A) the risk-return tradeoff.
B) insurance.
C) diversification.
D) All of the above are correct.
F) C) and D)
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A) 4 percent.
B) 6 percent.
C) 8 percent.
D) All of the above are correct.
F) None of the above
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A) holds only stocks and bonds that are indexed to inflation.
B) holds all the stocks in a given stock index.
C) guarantees a return that follows the index of leading economic indicators.
D) typically has a lower return than a managed fund.
F) C) and D)
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A) 2 percent, but not if the interest rate is 1 percent.
B) 3 percent, but not if the interest rate is 2 percent.
C) 4 percent, but not if the interest rate is 3 percent.
D) 5 percent, but not if the interest rate is 4 percent.
F) C) and D)
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B) False
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A) and the example with Brad illustrate adverse selection.
B) and the example with Brad illustrate moral hazard.
C) illustrates adverse selection; the example with Brad illustrates moral hazard.
D) illustrates moral hazard; the example with Brad illustrates adverse selection.
F) A) and C)
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A) $1,200.00
B) $1,111.77
C) $983.58
D) $859.09
F) A) and C)
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A) 80 to 100.
B) 40 to 80.
C) 10 to 20.
D) 1 to 10.
F) C) and D)
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A) surplus, so its price will rise.
B) surplus, so its price will fall.
C) shortage, so its price will rise.
D) shortage, so its price will fall.
F) A) and C)
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A) financial firms acted in too risky a fashion.
B) the Federal Reserves's efforts to rein in the risky behavior of certain financial firms were inadequate.
C) falling house prices "crashed the banks and the economy."
D) All of the above are correct.
F) B) and D)
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B) False
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A) chance of winning $120 in two years and the interest rate was 11%.
B) chance of winning $114 in two years and the interest rate was 7%.
C) chance of winning $110 in two years and the interest rate was 3%.
D) None of the above are correct; a risk averse person would not accept any of the above bets.
F) A) and D)
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A) of high unemployment rates.
B) high inflation rates.
C) that has become known as the "Great Moderation."
D) that has become known as the "Great Recession."
F) A) and D)
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A) increases as the number of stocks in the portfolio increases.
B) is usually measured using a statistic called the standard diversification.
C) is positively related to the average return of the portfolio.
D) bears no relationship to the average return of the portfolio.
F) None of the above
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A) $X(1 + rN) N
B) $X(1 + r) N
C) $X(1 + rN)
D) $X(1 + r/N) N
F) B) and C)
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A) can be eliminated. On average over the past two centuries stocks paid a higher average real return than bonds.
B) can be eliminated. On average over the past two centuries stocks paid a lower average real return than bonds.
C) can be reduced but not eliminated. On average over the past two centuries stocks paid a higher average real return than bonds.
D) can be reduced but not eliminated. On average over the past two centuries stocks paid a lower average real return than bonds.
F) None of the above
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A) For a fee, an insurance company provides you with regular income until you die.
B) A surcharge is added to life-insurance premiums paid by persons in dangerous occupations.
C) Annuity is another name for stock funds managed by mutual fund managers.
D) Annuity is another name for any diversified portfolio.
F) All of the above
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A)
B)
C)
D)
F) B) and D)
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A) If Jill puts $5,000 today into a bank account that pays 3 percent interest, then how much will she have in the account after 2 years?
B) Should ABC Corporation buy a factory today for $2 million, knowing that the factory will yield the corporation $3 million after 5 years?
C) As the winner of a lottery, should Michael choose an immediate payment of $250,000 or should he choose annual payments of $30,000 for each of the next 10 years?
D) You would find it necessary to calculate a future value in order to answer all of these questions.
F) A) and C)
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A) There is a greater reduction in risk by increasing the number of stocks in a portfolio from 1 to 10, than by increasing it from 100 to 120 stocks.
B) The historical rate of return on stocks has been about 5 percentage points higher than the historical rate of return on bonds.
C) Stock in an industry that is very sensitive to economic conditions is likely to have a higher average return than stock in an industry that is not so sensitive to economic conditions.
D) If you had information about a corporation that no one else had, you could earn a very high rate of return. This contradicts the efficient market hypothesis.
F) B) and D)
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