Question 1

A _____security can be sold to another investor.

Accepted Answer

A) marketable 
B) idiosyncratic 
C) nonmarketable 
D) systematic 
A) marketable 
B) idiosyncratic 
C) nonmarketable 
D) systematic

Question 2

Suppose you are an investor facing a choice between three investments that are identical in every way except in terms of their rates of return and taxability.Which investment provides the highest after-tax return?
 Investment A:$\quad $ interest rate 10 percent, tax rate 40 percent of interest income.
Investment B: $\quad $interest rate 8 percent, tax rate 25 percent of interest income.
Investment C: $\quad $interest rate 6.5 percent, tax rate 0 percent.
Investment D: $\quad $interest rate 5 percent, tax rate 1 percent.

Accepted Answer

A) Investment A 
B) Investment B 
C) Investment C 
D) Investment D 
A) Investment A 
B) Investment B 
C) Investment C 
D) Investment D

Question 3

The probabilities of different returns on a stock over the year are:
$$\begin{array} { l l } 
\text { Probability } & \text { Return } \
10 \% & - 5 \% \
15 \% & 0 \% \
20 \% & 5 \% \
30 \% & 10 \% \
25 \% & 20 \%
\end{array}$$

a.Calculate the stock's expected return.
a.Expected return = (0.10 × ?5%) + (0.15 × 0%) + (0.20 × 5%) + (0.30 × 10%) + (0.25 ×
b.Calculate the stock's standard deviation.

Accepted Answer

a.Expected return = (0.10 × ?5%) + (0.15

Question 4

If a stock's price is $20 at the beginning of a year and $17 at the end of the year, and it pays a dividend of $2 during the year, then the stock's return is_____ percent.

Accepted Answer

A) ?15 
B) ?5 
C) 5 
D) 10 
A) ?15 
B) ?5 
C) 5 
D) 10

Question 5

Which of the following is true of debt securities?

Accepted Answer

A) ​The periodic payment on a debt security is known as dividend. 
B) A debt security specifies a particular maturity date. 
C) The original amount invested in a referred to as interest. 
D) The amount of payment on a debt security depends on the company's profits. 
A) ​The periodic payment on a debt security is known as dividend. 
B) A debt security specifies a particular maturity date. 
C) The original amount invested in a referred to as interest. 
D) The amount of payment on a debt security depends on the company's profits.

Question 6

A stock's price is $100 at the beginning of a year.There is a 25 percent chance that the price will be $90 at the end of the year, and a 75 percent chance that the price will be $130 at the end of the year.The stock will pay a
dividend of $10 during the year.
a.Calculate the stock's expected return.
b.Calculate the standard deviation of the stock's return.

Accepted Answer

a.Expected return = [0.25 × ($90 + $10 −

Question 7

Suppose the quantity demanded for a security is 
BD = 150 ? 0.1b,
And the quantity supplied of the security is
BS = 50 + 0.1b,
Where b is the price of the security in dollars.The equilibrium quantity of the security is

Accepted Answer

A) 100. 
B) 125. 
C) 145. 
D) 500. 
A) 100. 
B) 125. 
C) 145. 
D) 500.

Question 8

A stock's price is $20 at the beginning of a year.There is a 25 percent chance that the price will be $17 at the end of the year, and a 75 percent chance that the price will be $25 at the end of the year.The stock will pay a dividend of $3 during the year.The expected return on the stock is _____percent.

Accepted Answer

A) 10 
B) 20 
C) 30 
D) 40 
A) 10 
B) 20 
C) 30 
D) 40

Question 9

In the Asian crisis, which began in 1997,

Accepted Answer

A) investors began to pull their financial investments out of Asia with urgency. 
B) large banks from Asia began purchasing large American banks, threatening the health of the U.S.financial system. 
C) mutual funds in Asia began to fail in large numbers. 
D) savings-and-loan institutions in Asia began to fail in large numbers. 
A) investors began to pull their financial investments out of Asia with urgency. 
B) large banks from Asia began purchasing large American banks, threatening the health of the U.S.financial system. 
C) mutual funds in Asia began to fail in large numbers. 
D) savings-and-loan institutions in Asia began to fail in large numbers.

