econ 201 quizzes
The table shows items and figures taken from a consolidated balance sheet of the 12 Federal ReserveBanks. All figuresare in billionsof dollars. In this balance sheet, there would be assetsof
$246 billion.
$313 billion.
C. $320 billion.
D. $387 billion.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 16-02 Describe the balance sheet of the Federal Reserve and the meaning of its major items.
Test Bank: II Topic: The Consolidated Balance Sheet of the FederalReserve Banks
The main tools that the Fed can use to alter the reserves of commercial banks are the required-reserve ratio and the following, except
A. exchange rate.
discount rate.
interest on reserves.
open-market operations.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 16-03 List and explainthe goals and tools of monetarypolicy.
Test Bank: II Topic: Tools of MonetaryPolicy
The lending ability of commercial banks increases when the
reserve ratio is raised.
Treasury collects tax revenues.
Fed sells securities in the open market.
D. Fed buys securities in the open market.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 16-03 List and explainthe goals and tools of monetarypolicy.
Test Bank: II Topic: Tools of MonetaryPolicy
The conduct of monetarypolicy in the United Statesis the main responsibility of the
A. U.S. Treasury.
B. Federal Reserve System.
Office of Managementand Budget.
Bureau of EconomicAnalysis.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 16-03 List and explainthe goals and tools of monetarypolicy.
Test Bank: II Topic: Tools of MonetaryPolicy
The fundamental objective of monetary policy is to assist the economy in achieving
a rapid pace of economic growth.
a money supply that is based on the gold standard.
C. a full-employment, noninflationary level of total output.
D. a balanced-budget consistent with full employment.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 16-03 List and explainthe goals and tools of monetarypolicy.
Test Bank: II Topic: Tools of MonetaryPolicy
Which one of the following is a tool of monetary policy often used by the Fed for altering the reservesof commercial banks?
issuing currency
check collection
C. open-marketoperations
D. required reserve ratio
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 16-03 List and explainthe goals and tools of monetarypolicy.
Test Bank: II Topic: Tools of MonetaryPolicy
The purchase and sale of government securities by the Fed is called
A. Federal funds market.
B. open-marketoperations.
money market transactions.
term auction facility.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 16-03 List and explainthe goals and tools of monetarypolicy.
Test Bank: II Topic: Tools of MonetaryPolicy
In recent years (after the financial crisis of 2008), the Fed has added a new elementto its open-market operations, which is
A. buying and selling foreign-government securities.
B. taking government bonds as collateral on loans to banks and other financial institutions.
the trading of state- and local-government bonds.
accepting corporate stocks and bonds as bank reserves.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 16-03 List and explainthe goals and tools of monetarypolicy.
Test Bank: II Topic: Tools of MonetaryPolicy
The interest rate that the Fed charges banks for loans to them through the traditional channel is called
A. the discount rate.
interest on reserves.
the federal funds rate.
the prime rate.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 16-03 List and explainthe goals and tools of monetarypolicy.
Test Bank: II Topic: Tools of MonetaryPolicy
The Federal Reserve altersthe amount of the nation'smoney supply by
reducing the liabilities of the banking system.
controlling the assets of the nation'slargest banks.
minting coins and printing currency that is distributed to banks.
D. manipulatingthe size of excess reserves held by commercial banks.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 16-03 List and explainthe goals and tools of monetarypolicy.
Test Bank: II Topic: Tools of MonetaryPolicy
If the Fed buys government securities from commercial banks in the open market,
the Fed gives the securities to the commercial banks and increasesthe banks' reserves.
the Fed gives the securities to the commercial banks and decreases the banks'reserves.
C. commercial banks give the securities to the Fed, and the Fed increasesthe banks' reserves.
D. commercial banks give the securities to the Fed, and the Fed decreasesthe banks' reserves.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 16-03 List and explainthe goals and tools of monetarypolicy.
Test Bank: II Topic: Tools of MonetaryPolicy
If the Fed sells government securities to the general public in the open market,
A. the Fed gives the securities to the public; the public pays for the securities by writing checks that, when cleared, will increase commercial bank reserves at the Fed.
