Question 1

Mark buys a bond for $8,000 and receives interest payments of $100 every three months.The interest rate on the bond is approximately

Accepted Answer

A)  1.3 percent.
B)  2 percent.
C)  5 percent.
D)  20 percent.E) A) and B)
F) None of the above

Question 2

Index funds consistently beat actively managed funds because actively managed funds incur greater management costs.

Accepted Answer

A) True 
 B)False

Question 3

Investors diversify portfolios

Accepted Answer

A)  because diversified portfolios pay the highest rates of return.
B)  because diversified portfolios are guaranteed not to lose money.
C)  to reduce the risk of losing their investment.
D)  to guarantee minimum returns on their investment.E) B) and D)
F) A) and D)

Question 4

What is the present value of $500 to be received eight years from now if the interest rate is 5 percent?

Accepted Answer

A)  $300
B)  $338.42
C)  $700
D)  $738.72E) B) and D)
F) None of the above

Question 5

The Security Market line (SML)  shows how the average expected rates of return on assets vary with

Accepted Answer

A)  stock price.
B)  dividend payment.
C)  risk level.
D)  time preference.E) A) and B)
F) C) and D)

Question 6

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) All of the above
F) A) and B)

Question 7

After 4 years, a $5,000 investment earning a 6 percent annual interest rate will be worth more than a $6,000 investment earning 1 percent annual interest.

Accepted Answer

A) True 
 B)False

Question 8

Indy owns 100 shares of stock in Pet Mart Corporation that he purchased for $20 per share.Every year he has received, from company profits, $1 for each share he owns.Indy should necessarily sell his stock if

Accepted Answer

A)  the price falls below $20 per share.
B)  he expects the sum of future capital gains and dividends to be negative.
C)  the company stops paying dividends.
D)  any of these circumstances occur.E) A) and D)
F) A) and B)

Question 9

Average expected rates of return and levels of risk are positively related.

Accepted Answer

A) True 
 B)False

Question 10

The maximum amount of money that company shareholders can lose on their investment in the corporation is

Accepted Answer

A)  whatever percentage of their wealth equals their percentage of ownership.
B)  whatever they paid for the shares in the company.
C)  whatever the corporation loses each year times the percentage of ownership in the company.
D)  zero.E) A) and B)
F) A) and C)

Question 11

An investor owns bond #1, which has a rate of return of 10 percent, but a similar bond #2 has an 11 percent return and equal risk.By selling bond #1 and buying bond #2 to earn a higher return, the investor is engaging in

Accepted Answer

A)  pooling.
B)  arbitrage.
C)  diversification.
D)  time preference.E) None of the above
F) A) and C)

Question 12

A bond pays a coupon (or interest)  rate of 5 percent each year for five years, with a future (face)  value of $200.If the bond were sold today, what would be the present value of the bond?

Accepted Answer

A)  $200
B)  $157
C)  $150
D)  $145E) B) and C)
F) A) and D)

Question 13

If investors showed less of a preference for investing in war-related 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)  decrease, and the rates of return would increase relative to other companies.
C)  decrease, 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) C) and D)
F) B) and D)

Question 14

Another name for nondiversifiable risk is

Accepted Answer

A)  inflationrisk.
B)  systemic risk.
C)  cyclical risk.
D)  idiosyncratic risk.E) A) and D)
F) A) and C)

Question 15

Bankruptcy of a firm means that it

Accepted Answer

A)  earned less revenues than its total costs.
B)  cannot meet its contractual obligations to its stockholders.
C)  has a lot of debt owed to its bondholders.
D)  is unable to make timely promised payments on its debt.E) B) and C)
F) None of the above

Exam 37: Financial Economics

Bankruptcy of a firm means that it

Correct Answer
verified

Investors diversify portfolios

Correct Answer
verified

An investor owns bond #1, which has a rate of return of 10 percent, but a similar bond #2 has an 11 percent return and equal risk.By selling bond #1 and buying bond #2 to earn a higher return, the investor is engaging in

Correct Answer
verified

Index funds consistently beat actively managed funds because actively managed funds incur greater management costs.

Correct Answer
verified

The maximum amount of money that company shareholders can lose on their investment in the corporation is

Correct Answer
verified

After 4 years, a $5,000 investment earning a 6 percent annual interest rate will be worth more than a $6,000 investment earning 1 percent annual interest.

Correct Answer
verified

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

Correct Answer
verified

The Security Market line (SML) shows how the average expected rates of return on assets vary with

Correct Answer
verified

Average expected rates of return and levels of risk are positively related.

Correct Answer
verified

What is the present value of $500 to be received eight years from now if the interest rate is 5 percent?

Correct Answer
verified

If investors showed less of a preference for investing in war-related companies, then it would be expected that the stock prices for those companies would

Correct Answer
verified

Indy owns 100 shares of stock in Pet Mart Corporation that he purchased for $20 per share.Every year he has received, from company profits, $1 for each share he owns.Indy should necessarily sell his stock if

Correct Answer
verified

Another name for nondiversifiable risk is

Correct Answer
verified

Mark buys a bond for $8,000 and receives interest payments of $100 every three months.The interest rate on the bond is approximately

Correct Answer
verified

A bond pays a coupon (or interest) rate of 5 percent each year for five years, with a future (face) value of $200.If the bond were sold today, what would be the present value of the bond?

Correct Answer
verified

Exam 37: Financial Economics

Bankruptcy of a firm means that it

Correct AnswerverifiedShow Answer

Investors diversify portfolios

Correct AnswerverifiedShow Answer

An investor owns bond #1, which has a rate of return of 10 percent, but a similar bond #2 has an 11 percent return and equal risk.By selling bond #1 and buying bond #2 to earn a higher return, the investor is engaging in

Correct AnswerverifiedShow Answer

Index funds consistently beat actively managed funds because actively managed funds incur greater management costs.

Correct AnswerverifiedShow Answer

The maximum amount of money that company shareholders can lose on their investment in the corporation is

Correct AnswerverifiedShow Answer

After 4 years, a $5,000 investment earning a 6 percent annual interest rate will be worth more than a $6,000 investment earning 1 percent annual interest.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The Security Market line (SML) shows how the average expected rates of return on assets vary with

Correct AnswerverifiedShow Answer

Average expected rates of return and levels of risk are positively related.

Correct AnswerverifiedShow Answer

What is the present value of $500 to be received eight years from now if the interest rate is 5 percent?

Correct AnswerverifiedShow Answer

If investors showed less of a preference for investing in war-related companies, then it would be expected that the stock prices for those companies would

Correct AnswerverifiedShow Answer

Indy owns 100 shares of stock in Pet Mart Corporation that he purchased for $20 per share.Every year he has received, from company profits, $1 for each share he owns.Indy should necessarily sell his stock if

Correct AnswerverifiedShow Answer

Another name for nondiversifiable risk is

Correct AnswerverifiedShow Answer

Mark buys a bond for $8,000 and receives interest payments of $100 every three months.The interest rate on the bond is approximately

Correct AnswerverifiedShow Answer

A bond pays a coupon (or interest) rate of 5 percent each year for five years, with a future (face) value of $200.If the bond were sold today, what would be the present value of the bond?

Correct AnswerverifiedShow 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