True, false, or uncertain. (5 points each) Your grade will be based solely on your explanation.
1. Risk in economics and finance is the possibility of loss, which implies that standard deviation is an incorrect measure of risk.
2. On stock exchanges in the United States, there is only one type of order that can be placed: a market order.
3. If the efficient markets theory of stock prices is correct, technical analysis of stock prices is useless.
4. Bubbles are hard to predict.
5. According to the Capital Asset Pricing Model, the beta of a stock is the risk premium for holding a stock.
6. Internal rate of return is a better guide to choosing investments than present value.
7. A leveraged investment is riskier.
8. If Firm A has a higher beta than Firm B, then Firm A has a higher systematic risk than Firm B.
9. If firm C has a lower beta than Firm D, then Firm C has lower unsystematic (idiosyncratic) risk than Firm D.
10. A stock that is a 'castle in the air'ĀĀ has a high expected return after its price has risen.
11. The net present value of a firm to shareholders is the present value of all revenue received by the firm.
12. The internal rate of return is the discount rate that results in the NPV being positive.
True, false, or uncertain. (5 points each) Your grade will be based solely on your explanation.
1. Risk in economics and finance is the possibility of loss, which implies that standard deviation is an incorrect measure of risk.
2. On stock exchanges in the United States, there is only one type of order that can be placed: a market order.
3. If the efficient markets theory of stock prices is correct, technical analysis of stock prices is useless.
4. Bubbles are hard to predict.
5. According to the Capital Asset Pricing Model, the beta of a stock is the risk premium for holding a stock.
6. Internal rate of return is a better guide to choosing investments than present value.
7. A leveraged investment is riskier.
8. If Firm A has a higher beta than Firm B, then Firm A has a higher systematic risk than Firm B.
9. If firm C has a lower beta than Firm D, then Firm C has lower unsystematic (idiosyncratic) risk than Firm D.
10. A stock that is a 'castle in the air'ĀĀ has a high expected return after its price has risen.
11. The net present value of a firm to shareholders is the present value of all revenue received by the firm.
12. The internal rate of return is the discount rate that results in the NPV being positive.
Related textbook solutions
Related questions
13. Fred is considering expanding his dress shop. If interest rates rise he is
|
a. |
less likely to expand. This illustrates why the supply of loanable funds slopes downward. |
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b. |
more likely to expand. This illustrates why the supply of loanable funds slopes upward. |
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c. |
less likely to expand. This illustrates why the demand for loanable funds slopes downward. |
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d. |
more likely to expand. This illustrates why the demand for loanable funds slopes upward. |
14. You are thinking of buying a bond from Knight Corporation. You know that this bond is long term and you know that Knight's business ventures are risky and uncertain. You then consider another bond with a shorter term to maturity issued by a company with good prospects and an established reputation. Which of the following is correct?
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a. |
The longer-term would tend to make the interest rate on the bond issued by Knight higher, while the higher risk would tend to make the interest rate lower. |
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b. |
The longer-term would tend to make the interest rate on the bond issued by Knight lower, while the higher risk would tend to make the interest rate higher. |
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c. |
Both the long-term and the higher risk would tend to make the interest rate lower on the bond issued by Knight. |
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d. |
Both the long-term and the higher risk would tend to make the interest rate higher on the bond issued by Knight. |
15. In an imaginary economy, consumers buy only sandwiches and magazines. The fixed basket consists of 20 sandwiches and 30 magazines. In 2006, a sandwich cost $4 and a magazine cost $2. In 2007, a sandwich cost $5. The base year is 2006. If the inflation rate in 2007 was 16 percent, then how much did a magazine cost in 2007?
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a. |
$1.87 |
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b. |
$2.08 |
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c. |
$2.32 |
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d. |
$3.00 |
16. An increase in the price of Irish whiskey regularly purchased by Americans will be reflected in
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a. |
both the U.S. GDP deflator and the U.S. CPI. |
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b. |
neither the U.S. GDP deflator nor the U.S. CPI. |
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c. |
the U.S. GDP deflator, but not the U.S. CPI. |
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d. |
the U.S. CPI, but not the U.S. GDP deflator. |
Ā
17. Which of the following would be human capital and physical capital, respectively?
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a. |
for an accounting firm, the accountants' knowledge of tax laws and the number of hours worked by those accountants |
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b. |
for a grocery store, grocery carts, and cash registers. |
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c. |
for a restaurant, the chefs' knowledge about preparing food and equipment in the kitchen |
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d. |
for a library, the building, and the reference librarians' knowledge of the Internet |
18. If a production function has increasing returns to scale, the output can be more than doubled if
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a. |
labor alone doubles. |
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b. |
all inputs but labor double. |
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c. |
all of the inputs double. |
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d. |
None of the above is correct. |
19.Suppose that an American company opens and operates a restaurant in Ireland. This is an example of
a. foreign direct investment. American saving is used to finance Irish investment.
b. foreign direct investment. American saving is used to finance American investment.
c. foreign portfolio investment. American saving is used to finance Irish investment.
d. foreign portfolio investment. American saving is used to finance American investment.
