Question 1

The idea that nominal interest rates rise or fall one-for-one with expected inflation is known as

Accepted Answer

A) market risk. 
B) systematic risk. 
C) idiosyncratic risk. 
D) the Fisher effect.

Question 2

If you think that there is a 75% chance of a stock increasing by 8% and a 25% change of it falling by 20%, what is the expected return on the stock? Report using percentages with two decimal places.

Accepted Answer

The answer of If you think that there is a...

Question 3

Suppose you are risk neutral and you are deciding between two investments. One has a guaranteed return of 2% while the second has a 60% chance of a 10% return and a 40% chance of a -5% return. Which investment would you choose? Why?

Accepted Answer

The answer of Suppose you are risk neutral and you...

Question 4

If the expected gains on stocks rise, while the expected returns on bonds do not change, then

Accepted Answer

A) the demand curve for bonds will shift to the left. 
B) the supply curve for loanable funds will shift to the right. 
C) the demand curve for loanable funds will shift to the left. 
D) the equilibrium interest rate will fall.

Exam 4: Determining Interest Rates

The idea that nominal interest rates rise or fall one-for-one with expected inflation is known as

If you think that there is a 75% chance of a stock increasing by 8% and a 25% change of it falling by 20%, what is the expected return on the stock? Report using percentages with two decimal places.

Suppose you are risk neutral and you are deciding between two investments. One has a guaranteed return of 2% while the second has a 60% chance of a 10% return and a 40% chance of a -5% return. Which investment would you choose? Why?

If the expected gains on stocks rise, while the expected returns on bonds do not change, then