Question 10

Risk that cannot be eliminated by diversification is

Accepted Answer

A) unsystematic risk. 
B) systematic risk. 
C) default risk. 
D) interest-rate risk. 
A) unsystematic risk. 
B) systematic risk. 
C) default risk. 
D) interest-rate risk.

Question 11

Risk that can be eliminated by diversification is

Accepted Answer

A) idiosyncratic risk. 
B) market risk. 
C) default risk. 
D) interest-rate risk. 
A) idiosyncratic risk. 
B) market risk. 
C) default risk. 
D) interest-rate risk.

Question 12

​Which of the following statements is true?

Accepted Answer

A) ​Over the last fifty years, the risk spread between Aaa bonds and Baa bonds always remained positive except in 1998. 
B) The risk spread between Aaa bonds and Baa bonds became negative only in the mid-1960s. 
C) For most of the last twenty years, the risk bread between Aaa bonds and Baa bonds remained negative. 
D) Over the last fifty years, the risk spread between Aaa bonds and Baa bonds never became negative 
A) ​Over the last fifty years, the risk spread between Aaa bonds and Baa bonds always remained positive except in 1998. 
B) The risk spread between Aaa bonds and Baa bonds became negative only in the mid-1960s. 
C) For most of the last twenty years, the risk bread between Aaa bonds and Baa bonds remained negative. 
D) Over the last fifty years, the risk spread between Aaa bonds and Baa bonds never became negative

Question 13

Upside risk is the risk that investors face due to

Accepted Answer

A) ​an increase in the market price of a security. 
B) ​an increase in the inflation rate. 
C) ​an decrease in the earnings of the firm they invested in. 
D) ​an increase in the exchange rate. 
A) ​an increase in the market price of a security. 
B) ​an increase in the inflation rate. 
C) ​an decrease in the earnings of the firm they invested in. 
D) ​an increase in the exchange rate.

Question 14

A contract whereby a borrower, who seeks to obtain money from someone, promises to compensate the lender in the future is known as

Accepted Answer

A) a warrant. 
B) an exchange rate. 
C) a derivative security. 
D) a financial security. 
A) a warrant. 
B) an exchange rate. 
C) a derivative security. 
D) a financial security.

Question 15

Phillips regularly invests in the securities of established companies.However, he does not invest in new securities issued by companies.His transactions take place in the

Accepted Answer

A) closed market. 
B) open market. 
C) secondary market. 
D) primary market. 
A) closed market. 
B) open market. 
C) secondary market. 
D) primary market.

Question 16

A treasury bond issued by the U.S.government

Accepted Answer

A) does not have a maturity date. 
B) makes periodic payments of specific amounts. 
C) pays dividends to the bond holders. 
D) is a short-term debt security. 
A) does not have a maturity date. 
B) makes periodic payments of specific amounts. 
C) pays dividends to the bond holders. 
D) is a short-term debt security.

Question 17

Suppose that the price of a stock is $50 at the beginning of a year and $53 at the end of the year, and it pays a dividend of $2 during the year.
a.What is the stock's current yield?
b.What is the stock's capital-gains yield?
c.What is the stock's return?

Accepted Answer

a.Current yield = $2/$50 = .04

Question 18

Which of the following is true of dividends?

Accepted Answer

A) The amount of dividends paid to stock owners depends on the company's performance. 
B) The timing of dividend payments is the same across all companies. 
C) Dividends are tax-free payments from insurance companies. 
D) Dividends are tax-free social security payments. 
A) The amount of dividends paid to stock owners depends on the company's performance. 
B) The timing of dividend payments is the same across all companies. 
C) Dividends are tax-free payments from insurance companies. 
D) Dividends are tax-free social security payments.

Question 19

An investor calculating the standard deviation of different investments is measuring the ______ of alternative investment portfolios.

