investors evaluate an investment by estimating its average expected rate of return, and this estimation process assigns higher weights to

Correct Answer
verified

What do bonds represent?

Correct Answer
verified

$500 invested at an annual interest rate of 8 percent will be worth how much at the end of one year?

Correct Answer
verified

Which of the following is a popular type of investment?

Correct Answer
verified
C

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

Correct Answer
verified

Index funds are a portfolio of

Correct Answer
verified

The Security Market Line depicts the relationship between the

Correct Answer
verified

(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 Answer
verified

Which of the following statements is true?

Correct Answer
verified

Thea buys a house for $250,000, rents it for two years for $1,000 per month, and sells it at the end of those two years for $300,000.Thea's per-year rate of return is

Correct Answer
verified

Correct Answer
verified

Future value measures the present-day value of returns or costs expected to arrive in the future.

Correct Answer
verified

Exam 37: Financial Economics

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

Correct AnswerverifiedShow Answer

The so-called market portfolio used as a benchmark in financial economics is

Correct AnswerverifiedB

Mutual fund managers tend to focus on the long-term performance of the corporations in whose securities they are invested, rather than their short-term quarterly performance.

Correct AnswerverifiedFalse

The Security Market Line shows the positive relationship between the average expected rates of return and levels of diversifiable risk of financial assets.

Correct AnswerverifiedShow Answer

Shawna bought an antique table for $200 last year and is now selling it for $250.Her rate of return on the table is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Payments to holders of corporate bonds are known as dividends.

Correct AnswerverifiedShow Answer

Investors evaluate an investment by estimating its average expected rate of return, and this estimation process assigns higher weights to

Correct AnswerverifiedShow Answer

What do bonds represent?

Correct AnswerverifiedShow Answer

$500 invested at an annual interest rate of 8 percent will be worth how much at the end of one year?

Correct AnswerverifiedShow Answer

Which of the following is a popular type of investment?

Correct AnswerverifiedC

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

Correct AnswerverifiedShow Answer

Index funds are a portfolio of

Correct AnswerverifiedShow Answer

The Security Market Line depicts the relationship between the

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

Which of the following statements is true?

Correct AnswerverifiedShow Answer

Thea buys a house for $250,000, rents it for two years for $1,000 per month, and sells it at the end of those two years for $300,000.Thea's per-year rate of return is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Future value measures the present-day value of returns or costs expected to arrive in the future.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified
B

Correct Answer
verified
False

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
C

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified