Question 1

You are going to receive a R100 000 inheritance in ten years.If the prevailing interest rate is 6 percent, the present value of your inheritance is R55 839.48.

Accepted Answer

A) True 
 B)False

Question 2

What factors does a company's profitability depend on and whose job is it to take these factors into account?

Accepted Answer

A company's profitability depends on a l

Question 3

The present value of a future sum is the amount of money today that would be needed, at prevailing interest rates, to produce that future sum.

Accepted Answer

A) True 
 B)False

Question 4

Idiosyncratic risk is the

Accepted Answer

A) uncertainty associated with the entire economy. 
B) uncertainty associated with specific companies. 
C) risk associated with adverse selection. 
D) risk associated with moral hazard. 
A) uncertainty associated with the entire economy. 
B) uncertainty associated with specific companies. 
C) risk associated with adverse selection. 
D) risk associated with moral hazard.

Question 5

What's the difference between idiosyncratic risk and aggregate risk? Will diversification eliminate one or both? Explain.

Accepted Answer

Aggregate risk refers to economy-wide ri

Question 6

Which of the following reduces risk in a portfolio the greatest?

Accepted Answer

A) Increasing the number of shares from 10 to 20 
B) All of these answers provide the same amount of risk reduction. 
C) Increasing the number of shares in the portfolio from 1 to 10 
D) Increasing the number of shares from 20 to 30 
A) Increasing the number of shares from 10 to 20 
B) All of these answers provide the same amount of risk reduction. 
C) Increasing the number of shares in the portfolio from 1 to 10 
D) Increasing the number of shares from 20 to 30

Question 7

An increase in the prevailing interest rate

Accepted Answer

A) increases the present value of future returns from investment, and increases investment. 
B) decreases the present value of future returns from investment, and decreases investment. 
C) decreases the present value of future returns from investment, and increases investment. 
D) increases the present value of future returns from investment, and decreases investment. 
A) increases the present value of future returns from investment, and increases investment. 
B) decreases the present value of future returns from investment, and decreases investment. 
C) decreases the present value of future returns from investment, and increases investment. 
D) increases the present value of future returns from investment, and decreases investment.

Question 8

If unexpected news raised people's expectations of a corporation's future dividends and price, then before the price changes this corporation's stock would be

Accepted Answer

A) overvalued, so its price would rise. 
B) overvalued, so its price would fall. 
C) undervalued, so its price would rise. 
D) undervalued, so its price would fall. 
A) overvalued, so its price would rise. 
B) overvalued, so its price would fall. 
C) undervalued, so its price would rise. 
D) undervalued, so its price would fall.

Question 9

Calculate the future value of R800 one year from today if the interest rate is 
a) 3% 
b) 5% 
c) 7%.

Accepted Answer

a) R824 
b

Question 10

Draw graphs showing the following three relationships.
a.The relation between utility and wealth for a risk averse consumer.
b.The relation between standard deviation and the number of stocks in a portfolio.
c.The relation between return and risk.

Accepted Answer

The answer of Draw graphs showing the following three relationships.
a.The...

Question 11

You have a bond that you can redeem for r₁0 000 one year from now.The interest rate is 10 per cent per year.How much is the bond worth today?

Accepted Answer

A) R9 090.91 
B) R11 000.00 
C) R9 000.00 
D) R523.81 
A) R9 090.91 
B) R11 000.00 
C) R9 000.00 
D) R523.81

Question 12

Which of the following statements is true?

Accepted Answer

A) Diversification reduces idiosyncratic risk but not aggregate risk. 
B) Diversification reduces aggregate risk but not idiosyncratic risk. 
C) Diversification reduces both idiosyncratic risk and aggregate risk but it reduces idiosyncratic risk by more. 
D) Diversification requires an investor to hold at least 100 shares in her portfolio to begin to reduce risk significantly. 
A) Diversification reduces idiosyncratic risk but not aggregate risk. 
B) Diversification reduces aggregate risk but not idiosyncratic risk. 
C) Diversification reduces both idiosyncratic risk and aggregate risk but it reduces idiosyncratic risk by more. 
D) Diversification requires an investor to hold at least 100 shares in her portfolio to begin to reduce risk significantly.

Question 13

An investor who buys stock in a company is placing a bet on the ___________of that company.

Accepted Answer

A) future profitability 
B) longevity of the CEO 
C) stakeholders 
D) All of the above are correct. 
A) future profitability 
B) longevity of the CEO 
C) stakeholders 
D) All of the above are correct.

Question 14

Compared to a portfolio composed entirely of shares, a portfolio that is 50 per cent government bonds and 50 per cent shares will have a

Accepted Answer

A) lower return and a lower level of risk. 
B) lower return and a higher level of risk. 
C) higher return and a lower level of risk. 
D) higher return and a higher level of risk. 
A) lower return and a lower level of risk. 
B) lower return and a higher level of risk. 
C) higher return and a lower level of risk. 
D) higher return and a higher level of risk.

Question 15

You have three ways to use fundamental analysis in pick a stock portfolio: 1) do all the necessary research yourself, 2) seek out the advice of a financial analysts, or

Accepted Answer

A) put your money into a savings account. 
B) buy into index funds. 
C) buy stocks that you like. 
D) buy into an investment fund that conducts fundamental analysis. 
A) put your money into a savings account. 
B) buy into index funds. 
C) buy stocks that you like. 
D) buy into an investment fund that conducts fundamental analysis.