Accepted Answer

A) expected return 
B) risk 
C) taxation 
D) liquidity 
A) expected return 
B) risk 
C) taxation 
D) liquidity

Question 20

Treasury bills issued by the U.S.government

Accepted Answer

A) do not have a specific period of maturity. 
B) promises to pay dividends to its owners. 
C) are long term debt securities. 
D) are short term debt securities. 
A) do not have a specific period of maturity. 
B) promises to pay dividends to its owners. 
C) are long term debt securities. 
D) are short term debt securities.

A _____security can be sold to another investor.

If a stock's price is $20 at the beginning of a year and $17 at the end of the year, and it pays a dividend of $2 during the year, then the stock's return is_____ percent.

Which of the following is true of debt securities?

Suppose the quantity demanded for a security is B_D= 150 ? 0.1b, And the quantity supplied of the security is B_S = 50 + 0.1b, Where b is the price of the security in dollars.The equilibrium quantity of the security is

In the Asian crisis, which began in 1997,

Risk that cannot be eliminated by diversification is

Risk that can be eliminated by diversification is

Which of the following statements is true?

Upside risk is the risk that investors face due to

A contract whereby a borrower, who seeks to obtain money from someone, promises to compensate the lender in the future is known as

Phillips regularly invests in the securities of established companies.However, he does not invest in new securities issued by companies.His transactions take place in the

A treasury bond issued by the U.S.government

Suppose that the price of a stock is $50 at the beginning of a year and $53 at the end of the year, and it pays a dividend of $2 during the year. a.What is the stock's current yield? b.What is the stock's capital-gains yield? c.What is the stock's return?

Which of the following is true of dividends?

An investor calculating the standard deviation of different investments is measuring the ______ of alternative investment portfolios.

Treasury bills issued by the U.S.government

Money and the Financial System

Money and Payments

Present Value

The Structure of Interest Rates

Real Interest Rates

Stocks and Other Assets

How Banks Work

Governments Role in Banking

Economics Growth and Business Cycles

Modeling Money

The Aggregate-Demandaggregate-Supply Model

Modern Macroeconomic Models

Economic Interdependence

The Federal Reserve System

Monetary Control

Monetary Policy: Goals and Tradeoffs

Rules for Monetary Policy

Filters

Exam 2: The Financial System and the Economy

A _____security can be sold to another investor.

If a stock's price is $20 at the beginning of a year and $17 at the end of the year, and it pays a dividend of $2 during the year, then the stock's return is_____ percent.

Which of the following is true of debt securities?

Suppose the quantity demanded for a security is BD = 150 ? 0.1b, And the quantity supplied of the security is BS = 50 + 0.1b, Where b is the price of the security in dollars.The equilibrium quantity of the security is

In the Asian crisis, which began in 1997,

Risk that cannot be eliminated by diversification is

Risk that can be eliminated by diversification is

​Which of the following statements is true?

Upside risk is the risk that investors face due to

A contract whereby a borrower, who seeks to obtain money from someone, promises to compensate the lender in the future is known as

Phillips regularly invests in the securities of established companies.However, he does not invest in new securities issued by companies.His transactions take place in the

A treasury bond issued by the U.S.government

Suppose that the price of a stock is $50 at the beginning of a year and $53 at the end of the year, and it pays a dividend of $2 during the year. a.What is the stock's current yield? b.What is the stock's capital-gains yield? c.What is the stock's return?

Which of the following is true of dividends?

An investor calculating the standard deviation of different investments is measuring the ______ of alternative investment portfolios.

Treasury bills issued by the U.S.government

Money and the Financial System

Money and Payments

Present Value

The Structure of Interest Rates

Real Interest Rates

Stocks and Other Assets

How Banks Work

Governments Role in Banking

Economics Growth and Business Cycles

Modeling Money

The Aggregate-Demandaggregate-Supply Model

Modern Macroeconomic Models

Economic Interdependence

The Federal Reserve System

Monetary Control

Monetary Policy: Goals and Tradeoffs

Rules for Monetary Policy

Filters

Suppose the quantity demanded for a security is B_D= 150 ? 0.1b, And the quantity supplied of the security is B_S = 50 + 0.1b, Where b is the price of the security in dollars.The equilibrium quantity of the security is

Which of the following statements is true?