B. the Fed gives the securities to the public; the public pays for the securities by writing checks that, when cleared, will decrease commercial bank reserves at the Fed.
the public gives the securities to the Fed in exchange for a Fed check,which, when deposited at commercial banks, willincrease their reservesat the Fed.
the public gives the securities to the Fed in exchange for a Fed check, which, when depositedat commercial banks, will decreasetheir reserves at the Fed.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 16-03 List and explainthe goals and tools of monetarypolicy.
Test Bank: II Topic: Tools of MonetaryPolicy
A money loan is said to be collateralized when
A. an asset is pledged by the borrower to the lender in case of default.
the borrower pays periodic repayments of principal plus interest to the lender.
the loan is used to purchase a capitalasset.
interest on the loan is compounded on an annual basis.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 16-03 List and explainthe goals and tools of monetarypolicy.
Test Bank: II Topic: Tools of MonetaryPolicy
When the Fed does repos and reverse repos (or repurchase agreements) with financialinstitutions, the collateral used in these transactions is
corporate stock.
municipal bonds.
C. government bonds.
D. certificates of deposits.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 16-03 List and explainthe goals and tools of monetarypolicy.
Test Bank: II Topic: Tools of MonetaryPolicy
In a repo transaction (or repurchase agreement), the one "buying" the collateral asset (with the promiseof selling it back soon) is the
A. lender.
borrower.
broker.
speculator.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 16-03 List and explainthe goals and tools of monetarypolicy.
Test Bank: II Topic: Tools of MonetaryPolicy
When the Fed undertakes a "repo" transaction with a financial institution, the Fed in essence
A. grants a collateralized loan to the financialinstitution.
provides an insurancecoverage to the financial institution.
buys shares of stock of the financial institution.
reduces the reserves of the financial institution.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 16-03 List and explainthe goals and tools of monetarypolicy.
Test Bank: II Topic: Tools of MonetaryPolicy
When the Fed undertakes reverse repo transactions with financialinstitutions, it is tryingto
A. increase the money supply.
B. reduce the money supply.
increase the federal budget deficit.
reduce the federal budget deficit.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 16-03 List and explainthe goals and tools of monetarypolicy.
Test Bank: II Topic: Tools of MonetaryPolicy
Which of the followingFed actions increases the excess reserves of commercial banks?
selling bonds to the public
selling bonds to commercial banks
increasing the discount rate
D. lower the reserve ratio
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 16-03 List and explainthe goals and tools of monetarypolicy.
Test Bank: II Topic: Tools of MonetaryPolicy
Which of the followingstatements is correct?
A. Excess reserves may be found by subtracting actual from required reserves.
B. The supply of money declineswhen the public purchases securities from commercial banks.
Commercial bank reservesare a liabilityto commercial banks but an asset to Federal ReserveBanks.
Commercial banks reduce the supply of money when they purchasegovernment bonds from the public.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 16-03 List and explainthe goals and tools of monetarypolicy.
Test Bank: II Topic: Tools of MonetaryPolicy
The Federal Reservecould reduce the money supply by
lowering the requiredreserve ratio.
buying government bonds in the open market.
C. increasing the interest on reserves.
D. reducing the discount rate.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 16-03 List and explainthe goals and tools of monetarypolicy.
Test Bank: II Topic: Tools of MonetaryPolicy
The major purpose of the Federal Reserve buying government securities in open-market operations is to
increase interest rates.
raise money for government spending.
reduce the excess reserves of banks.
D. allow banks to increasetheir lending.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 16-03 List and explainthe goals and tools of monetarypolicy.
Test Bank: II Topic: Tools of MonetaryPolicy
Assume that there is a 25 percent reserve ratio and that the Federal Reserve buys $200 million worth of government securities. If the securities are purchased from the public, then this action has the potential to increase bank lending by a maximum of
$600 million, and also by $600 million if the securities are purchased directlyfrom commercial banks.
$800 million, and also by $800 million if the securities are purchased directlyfrom commercial banks.
C. $600 million, but by $800 million if the securities are purchased directlyfrom commercial banks.
D. $800 million, but only by $600 million if the securities are purchased directlyfrom commercial banks.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 16-03 List and explainthe goals and tools of monetarypolicy.
Test Bank: II Topic: Tools of MonetaryPolicy
Assume that there is a 25 percent reserve ratio and that the Federal Reserve buys $4 billion worth of government securities. If the securities are purchased from the nonbank public, this action has the potential to increase money supply by a maximum of
$16 billion, but only by $14 billion if the securities are purchased directlyfrom commercial banks.
$14 billion, but by $16 billionif the securities are purchased directlyfrom commercial banks.
C. $16 billion, and also by $16 billion if the securities are purchased directlyfrom commercial banks.
D. $14 billion, and by $20 billionif the securities are purchased directlyfrom commercial banks.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 16-03 List and explainthe goals and tools of monetarypolicy.
Test Bank: II Topic: Tools of MonetaryPolicy
Assume that the required reserve ratio is 20 percent. If the Federal Reservebuys $80 millionin government securities from the generalpublic, then the money supply will immediately
increase by $0 with this transaction, and the maximum money-lending potential of the commercial banking system will increase by $400 million.
increase by $0 with this transaction, but the maximum money-lending potential of the commercial banking system will increase by $320 million.
increase by $80 millionwith this transaction, and the maximum money-lending potential of the commercial bankingsystem will increase by another
$400 million.
D. increase by $80 millionwith this transaction, and the maximum money-lending potential of the commercial banking system will increase by another
$320 million.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 16-03 List and explainthe goals and tools of monetarypolicy.
Test Bank: II Topic: Tools of MonetaryPolicy
Assume that the required reserve ratio is 20 percent.If the FederalReserve buys $80 million in government securities from commercialbanks, then the money supply will immediately
A. increase by $0 with this transaction, and the maximummoney-lending potential of the commercial banking system willincrease by $400 million.
increase by $0 with this transaction, but the maximum money-lending potential of the commercial banking system will increase by $320 million.
increase by $80 millionwith this transaction, and the maximum money-lending potential of the commercial bankingsystem will increase by another
$400 million.
increase by $80 million with this transaction, and the maximum money-lending potential of the commercial banking system will increaseby another
$320 million.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 16-03 List and explainthe goals and tools of monetarypolicy.
Test Bank: II Topic: Tools of MonetaryPolicy
Assume that the required reserve ratio is 25 percent.If the FederalReserve sells $120 millionin government securities to the generalpublic, the money supply will immediately
A. decrease by $120 million with this transaction, and the decrease in money supply could eventually reacha maximum of $480 million.
decrease by $120 million with this transaction, and the decreasein money supply could eventually reach a maximum of $360 million.
increase by $120 million with this transaction, and the increase in money supply could eventually reach a maximum of $480 million.
increase by $120 million with this transaction, and the increase in money supply could eventually reach a maximum of $360 million.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 16-03 List and explainthe goals and tools of monetarypolicy.
Test Bank: II Topic: Tools of MonetaryPolicy
Investments that are designedto match exactly the performance of a group of stocks like the Dow Jones Industrial Average or theS&P 500 are called
index funds.
dividend funds.
portfolio funds.
capital gain funds.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 17-03 Identify and distinguish between the most common financialinvestments: stocks, bonds, and mutual funds.
Test Bank:II Topic: Some Popular Investments
Which of the followingstatements is true?
Passively managed funds do not pay dividends.
Passively managedfunds have only one asset in their portfolio.
C. Actively managed funds constantly buy or sell assets to generate better returns.
D. Actively managed funds adjustassets to matchthe performance of a particular index.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 17-03 Identify and distinguish between the most common financialinvestments: stocks, bonds, and mutual funds.
Test Bank:II Topic: Some Popular Investments
An index fund
is a passivelymanaged mutual fund.
has higher tradingcosts than an actively managed mutual fund.
has higher tradingcosts than a passivelymanaged mutual fund.
is an actively managed mutual fund.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 17-03 Identify and distinguish between the most common financialinvestments: stocks, bonds, and mutual funds.
Test Bank:II Topic: Some Popular Investments
The rise of mutual funds has radically changed the way corporations are controlled in that
it shifted ownership away from individual investors toward "institutional" investors like mutual funds.
mutual funds increased the percentage of corporateshares owned by individual investors.
corporate ownership became restricted to a select few.
it reducedthe share of privateownership and increased the share of public (government) ownership.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 17-03 Identify and distinguish between the most common financialinvestments: stocks, bonds, and mutual funds.