Question 16

Someone who is risk averse

Accepted Answer

A) suffers a reduction in utility if their wealth declines by R100 that is smaller than the gain in utility they would obtain if their wealth increased by R100. 
B) suffers a reduction in utility if their wealth declines by R100 that is larger than the gain in utility they would obtain if their wealth increased by R100. 
C) will always buy insurance against all risks they face, regardless of the price of insurance. 
D) is irrational. 
A) suffers a reduction in utility if their wealth declines by R100 that is smaller than the gain in utility they would obtain if their wealth increased by R100. 
B) suffers a reduction in utility if their wealth declines by R100 that is larger than the gain in utility they would obtain if their wealth increased by R100. 
C) will always buy insurance against all risks they face, regardless of the price of insurance. 
D) is irrational.

Question 17

Give an example of adverse selection and an example of moral hazard using homeowners insurance.

Accepted Answer

An example of adverse selection is that

Question 18

You have a choice among three options.Option 1: receive R900 immediately.Option 2: receive R1 200 one year from now.Option 3: receive R2 000 five years from now.The interest rate is 15% per year.Rank these three options from highest present value to lowest present value.

Accepted Answer

A) Option 1; Option 2; Option 3 
B) Option 3; Option 2; Option 1 
C) Option 2; Option 3; Option 1 
D) Option 3; Option 1; Option 2 
A) Option 1; Option 2; Option 3 
B) Option 3; Option 2; Option 1 
C) Option 2; Option 3; Option 1 
D) Option 3; Option 1; Option 2

Question 19

The general feature of insurance contracts is that a person facing a risk pays a fee to an insurance company, which in return

Accepted Answer

A) agrees to accept all or part of the risk. 
B) agrees to accept none of the risk. 
C) does not agrees to accept any risk. 
D) pays out premiums. 
A) agrees to accept all or part of the risk. 
B) agrees to accept none of the risk. 
C) does not agrees to accept any risk. 
D) pays out premiums.

Question 20

The insurance market demonstrates the problem of adverse selection when those that are sicker than average seek health insurance.

Accepted Answer

A) True 
 B)False

You are going to receive a R100 000 inheritance in ten years.If the prevailing interest rate is 6 percent, the present value of your inheritance is R55 839.48.

What factors does a company's profitability depend on and whose job is it to take these factors into account?

The present value of a future sum is the amount of money today that would be needed, at prevailing interest rates, to produce that future sum.

Idiosyncratic risk is the

What's the difference between idiosyncratic risk and aggregate risk? Will diversification eliminate one or both? Explain.

Which of the following reduces risk in a portfolio the greatest?

An increase in the prevailing interest rate

If unexpected news raised people's expectations of a corporation's future dividends and price, then before the price changes this corporation's stock would be

Calculate the future value of R800 one year from today if the interest rate is a) 3% b) 5% c) 7%.

Draw graphs showing the following three relationships. a.The relation between utility and wealth for a risk averse consumer. b.The relation between standard deviation and the number of stocks in a portfolio. c.The relation between return and risk.

You have a bond that you can redeem for r₁0 000 one year from now.The interest rate is 10 per cent per year.How much is the bond worth today?

Which of the following statements is true?

An investor who buys stock in a company is placing a bet on the ___________of that company.

Compared to a portfolio composed entirely of shares, a portfolio that is 50 per cent government bonds and 50 per cent shares will have a

You have three ways to use fundamental analysis in pick a stock portfolio: 1) do all the necessary research yourself, 2) seek out the advice of a financial analysts, or

Someone who is risk averse

Give an example of adverse selection and an example of moral hazard using homeowners insurance.

You have a choice among three options.Option 1: receive R900 immediately.Option 2: receive R1 200 one year from now.Option 3: receive R2 000 five years from now.The interest rate is 15% per year.Rank these three options from highest present value to lowest present value.

The general feature of insurance contracts is that a person facing a risk pays a fee to an insurance company, which in return

The insurance market demonstrates the problem of adverse selection when those that are sicker than average seek health insurance.

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

You are going to receive a R100 000 inheritance in ten years.If the prevailing interest rate is 6 percent, the present value of your inheritance is R55 839.48.

What factors does a company's profitability depend on and whose job is it to take these factors into account?

The present value of a future sum is the amount of money today that would be needed, at prevailing interest rates, to produce that future sum.

Idiosyncratic risk is the

What's the difference between idiosyncratic risk and aggregate risk? Will diversification eliminate one or both? Explain.

Which of the following reduces risk in a portfolio the greatest?

An increase in the prevailing interest rate

If unexpected news raised people's expectations of a corporation's future dividends and price, then before the price changes this corporation's stock would be

Calculate the future value of R800 one year from today if the interest rate is a) 3% b) 5% c) 7%.

Draw graphs showing the following three relationships. a.The relation between utility and wealth for a risk averse consumer. b.The relation between standard deviation and the number of stocks in a portfolio. c.The relation between return and risk.

You have a bond that you can redeem for r₁0 000 one year from now.The interest rate is 10 per cent per year.How much is the bond worth today?

Which of the following statements is true?

An investor who buys stock in a company is placing a bet on the ___________of that company.

Compared to a portfolio composed entirely of shares, a portfolio that is 50 per cent government bonds and 50 per cent shares will have a

You have three ways to use fundamental analysis in pick a stock portfolio: 1) do all the necessary research yourself, 2) seek out the advice of a financial analysts, or

Someone who is risk averse

Give an example of adverse selection and an example of moral hazard using homeowners insurance.

You have a choice among three options.Option 1: receive R900 immediately.Option 2: receive R1 200 one year from now.Option 3: receive R2 000 five years from now.The interest rate is 15% per year.Rank these three options from highest present value to lowest present value.

The general feature of insurance contracts is that a person facing a risk pays a fee to an insurance company, which in return

The insurance market demonstrates the problem of adverse selection when those that are sicker than average seek health insurance.

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