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Chapter 17 - Financial Economics
120. For any given financial asset, risk levels and average expected rates of return are:
121. According to The International Country Risk Guide, financial assets in:
122. Which of the following financial assets is considered to be essentially risk-free?
Chapter 17 - Financial Economics
123. The concept of time preference in financial investing rests on the belief that people:
124. Suppose that some people invest $1000 today in a financial asset that will make one
future payment. The longer they must wait for the future payment, the:
125. Rates of return on short-term U.S. government bonds are compensation for:
Chapter 17 - Financial Economics
126. Alex wants to borrow $1000 from Kara. If he repays the loan in one year, Kara would
require him to pay 5 percent interest on the loan. If Alex wants to repay the loan over 3 years,
but Kara strongly prefers present to future consumption, we would expect the interest rate on
a 3-year loan to be:
127. The rate of return on short-term U.S. government bonds is often referred to as the:
128. The risk-free interest rate is determined primarily by the:
Chapter 17 - Financial Economics
129. The Federal Reserve changes the risk-free interest rate most directly:
130. For most financial assets investors must be compensated for:
131. The average expected rate of return on most financial assets is the sum of the rates that
compensate for:
Chapter 17 - Financial Economics
132. The risk premium of a financial asset is the:
133. The beta for an asset considered to be risk-free:
134. The average expected rate of return of a financial asset equals:
Chapter 17 - Financial Economics
135. The line that depicts the relationship between the average expected rate of return and the
risk level of a financial asset is known as the:
136. The Security Market Line depicts the relationship between the:
137. A horizontal Security Market Line would imply that investors:
Chapter 17 - Financial Economics
138. The steeper the Security Market Line:
139. The vertical intercept of the Security Market Line is determined by the:
Chapter 17 - Financial Economics
140. Refer to the graph above. Which of the three Security Market Lines depicts the situation
where investors most dislike risk?
141. Refer to the graph above. Which of the three Security Market Lines would represent a
situation where investors do not care about the risk level of a financial asset?
142. Refer to the graph above. The intercept of the three Security Market Lines is determined
by:
Chapter 17 - Financial Economics
143. Refer to the graph above. An increase in investor concern about risk would be shown
by:
144. The intercept of the Security Market Line at any point in time is determined primarily
by:
145. A change in Federal Reserve monetary policy will:
Chapter 17 - Financial Economics
146. The process of arbitrage:
147. Refer to the graph above. Suppose a particular financial asset's risk and return profile
puts it at point E. The process of arbitrage will:
Chapter 17 - Financial Economics
148. Refer to the graph above. If a financial asset's average expected rate of return and beta
put it at point F:
149. Refer to the graph above. Consider asset D. We would expect arbitrage to:
150. Refer to the graph above. Each labeled point represents a different asset. For which of
these assets would we expect arbitrage to cause movement to a different point?
Chapter 17 - Financial Economics
151. Refer to the graph above. Each labeled point represents a different asset. For which of
these assets would we not expect arbitrage to change the average expected rate of return:
152. Refer to the graph above. Consider an asset represented by point F. The process of
arbitrage will draw investors to the higher rates of return,
153. Arbitrage causes all financial assets:
