02 Jan Which of the following

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.