Question 1

Government bonds are preferred to shares by individual investors who

Accepted Answer

A) need to have immediate access to their money. 
B) wish to diversify their investments. 
C) prefer a less risky lower return to a more risky higher return. 
D) prefer a more risky higher return to a less risky lower return. 
A) need to have immediate access to their money. 
B) wish to diversify their investments. 
C) prefer a less risky lower return to a more risky higher return. 
D) prefer a more risky higher return to a less risky lower return. C

Question 2

Which of the following factors would a fundamental analyst consider when predicting a firm's share price?

Accepted Answer

A) Recent changes in the share's price. 
B) The knowledge and skills of the firm's current management. 
C) The marketing strategies of the firm's competitors. 
D) Both b and c are correct. 
A) Recent changes in the share's price. 
B) The knowledge and skills of the firm's current management. 
C) The marketing strategies of the firm's competitors. 
D) Both b and c are correct. D

Question 3

A snow plough will generate a net income of R20 000 per year for its owner.After 8 years, the plough will be worn out and have zero value.The owner has worked out the present value of the net income the snow plough will generate using an interest rate of 10%.Which of the following statements is NOT true?

Accepted Answer

A) The present value of the final year's net income is less than R11 000. 
B) The owner would sell the snow plough if she received an offer of R13 000 for it. 
C) The owner would sell the snow plough if she received an offer of R3 500. 
D) The present value of the income of the net income the snow plough will generate over the 8 year period is more than R100 000. 
A) The present value of the final year's net income is less than R11 000. 
B) The owner would sell the snow plough if she received an offer of R13 000 for it. 
C) The owner would sell the snow plough if she received an offer of R3 500. 
D) The present value of the income of the net income the snow plough will generate over the 8 year period is more than R100 000. C

Question 4

As a person allocates more of his savings to shares and less to government bonds, he will earn a higher rate of return, but he must accept additional risk.

Accepted Answer

A) True 
 B)False

Question 5

JCB (which makes agricultural and construction equipment) has the opportunity to purchase a new factory today that will provide them with a R50 million return four years from now.If prevailing interest rates are 6 percent, what is the maximum that the project can cost for JCB to be willing to undertake the project?

Accepted Answer

A) R43 456 838 
B) R53 406 002 
C) R34 583 902 
D) R39 604 682 
E) R50 000 000 
A) R43 456 838 
B) R53 406 002 
C) R34 583 902 
D) R39 604 682 
E) R50 000 000

Question 6

Demonstrate that whether you would prefer to have R225 today or wait five years for R300 depends on the interest rate.Show your calculations.

Accepted Answer

For example at 3 per cent the

Question 7

If the price of shares is greater than what you believe to be the true value of the business then the stock is

Accepted Answer

A) undervalued. 
B) overvalued. 
C) fairly valued. 
D) no longer going to be traded. 
A) undervalued. 
B) overvalued. 
C) fairly valued. 
D) no longer going to be traded.

Question 8

If interest is compounded annually, R100 placed in a bank account earning 10 percent interest should generate R30 interest after three years.

Accepted Answer

A) True 
 B)False

Question 9

The fact that someone with a high risk of medical problems is more likely to buy a lot of health insurance is an example of

Accepted Answer

A) adverse selection. 
B) monitoring. 
C) moral hazard. 
D) an optimal contract. 
A) adverse selection. 
B) monitoring. 
C) moral hazard. 
D) an optimal contract.

Question 10

In the 1990s, several stocks had very, very high price to earnings ratios.These stocks appeared overvalued to many observers.What might the people who bought them have been thinking?

Accepted Answer

There are several possibilities.The firs

Question 11

Dividends are the cash payments that a company makes to its

Accepted Answer

A) customers. 
B) employees. 
C) stakeholders. 
D) shareholders. 
A) customers. 
B) employees. 
C) stakeholders. 
D) shareholders.

Question 12

Diversification cannot eliminate idiosyncratic risk, which is the uncertainty associated with the specific companies.

Accepted Answer

A) True 
 B)False

Question 13

The amount today that would be needed, at prevailing interest rates, to produce a particular sum in the future is known as

Accepted Answer

A) future value. 
B) fair value. 
C) present value. 
D) compound value. 
E) beginning value. 
A) future value. 
B) fair value. 
C) present value. 
D) compound value. 
E) beginning value.

Question 14

List three different ways that a risk averse person can reduce financial risk.

Accepted Answer

A risk averse person can reduce risk by

Question 15

Which of the following does not help reduce the risk that people face?

Accepted Answer

A) Increasing the rate of return within their portfolio. 
B) Diversifying their portfolio. 
C) All of these answers help reduce risk. 
D) Buying insurance. 
A) Increasing the rate of return within their portfolio. 
B) Diversifying their portfolio. 
C) All of these answers help reduce risk. 
D) Buying insurance.

Question 16

There is a __________ between risk and return which is at the heart of understanding financial decisions

Accepted Answer

A) rule 
B) difference 
C) zero sum game 
D) trade-off 
A) rule 
B) difference 
C) zero sum game 
D) trade-off

Question 17

Diversification is the reduction of risk achieved by replacing a single risk with a large number of

Accepted Answer

A) greater risks. 
B) smaller unrelated risks. 
C) risk-free investments. 
D) risk-free purchases. 
A) greater risks. 
B) smaller unrelated risks. 
C) risk-free investments. 
D) risk-free purchases.