Test Bank:II Topic: Some Popular Investments
Mutual fund managerstend to focus solely on the
short-term (quarterly) performance of the corporations whose securities they invest in.
long-term performance of the corporations whose securities they invest in.
assets of the corporations whose securities they invest in.
liabilities of the corporations whose securities they invest in.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 17-03 Identify and distinguish between the most common financialinvestments: stocks, bonds, and mutual funds.
Test Bank:II Topic: Some Popular Investments
One fundamental conceptin financial economicsis that an investment's rate ofreturn is
positively related to the price paid for it.
B. inversely related to the price paid for it.
inversely related to the riskiness of the investment.
inversely related to the maturity of the investment.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 17-04 Relate how percentage rates of return provide a common framework for comparing assets and explain why asset prices andrates of return are inversely related.
Test Bank:II Topic: Calculating Investment Returns
A bond that iscurrently selling at $1,000 offers to pay $50 annually.What is the percentage rate of return on the bond?
5 percent
10 percent
20 percent
50 percent
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 17-04 Relate how percentage rates of return provide a common framework for comparing assets and explain why asset prices andrates of return are inversely related.
Test Bank:II Topic: Calculating Investment Returns
Terri buys a house for $200,000 and expects to sell it in three years for $300,000.Her expected percentage rate of returnover that three-year periodis
25 percent.
33 percent.
C. 50 percent.
D. 67 percent.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 17-04 Relate how percentage rates of return provide a common framework for comparing assets and explain why asset prices andrates of return are inversely related.
Test Bank:II Topic: Calculating Investment Returns
Shawna bought anantique table for $200 last year and is now sellingit for $250. Her rate of return on the table is
10 percent.
20 percent.
C. 25 percent.
D. 30 percent.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 17-04 Relate how percentage rates of return provide a common framework for comparing assets and explain why asset prices andrates of return are inversely related.
Test Bank:II Topic: Calculating Investment Returns
Burt bought a house for $250,000and plans to rent it out for $2,000per month. His expectedannual rate of return from rentingthe house is approximately
8.0 percent.
B. 9.6 percent.
19.2 percent.
20 percent.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 17-04 Relate how percentage rates of return provide a common framework for comparing assets and explain why asset prices andrates of return are inversely related.
Test Bank:II Topic: Calculating Investment Returns
Rupert recently purchased a nonmaturing bond for $10,000 that pays $350 semiannual coupons. His expected rate of return per year on the bond is
4 percent.
B. 7 percent.
10 percent.
12 percent.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 17-04 Relate how percentage rates of return provide a common framework for comparing assets and explain why asset prices andrates of return are inversely related.
Test Bank:II Topic: Calculating Investment Returns
Alma recently purchased a Mexicanrestaurant for $450,000, from which she expectsto earn a monthlyprofit of $1,500.Her expected annual rate of return is
4 percent.
6 percent.
8 percent.
10 percent.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 17-04 Relate how percentage rates of return provide a common framework for comparing assets and explain why asset prices andrates of return are inversely related.
Test Bank:II Topic: Calculating Investment Returns
Susan recently purchased a home for $150,000.She plans to rent it out for $1,000 per month for a year. Had the house cost $200,000instead, her expectedrate of return would have
decreased by 1 percentage point.
B. decreasedby 2 percentage points.
increased by 2 percentage points.
increased by 3 percentage points.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 17-04 Relate how percentage rates of return provide a common framework for comparing assets and explain why asset prices andrates of return are inversely related.
Test Bank:II Topic: Calculating Investment Returns
Rick recently purchased a convenience store for $500,000.He expects monthlyprofits to be $10,000 in the next year. If a recessionhad struck, Rick had insteadpaid $300,000, and hismonthly profits were reduced to $6,000, his expected rate of returnwould have
increased by 2 percentage points.
increased by 3 percentage points.
decreased by 2 percentage points.
D. remained thesame.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 17-04 Relate how percentage rates of return provide a common framework for comparing assets and explain why asset prices andrates of return are inversely related.
