Question 1

As wealth increases, savers choose

Accepted Answer

A) more necessity assets and fewer luxury assets. 
B) more luxury assets and fewer necessity assets. 
C) more of both luxury assets and necessity assets. 
D) fewer of both luxury assets and necessity assets. 
A) more necessity assets and fewer luxury assets. 
B) more luxury assets and fewer necessity assets. 
C) more of both luxury assets and necessity assets. 
D) fewer of both luxury assets and necessity assets.

Question 2

TIAA-CREF is the pension plan for college professors. Professors can direct their contributions entirely to the TIAA part of the plan which offers a guaranteed, but generally relatively low, return or entirely to the CREF part of the plan, which invests in the stock market, or they can divide their contributions between the two parts of the plan. Funds invested in the CREF part of the plan will on average earn a higher rate of return than funds invested in the TIAA part of the plan, but the return is not guaranteed and in some years the value of funds invested in the CREF part of the plan will decline. How would you expect each of the following professors to divide his or her contributions between the TIAA and CREF parts of the plan: (a) a 28-year-old professor just beginning her career; (b) a 58-year-old professor who is about 10 years from retirement; and (c) a 68-year-old professor on the verge of retirement?

Accepted Answer

The 28-year-old will be interested in ac

Question 3

Comparing U.S. household portfolios in 2006 with U.S. household portfolios in 1950, which of the following statements is true?

Accepted Answer

A) Pension reserves were a larger fraction of U.S. household portfolios in 2006, but U.S. government securities were a smaller fraction. 
B) Life insurance reserves were a larger fraction of U.S. household portfolios, but pension reserves were a smaller fraction. 
C) Money market mutual funds were a smaller fraction of U.S. household portfolios, but U.S. government securities were a larger fraction. 
D) U.S. government securities were a smaller fraction of U.S. household portfolios, but life insurance reserves were a larger fraction. 
A) Pension reserves were a larger fraction of U.S. household portfolios in 2006, but U.S. government securities were a smaller fraction. 
B) Life insurance reserves were a larger fraction of U.S. household portfolios, but pension reserves were a smaller fraction. 
C) Money market mutual funds were a smaller fraction of U.S. household portfolios, but U.S. government securities were a larger fraction. 
D) U.S. government securities were a smaller fraction of U.S. household portfolios, but life insurance reserves were a larger fraction.

Question 4

Savers generally compare

Accepted Answer

A) the nominal rates of return on assets. 
B) the real rates of return on assets. 
C) the real after-tax rates of return on assets. 
D) the nominal after-tax rates of return on assets. 
A) the nominal rates of return on assets. 
B) the real rates of return on assets. 
C) the real after-tax rates of return on assets. 
D) the nominal after-tax rates of return on assets.

Question 5

Which of the following assets has the highest information costs?

Accepted Answer

A) A U.S. Treasury bond 
B) A bond issued by the city of Smallplace, South Dakota 
C) A bond issued by General Motors 
D) A share of stock issued by General Motors 
A) A U.S. Treasury bond 
B) A bond issued by the city of Smallplace, South Dakota 
C) A bond issued by General Motors 
D) A share of stock issued by General Motors

Question 6

A portfolio consisting of every stock traded on the New York Stock Exchange would have

Accepted Answer

A) diversified away all risk. 
B) diversified away idiosyncratic risk. 
C) diversified away market risk. 
D) much more risk than a portfolio containing only a few stocks. 
A) diversified away all risk. 
B) diversified away idiosyncratic risk. 
C) diversified away market risk. 
D) much more risk than a portfolio containing only a few stocks.

Question 7

About what percentage of the financial assets of U.S. households are in stock mutual funds?

Accepted Answer

A) 1% 
B) 2% 
C) 14% 
D) 50% 
A) 1% 
B) 2% 
C) 14% 
D) 50%

Question 8

Unsystematic risk is another name for

Accepted Answer

A) liquidity. 
B) market risk. 
C) idiosyncratic risk. 
D) diversification. 
A) liquidity. 
B) market risk. 
C) idiosyncratic risk. 
D) diversification.

Question 9

The obligations of state and local governments

Accepted Answer

A) are taxed at the federal level, but not at the state and local levels. 
B) are taxed at the state and local levels, but not at the federal level. 
C) are taxed at the state, local, and federal levels. 
D) are called municipal bonds. 
A) are taxed at the federal level, but not at the state and local levels. 
B) are taxed at the state and local levels, but not at the federal level. 
C) are taxed at the state, local, and federal levels. 
D) are called municipal bonds.

Question 10

In general, a young saver should choose a financial portfolio based on

Accepted Answer

A) maximizing expected return with only limited concern for variability. 
B) minimizing variability with only limited concern for expected return. 
C) equal concern for expected return and variability. 
D) maximizing the number of tax-free securities included. 
A) maximizing expected return with only limited concern for variability. 
B) minimizing variability with only limited concern for expected return. 
C) equal concern for expected return and variability. 
D) maximizing the number of tax-free securities included.