Question 18

Which of the following is an example of moral hazard?

Accepted Answer

A) After Karabo buys fire insurance, he begins to smoke cigarettes in bed. 
B) None of these answers demonstrate moral hazard. 
C) Martin has been feeling poorly lately so he seeks health insurance. 
D) Both of Susan's parents lost their teeth due to gum disease, so Susan buys dental insurance. 
E) All of these answers demonstrate moral hazard. 
A) After Karabo buys fire insurance, he begins to smoke cigarettes in bed. 
B) None of these answers demonstrate moral hazard. 
C) Martin has been feeling poorly lately so he seeks health insurance. 
D) Both of Susan's parents lost their teeth due to gum disease, so Susan buys dental insurance. 
E) All of these answers demonstrate moral hazard.

Question 19

If someone's utility function exhibits diminishing marginal utility of wealth, this person is risk averse.

Accepted Answer

A) True 
 B)False

Question 20

Risk is the probability of something happening which results in a(n) ___________________.

Accepted Answer

A) overvalued share. 
B) loss or some degree of hazard or damage. 
C) optimal level. 
D) returns from investing in shares. 
E) a poor investment. 
A) overvalued share. 
B) loss or some degree of hazard or damage. 
C) optimal level. 
D) returns from investing in shares. 
E) a poor investment.

Government bonds are preferred to shares by individual investors who

Which of the following factors would a fundamental analyst consider when predicting a firm's share price?

As a person allocates more of his savings to shares and less to government bonds, he will earn a higher rate of return, but he must accept additional risk.

Demonstrate that whether you would prefer to have R225 today or wait five years for R300 depends on the interest rate.Show your calculations.

If the price of shares is greater than what you believe to be the true value of the business then the stock is

If interest is compounded annually, R100 placed in a bank account earning 10 percent interest should generate R30 interest after three years.

The fact that someone with a high risk of medical problems is more likely to buy a lot of health insurance is an example of

In the 1990s, several stocks had very, very high price to earnings ratios.These stocks appeared overvalued to many observers.What might the people who bought them have been thinking?

Dividends are the cash payments that a company makes to its

Diversification cannot eliminate idiosyncratic risk, which is the uncertainty associated with the specific companies.

The amount today that would be needed, at prevailing interest rates, to produce a particular sum in the future is known as

List three different ways that a risk averse person can reduce financial risk.

Which of the following does not help reduce the risk that people face?

There is a __________ between risk and return which is at the heart of understanding financial decisions

Diversification is the reduction of risk achieved by replacing a single risk with a large number of

Which of the following is an example of moral hazard?

If someone's utility function exhibits diminishing marginal utility of wealth, this person is risk averse.

Risk is the probability of something happening which results in a(n) ___________________.

What Is Economics

Thinking Like an Economist

Measuring a Nations Well-Being

Measuring the Cost of Living

Production and Growth

Unemployment

Saving, Investment and the Financial System

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Business Cycles

Keynesian Economics and the Is-Lm Analysis

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short Run Trade-Off Between Inflation and Unemployment

Supply Side Policies

The Financial Crisis and Sovereign Debt

Common Currency Areas and European Monetary Union

Filters

Exam 8: The Basic Tools of Finance

Government bonds are preferred to shares by individual investors who

Which of the following factors would a fundamental analyst consider when predicting a firm's share price?

As a person allocates more of his savings to shares and less to government bonds, he will earn a higher rate of return, but he must accept additional risk.

Demonstrate that whether you would prefer to have R225 today or wait five years for R300 depends on the interest rate.Show your calculations.

If the price of shares is greater than what you believe to be the true value of the business then the stock is

If interest is compounded annually, R100 placed in a bank account earning 10 percent interest should generate R30 interest after three years.

The fact that someone with a high risk of medical problems is more likely to buy a lot of health insurance is an example of

In the 1990s, several stocks had very, very high price to earnings ratios.These stocks appeared overvalued to many observers.What might the people who bought them have been thinking?

Dividends are the cash payments that a company makes to its

Diversification cannot eliminate idiosyncratic risk, which is the uncertainty associated with the specific companies.

The amount today that would be needed, at prevailing interest rates, to produce a particular sum in the future is known as

List three different ways that a risk averse person can reduce financial risk.

Which of the following does not help reduce the risk that people face?

There is a __________ between risk and return which is at the heart of understanding financial decisions

Diversification is the reduction of risk achieved by replacing a single risk with a large number of

Which of the following is an example of moral hazard?

If someone's utility function exhibits diminishing marginal utility of wealth, this person is risk averse.

Risk is the probability of something happening which results in a(n) ___________________.

What Is Economics

Thinking Like an Economist

Measuring a Nations Well-Being

Measuring the Cost of Living

Production and Growth

Unemployment

Saving, Investment and the Financial System

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Business Cycles

Keynesian Economics and the Is-Lm Analysis

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short Run Trade-Off Between Inflation and Unemployment

Supply Side Policies

The Financial Crisis and Sovereign Debt

Common Currency Areas and European Monetary Union

Filters