Exam 2: The Financial System and the Economy

Risk that can be eliminated by diversification is

​The dollar value of a company's stock rose from $20 to $21 during a year.If the stock paid a dividend of $3, the return on the stock was

Which of the following is NOT a financial intermediary?

Mr.Smith bought stocks of several companies from the secondary market.He used

A company that takes short term deposits and makes long term loans is a

The probabilities of different returns on a stock over the year are: Probability Return 10\% -5\% 15\% 0\% 20\% 5\% 30\% 10\% 25\% 20\% The standard deviation of the return on the stock is about_____ percent.

Suppose a discount bond costs $5,000 today and pays off some amount b in one year.Suppose that b is uncertain according to the following table of probabilities: b: \ 5,000 \ 5,500 \ 6,000 \ 6,500 \ 7,000 Probability. 0.1 0.2 0.3 0.2 0.2 a.Calculate the return (in percent) for each value of b. (Note: you may just calculate the total return and not worry about how this is split up between current yield and capital-gains yield.) b.Calculate the expected return. Suppose an investor has a choice between buying this security or purchasing a different b.(Note: you may just calculate the total return and not worry about how this is split up between current yield and capital-gains yield.) c.Suppose an investor has a choice between buying this security or purchasing a different security that also costs $5,000 today, but pays off $5,500 with certainty in one year.How is an investor's choice of which security to purchase related to her degree of risk aversion?

A contract that makes the owner of a security a part owner of the company that issued the security is known as

One lesson learned from the financial crisis of 2008 was that

Principal is

When a household borrows to buy a home, the resulting security is referred to as

Risk is the amount of uncertainty relating to the a ______security.

The owner of a financial security is known as

Commercial banks, savings institutions, and mutual funds are all

The U.S.government borrows by auctioning its bonds in the

Suppose you are an investor with a choice between three securities that are identical in every way except in terms of their rates of return and risk. Investment A: $\quad$ Total return = 10 percent with probability 50 percent $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ Total return = 20 percent with probability 50 percent Investment B: $\quad$ Total return = 12 percent with probability 40 percent $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ Total return = 18 percent with probability 60 percent Investment C: $\quad$ Total return = 5 percent with probability 60 percent $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ Total return = 25 percent with probability 40 percent a.Which investment provides the highest expected return? Show your work by calculating the expected return of all three investments. b.Calculate the standard deviation of all three investments. c.What type of investor might prefer investment A? Who might prefer investment B?

Mary used her savings to buy some stocks of a company in the secondary market while Jane sold some stocks she owned through a stock broker.George invested his savings in a bank while Tom bought treasury bills of the U.S.government.Who among the following is using direct finance?

A nonmarketable security is one that

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 capital-gains yield is _____percent.

The ratio of debt to equity in the United States is about