Question 11

Suppose the expected return on the market portfolio is 10%, the risk-free rate is 2%, and the beta for an asset is 2. According to CAPM what is the expected return on the asset?

Accepted Answer

18% = 2% +

Question 12

An investor makes the following remark: "I don't understand the junk bond market. Junk bonds have become more liquid. This should have made them more desirable and increased the demand for them. The increased demand should have driven their yields up, but in fact their yields have gone down. I guess investors just don't value liquidity." Do you agree with the investor's reasoning?

Accepted Answer

The investor's reasoning is flawed. Inve

Question 13

Suppose that you own $10,000 worth of stock in General Motors. Adding stock in which of the following companies would be least likely to reduce the risk in your portfolio?

Accepted Answer

A) Google 
B) Wal-Mart 
C) Ford 
D) General Electric 
A) Google 
B) Wal-Mart 
C) Ford 
D) General Electric

Question 14

One of the important hindrances to savers placing their funds in foreign financial assets is

Accepted Answer

A) the costliness of gathering information about foreign financial assets. 
B) the higher tax rates levied by the U.S. government on earnings from such assets. 
C) the reluctance of many European countries to allow foreign investment in their financial assets. 
D) the difficulty in reading company reports written in a foreign language. 
A) the costliness of gathering information about foreign financial assets. 
B) the higher tax rates levied by the U.S. government on earnings from such assets. 
C) the reluctance of many European countries to allow foreign investment in their financial assets. 
D) the difficulty in reading company reports written in a foreign language.

As wealth increases, savers choose

Comparing U.S. household portfolios in 2006 with U.S. household portfolios in 1950, which of the following statements is true?

Savers generally compare

Which of the following assets has the highest information costs?

A portfolio consisting of every stock traded on the New York Stock Exchange would have

About what percentage of the financial assets of U.S. households are in stock mutual funds?

Unsystematic risk is another name for

The obligations of state and local governments

In general, a young saver should choose a financial portfolio based on

Suppose the expected return on the market portfolio is 10%, the risk-free rate is 2%, and the beta for an asset is 2. According to CAPM what is the expected return on the asset?

Suppose that you own $10,000 worth of stock in General Motors. Adding stock in which of the following companies would be least likely to reduce the risk in your portfolio?

One of the important hindrances to savers placing their funds in foreign financial assets is

Introducing Money and the Financial System

Money and the Payments System

Overview of the Financial System

Interest Rates and Rates of Return

Determining Market Interest Rates

Risk Structure and Term Structure of Interest Rates

The Foreign-Exchange Market and Exchange Rates

Derivative Securities and Derivative Markets

Information and Financial Market Efficiency

Reducing Transactions Costs and Information Costs

What Financial Institutions Do

The Business of Banking

The Banking Industry

Banking Regulation: Crisis and Response

Banking in the International Economy

The Money Supply Process

Changes in the Monetary Base

Organization of Central Banks

Monetary Policy Tools

The Conduct of Monetary Policy

The International Financial System and Monetary Policy

The Demand for Money

Linking the Financial System and the Economy: the Is-Lm-Fe Model

Aggregate Demand and Aggregate Supply

Money and Output in the Short Run

Information Problems and Channels for Monetary Policy

Inflation: Causes and Consequences

Filters

Exam 5: The Theory of Portfolio Allocation

As wealth increases, savers choose

Comparing U.S. household portfolios in 2006 with U.S. household portfolios in 1950, which of the following statements is true?

Savers generally compare

Which of the following assets has the highest information costs?

A portfolio consisting of every stock traded on the New York Stock Exchange would have

About what percentage of the financial assets of U.S. households are in stock mutual funds?

Unsystematic risk is another name for

The obligations of state and local governments

In general, a young saver should choose a financial portfolio based on

Suppose the expected return on the market portfolio is 10%, the risk-free rate is 2%, and the beta for an asset is 2. According to CAPM what is the expected return on the asset?

Suppose that you own $10,000 worth of stock in General Motors. Adding stock in which of the following companies would be least likely to reduce the risk in your portfolio?

One of the important hindrances to savers placing their funds in foreign financial assets is

Introducing Money and the Financial System

Money and the Payments System

Overview of the Financial System

Interest Rates and Rates of Return

Determining Market Interest Rates

Risk Structure and Term Structure of Interest Rates

The Foreign-Exchange Market and Exchange Rates

Derivative Securities and Derivative Markets

Information and Financial Market Efficiency

Reducing Transactions Costs and Information Costs

What Financial Institutions Do

The Business of Banking

The Banking Industry

Banking Regulation: Crisis and Response

Banking in the International Economy

The Money Supply Process

Changes in the Monetary Base

Organization of Central Banks

Monetary Policy Tools

The Conduct of Monetary Policy

The International Financial System and Monetary Policy

The Demand for Money

Linking the Financial System and the Economy: the Is-Lm-Fe Model

Aggregate Demand and Aggregate Supply

Money and Output in the Short Run

Information Problems and Channels for Monetary Policy

Inflation: Causes and Consequences

Filters