Test Bank:II Topic: Calculating Investment Returns
If the demand for an assetincreases, its price will
increase and the rate of returnfor new investors of this asset will increase.
decrease and the rate of returnfor new investors of this asset will increase.
decrease and the rate of return for new investors of this asset will decrease.
D. increase and the rate of returnfor new investors of this asset will decrease.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 17-04 Relate how percentage rates of return provide a common framework for comparing assets and explain why asset prices andrates of return are inversely related.
Test Bank:II Topic: Calculating Investment Returns
The buying and sellingactivities that tend to equalize the rates of return on identical or nearly identical assets is called
beta.
risk.
C. arbitrage.
D. diversification.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 17-05 Define and utilize the concept of arbitrage.
Test Bank:II Topic: Arbitrage
An investor owns bond #1, which has a rate of returnof 10 percent, but a similar bond #2 has an 11 percent return and equal risk. By selling bond #1 and buying bond #2 to earna higher return,the investor is engagingin
pooling.
B. arbitrage.
diversification.
time preference.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 17-05 Define and utilize the concept of arbitrage.
Test Bank:II Topic: Arbitrage
Assume that two firms (Firm A and FirmB) are similarin all respects, but Firm A's stock has a higher rate of return than Firm B's stock. Arbitrage will occur asinvestors
sell Firm A's stock and buy Firm B's stock.
buy Firm A's stock and buy Firm B's stock also.
sell Firm A's stock and sell Firm B's stock also.
D. buy Firm A's stock and sell Firm B's stock.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 17-05 Define and utilize the concept of arbitrage.
Test Bank:II Topic: Arbitrage
Assume that there are two investments similarin all respects, but Investment X has a higher rate of return than does Investment Y. As a resultof the arbitrage process, the price of Investment
X will fall and its rate of returnwill fall.
Y will rise and its rate of return will fall.
X will fall and its rate of returnwill rise.
D. Y will fall and its rate of return will rise.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 17-05 Define and utilize the concept of arbitrage.
Test Bank:II Topic: Arbitrage
If we observe that many investors are selling Bond A and buying a similar Bond B, this suggeststhat the expectedreturns on
Bond A will start falling.
Bond B will start rising.
Bond A were higher than those of Bond B.
D. Bond A will start rising.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 17-05 Define and utilize the concept of arbitrage.
Test Bank:II Topic: Arbitrage
Risk in finance means that an asset
does not pay dividends.
does not pay capital gains.
has a present value that is negative.
D. has futurepayments that are uncertain.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 17-06 Describe how the word risk is used in financial economics and explainthe difference betweendiversifiable and nondiversifiable risk.
Test Bank:II Topic: Risk
Risk in financemeans
mostly positive outcomes.
mostly negative outcomes.
C. either positive or negative outcomes.
D. the same thing as risk in healthscience.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 17-06 Describe how the word risk is used in financial economics and explainthe difference betweendiversifiable and nondiversifiable risk.
Test Bank:II Topic: Risk
The underlying cause of risk in financeis
danger.
B. uncertainty.
fear.
complexity.
If investors are reasonably tolerant of risk, the Security Market Line will be relatively flat.
TRUE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 17-08 Explain how the Security Market Line illustrates the compensation that investors receive for time preference and nondiversifiable risk and why arbitrage will tend to move all assets onto the SecurityMarket Line.
Test Bank: I Topic: The Security Market Line
Arbitrage will cause a shift in the SecurityMarket Line.
FALSE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 17-08 Explain how the Security Market Line illustrates the compensation that investors receive for time preference and nondiversifiable risk and why arbitrage will tend to move all assets onto the SecurityMarket Line.
Test Bank: I Topic: The Security Market Line
Because of arbitrage, any given financial asset will be expected to return to the SecurityMarket Line.
TRUE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 17-08 Explain how the Security Market Line illustrates the compensation that investors receive for time preference and nondiversifiable risk and why arbitrage will tend to move all assets onto the SecurityMarket Line.
Test Bank: I Topic: The Security Market Line
An expansionary monetary policywill shift the Security Market Line down.
TRUE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 17-08 Explain how the Security Market Line illustrates the compensation that investors receive for time preference and nondiversifiable risk and why arbitrage will tend to move all assets onto the SecurityMarket Line.
Test Bank: I Topic: The Security Market Line
Index f