Chapter 1 Economics
Fundamental Economic Concepts: Introduction
CHAPTER 1:
1. Risk is best thought of as a. the chance that the actual return will be zero or negative b. the chance that the actual return will differ from the expected return c. the chance that the expected return will be lower than what investors demand d. the chance that the expected return will be incorrectly estimated
2. Which of the following is INCORRECT about risk-averse investors? a. They always try to minimize their risk regardless of return. b. They will not seek risk for its own sake. c. They can buy very risky securities. d. They seek to earn a rate of return that is proportional to the risk taken.
3. In describing the investing tradeoff that investors face, which of the following statements is CORRECT? a. on an expected basis for the next year, the tradeoff can be upward or downward sloping b. over long periods of financial market history, such as 50 or more years, the tradeoff is downward sloping c. over recent historical periods of one or two years, the tradeoff can be upward sloping or downward sloping d. on an expected basis for the next 10 or 15 years, the tradeoff could be either upward sloping or downward sloping
4. Which of the following factual statements is INCORRECT? a. portfolio management is the first step in the investment decision process b. a passive investment strategy is designed to make few changes over time c. the Efficient Market Hypothesis states that the prices of securities reflect their economic value d. an active investment strategy seeks to change investment proportions and/or assets in the belief that profits can be made
5. Given the expected return--risk tradeoff that exists for investment decisions, which of the following financial assets would be expected to be highest on the tradeoff? a. AAA corporate bonds b. Treasury bonds c. blue-chip common stocks d. preferred stock
6. Ex post, the
CHAPTER 1:
1. Risk is best thought of as a. the chance that the actual return will be zero or negative b. the chance that the actual return will differ from the expected return c. the chance that the expected return will be lower than what investors demand d. the chance that the expected return will be incorrectly estimated
2. Which of the following is INCORRECT about risk-averse investors? a. They always try to minimize their risk regardless of return. b. They will not seek risk for its own sake. c. They can buy very risky securities. d. They seek to earn a rate of return that is proportional to the risk taken.
3. In describing the investing tradeoff that investors face, which of the following statements is CORRECT? a. on an expected basis for the next year, the tradeoff can be upward or downward sloping b. over long periods of financial market history, such as 50 or more years, the tradeoff is downward sloping c. over recent historical periods of one or two years, the tradeoff can be upward sloping or downward sloping d. on an expected basis for the next 10 or 15 years, the tradeoff could be either upward sloping or downward sloping
4. Which of the following factual statements is INCORRECT? a. portfolio management is the first step in the investment decision process b. a passive investment strategy is designed to make few changes over time c. the Efficient Market Hypothesis states that the prices of securities reflect their economic value d. an active investment strategy seeks to change investment proportions and/or assets in the belief that profits can be made
5. Given the expected return--risk tradeoff that exists for investment decisions, which of the following financial assets would be expected to be highest on the tradeoff? a. AAA corporate bonds b. Treasury bonds c. blue-chip common stocks d. preferred stock
6. Ex post, the