1. Question
:
You are considering purchasing a new automobile that will
cost you $28,000. The dealer offers you
4.9% APR financing for 60 months (with payments made at the end of the
month). Assuming you finance the entire
$28,000 and finance through the dealer, your monthly payments will be closest
to __________.
$1,454
$527
$467
$457
Question 2. Question
:
The effective annual rate for a credit card that charges a
19.9% APR compounded daily is closest to __________.
18.15%
19.9%
22.0%
24.2%
Question 3. Question
:
If the current inflation rate is 4.2% and you are earning a
real rate of return on an investment of 3.8%, then the nominal rate on this
investment is closest to __________.
3.8%
4.2%
8.0%
8.2%
Instructor Explanation: (1 + real)(1 + inf) = (1 + nom) so (1 +
real)(1 + inf) – 1 = nom; (1.038)(1.042) – 1 = .081596
Question 4. Question
:
If the current inflation rate is 4% and you have an
investment opportunity that pays 10%, then the real rate of interest on your
investment is closest to __________.
10.0%
14.0%
6.0%
5.8%
Question 5. Question
:
Which of the following statements is false?
U.S. Treasury securities are widely regarded
to be risk-free because there is virtually no chance the government will
default on these bonds.
In general, if the interest rate is r
and the tax rate is ?, then for each $1 invested you will
earn interest equal to r and owe taxes of ? × r on the interest.
Investors may receive less than the stated
interest rate if the borrowing company has financial difficulties and is unable
to fully repay the loan.
Taxes reduce the amount of interest the
investor can keep, and we refer to this reduced amount as the tax effective
interest rate.
Question 6. Question
:
When all investors correctly interpret and use their own
information, as well as information that can be inferred from market prices or
the trades of others, they are said to have:
sensation seeking expectations.
positive expectations.
rational expectations.
confident expectations.
Question 7. Question
:
If investors believe that others have superior information
which they can take advantage of by copying their trades, this can lead to:
an informational cascade effect.
a disposition effect.
a sensation seeking effect.
an overconfidence bias.
Question 8. Question
:
The tendency to hang on to losers and sell winners is known
as the:
cascade effect.
disposition effect.
overconfidence bias.
systematic behavior bias.
Question 9. Question
:
According to a survey of 392 CFOs conducted by John Graham
and Campbell Harvey, the most common method used in corporate America to
estimate the cost of capital is:
the CAPM.
multifactor models.
characteristic models.
the dividend discount model.
Question 10. Question
:
Which of the following statements is false?
If the market portfolio is efficient, then all
securities and portfolios must plot on the SML, not just individual stocks.
For most stocks the standard errors of the
alpha estimates are large, so it is impossible to conclude that the alphas are
statistically different from zero.
It is not difficult to find individual stocks
that, in the past have not plotted on the SML.
Small stocks
(those with lower market capitalization) have lower average returns.
