Question 1

Diversification has the advantage of

Accepted Answer

A) reducing expected return. 
B) reducing actual return. 
C) reducing risk. 
D) reducing the profits of insurance companies. 
A) reducing expected return. 
B) reducing actual return. 
C) reducing risk. 
D) reducing the profits of insurance companies.

Question 2

If a depositor puts R100 in a bank account that earns 4 per cent interest compounded annually, how much will be in the account after five years?

Accepted Answer

A) R104.00 
B) R120.00 
C) R121.67 
D) R123.98 
E) R400.00 
A) R104.00 
B) R120.00 
C) R121.67 
D) R123.98 
E) R400.00

Question 3

Risk is measured here with a statistic called

Accepted Answer

A) under-valuation. 
B) added value. 
C) valuation. 
D) standard deviation. 
A) under-valuation. 
B) added value. 
C) valuation. 
D) standard deviation.

Question 4

If the prevailing interest rate is 10 per cent, a rational person should be indifferent between receiving R1 000 today and R1 000 one year from today.

Accepted Answer

A) True 
 B)False

Question 5

Markus is a mortgage broker, who is paid by commission.When interest rates decline, he does a lot of business and earns a lot of money, as more people buy houses or refinance their mortgages.But when interest rates rise, business falls substantially.To diversify, Markus should choose investments that

Accepted Answer

A) provide a higher return than the market average. 
B) provide a lower return than the market average. 
C) pay higher returns when interest rates rise and lower returns when interest rates fall. 
D) pay lower returns when interest rates rise and higher returns when interest rates fall. 
A) provide a higher return than the market average. 
B) provide a lower return than the market average. 
C) pay higher returns when interest rates rise and lower returns when interest rates fall. 
D) pay lower returns when interest rates rise and higher returns when interest rates fall.

Question 6

From the standpoint of the economy as a whole, the role of insurance is not to eliminate the risks inherent in life but to

Accepted Answer

A) pay for them. 
B) spread them around more efficiently. 
C) find good uses for them. 
D) make do with them. 
A) pay for them. 
B) spread them around more efficiently. 
C) find good uses for them. 
D) make do with them.

Question 7

As the interest rate increases, what happens to the present value of a future payment? Explain why changes in the interest rate will lead to changes in the quantity of loanable funds demanded and investment spending.

Accepted Answer

An increase in the interest rate reduces

Question 8

The value of a share is based on the present value of the future stream of dividend payments and the final sales price.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following changes would increase the present value of a future payment?

Accepted Answer

A) A decrease in the size of the payment. 
B) A decrease in the certainty of the payment actually being received. 
C) An increase in the amount of time that elapses before receiving the payment. 
D) A decrease in the interest rate. 
A) A decrease in the size of the payment. 
B) A decrease in the certainty of the payment actually being received. 
C) An increase in the amount of time that elapses before receiving the payment. 
D) A decrease in the interest rate.

Question 10

Why is an understanding of the concept called present value so critical for those who want to understand finance.

Accepted Answer

The present value of any future sum of m

Question 11

If people are risk averse, the utility gained from winning R1 000 is equal to the utility lost from losing a R1 000 bet.

Accepted Answer

A) True 
 B)False

Question 12

Investors need to realize that _______ average returns that they want to enjoy comes at the price of ________ risk.

Accepted Answer

A) higher, lower 
B) lower, higher 
C) higher, higher 
D) None of the above. 
A) higher, lower 
B) lower, higher 
C) higher, higher 
D) None of the above.

Question 13

Economists have developed models of risk aversion using the concept of utility, which is a person's subjective measure of

Accepted Answer

A) distance. 
B) height. 
C) well-being or satisfaction. 
D) money. 
A) distance. 
B) height. 
C) well-being or satisfaction. 
D) money.

Question 14

Diversification of a portfolio can

Accepted Answer

A) reduce aggregate risk. 
B) eliminate all risk. 
C) increase the standard deviation of the portfolio's return. 
D) reduce idiosyncratic risk. 
A) reduce aggregate risk. 
B) eliminate all risk. 
C) increase the standard deviation of the portfolio's return. 
D) reduce idiosyncratic risk.

Question 15

The study of a company's accounting statements and future prospects to determine its value is known as

Accepted Answer

A) information analysis. 
B) risk management. 
C) fundamental analysis. 
D) diversification. 
A) information analysis. 
B) risk management. 
C) fundamental analysis. 
D) diversification.

Question 16

A market in which prices reflect all available information in a rational way is said to be

Accepted Answer

A) rationally efficient. 
B) informationally efficient. 
C) hypothetically efficient. 
D) a stock market. 
A) rationally efficient. 
B) informationally efficient. 
C) hypothetically efficient. 
D) a stock market.

Diversification has the advantage of

If a depositor puts R100 in a bank account that earns 4 per cent interest compounded annually, how much will be in the account after five years?

Risk is measured here with a statistic called

If the prevailing interest rate is 10 per cent, a rational person should be indifferent between receiving R1 000 today and R1 000 one year from today.

From the standpoint of the economy as a whole, the role of insurance is not to eliminate the risks inherent in life but to

As the interest rate increases, what happens to the present value of a future payment? Explain why changes in the interest rate will lead to changes in the quantity of loanable funds demanded and investment spending.

The value of a share is based on the present value of the future stream of dividend payments and the final sales price.

Which of the following changes would increase the present value of a future payment?

Why is an understanding of the concept called present value so critical for those who want to understand finance.

If people are risk averse, the utility gained from winning R1 000 is equal to the utility lost from losing a R1 000 bet.

Investors need to realize that _ average returns that they want to enjoy comes at the price of __ risk.

Economists have developed models of risk aversion using the concept of utility, which is a person's subjective measure of

Diversification of a portfolio can

The study of a company's accounting statements and future prospects to determine its value is known as

A market in which prices reflect all available information in a rational way is said to be

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

Diversification has the advantage of

If a depositor puts R100 in a bank account that earns 4 per cent interest compounded annually, how much will be in the account after five years?

Risk is measured here with a statistic called

If the prevailing interest rate is 10 per cent, a rational person should be indifferent between receiving R1 000 today and R1 000 one year from today.

From the standpoint of the economy as a whole, the role of insurance is not to eliminate the risks inherent in life but to

As the interest rate increases, what happens to the present value of a future payment? Explain why changes in the interest rate will lead to changes in the quantity of loanable funds demanded and investment spending.

The value of a share is based on the present value of the future stream of dividend payments and the final sales price.

Which of the following changes would increase the present value of a future payment?

Why is an understanding of the concept called present value so critical for those who want to understand finance.

If people are risk averse, the utility gained from winning R1 000 is equal to the utility lost from losing a R1 000 bet.

Investors need to realize that _______ average returns that they want to enjoy comes at the price of ________ risk.

Economists have developed models of risk aversion using the concept of utility, which is a person's subjective measure of

Diversification of a portfolio can

The study of a company's accounting statements and future prospects to determine its value is known as

A market in which prices reflect all available information in a rational way is said to be

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

Investors need to realize that _ average returns that they want to enjoy comes at the price of __ risk.