1) increasing investment in the present means forgoing future consumption.
2) ‘supply shocks” occur any time there is a change in the supply of goods and services.
3) inflation reduces the purchasing power of a person’s income and savings.
4) modern economic growth refers to any situation where a nation’s output increases.
5) prices tend to be more flexible when there are only two or three rival firms rather
than a large number of sellers in the market.
6) prices tend to be sticky because sellers know that consumers prefer stable prices.
7) the amount of investment in an economy is ultimately limited by the amount of
savings in that economy.
8) demand shocks cause problems in the macroeconomy primarily because prices are
sticky.
9) economists believe that most short-run fluctuations in output are the result of supply
shocks.
10) an extended period of declining output and living standards is referred to as a
recession.
11) negative demand shocks have a more significant impact on output and employment
when prices are flexible.
12) prices tend to be stickier in the shorter run than in the longer run.
13) the term “economic investment” refers only to money spent purchasing newly
created capital goods such as factories, tools, and warehouses.
14) duration facilitates the comparison of bonds with differing ___________.
a.default risks
b.conversion ratios
c.maturities
d.yields to maturity
15) the decline in the value of the dollar relative to the yen will have what impact on the
purchase of u.s. goods in japan?
a.u.s. goods will increase in cost, and japan will import more.
b.u.s. goods will increase in cost, and japan will import less.
c.u.s. goods will decrease in cost, and japan will import more.
d.u.s. goods will increase in cost, and japan will export less.
16) you own a bond that has a duration of 6 years. interest rates are currently 7%, but
you believe the fed is about to increase interest rates by 25 basis points. your predicted
price change on this bond is ________.
a.+1.4%
b.-1.4%
c.-2.51%
d.+2.51%
17) on may 1, 2007, joe hill is considering one of the following newly issued 10-year
aaa corporate bonds.
if interest rates are expected to rise, then joe hill should ____.
a.prefer the wildwood bond to the asbury bond
b.prefer the asbury bond to the wildwood bond
c.be indifferent between the wildwood bond and the asbury bond
d.the answer cannot be determined from the information given.
18) in regard to bonds, convexity relates to the _______.
a.shape of the bond price curve with respect to interest rates
b.shape of the yield curve with respect to maturity
c.slope of the yield curve with respect to liquidity premiums
d.size of the bid-ask spread
19) consider an investment opportunity set formed with two securities that are perfectly
negatively correlated. the global minimum-variance portfolio has a standard deviation
that is always _________.
a.equal to the sum of the securities’ standard deviations
b.equal to -1
c.equal to 0
d.greater than 0
20) a portfolio of stocks fluctuates when the treasury yields change. since this risk
cannot be eliminated through diversification, it is called __________.
a.firm-specific risk
b.systematic risk
c.unique risk
d.none of the options
21) from 1971 to 2010 the average return on the wilshire 5000 index was _________
the return of the average mutual fund.
a.identical to
b..8% higher than
c..8% lower than
d.1.3% higher than
22) the table presents the actual return of each sector of the manager’s portfolio in
column (1), the fraction of the portfolio allocated to each sector in column (2), the
benchmark or neutral sector allocations in column (3), and the returns of sector indexes
in column 4.
what was the manager’s over- or underperformance for the month?
a.underperformance = .03%
b.overperformance = .03%
c.overperformance = .14%
d.underperformance = 3%
23) an index computed from a simple average of returns is a/an _____.
a.equal weighted index
b.value weighted index
c.price weighted index
d.share weighted index
24) the fact that the exchange is the counterparty to every futures contract issued is
important because it eliminates _________ risk.
a.market
b.credit
c.interest rate
d.basis
25) the financial statements of flathead lake manufacturing company are shown below:
note: the common shares are trading in the stock market for $15 per share
refer to the financial statements of flathead lake manufacturing company. the firm’s total
asset turnover for 2012 is _________. (please keep in mind that when a ratio involves
both income statement and balance sheet numbers, the balance sheet numbers for the
beginning and end of the year must be averaged.)
a.3.56
b.3.26
c.3.14
d.3.02
26) debt securities promise:
i. a fixed stream of income
ii. a stream of income that is determined according to a specific formula
iii. a share in the profits of the issuing entity
a.i only
b.i or ii only
c.i and iii only
d.ii or iii only
27) where y = yield to maturity, the duration of a perpetuity would be _________.
a.y
b.y/(1 + y)
c.1/y
d.(1 + y)/y
28) treasury bills are financial instruments issued by __________ to raise funds.
a.commercial banks
b.the federal government
c.large corporations
d.state and city governments