Exam 10: Stock Markets and Personal Finance

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A) will retire in three years
B) is 25 years old and just started a good job
C) lives hand-to-mouth
D) lives on Social Security checks

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A) Yes, because it will take a while for the company to recover the R&D costs of the light bulbs.
B) Yes, because it will take time before the light bulbs show up in stores (and thus time before the new revenue's reflected in the company's bottom line) .
C) No, because the broker fees will eat away all your profits.
D) No, because the new information will already be reflected in the stock price when you purchase the stock.

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A) exceed
B) underperform
C) equal
D) cannot compare to

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A) worse than most
B) worse than all
C) better than most
D) better than all

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A) investment opportunities with high expected returns come with higher risk.
B) investment opportunities with high expected returns come with lower risk.
C) there is no relationship between risk and expected returns.
D) there is always risk in holding any investment opportunity.

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A) If firms merge, stock prices could rise indicating that the merger can result in greater profitability.
B) If stock prices rise, they could be indicating future profitability for the firm.
C) If stock prices fall, they could be indicating declining economic conditions.
D) All of these possibilities are correct.

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A) 5
B) 10
C) 20
D) 40

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A) Yes, because all the relevant information is clearly not embodied in the price.
B) Yes, because it is inefficient to channel money this way.
C) No, because Senators are probably trading using nonpublic information.
D) No, because Senators are unusually smart people.

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A) equal.
B) different.
C) sometimes equal but often different.
D) unknown in most cases.

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A) Active investing typically has higher average returns than passive investing.
B) Active investing and passive investing typically have equal returns on average.
C) Active investments typically have higher fees and lower returns on average than passive investments.
D) Active investing has been shown to be the only type of investing that can consistently "beat the market."

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A) It was very difficult to send out all those letters; hard work pays off.
B) Like the letters in the story, Buffet happened to be right several times in a row.
C) Buffet conned his way to the top, using insider information to become wealthy.
D) Diversification is an important way to protect investments and build wealth.

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A) common in the long run.
B) rare in the long run.
C) always attained in the long run.
D) never attained in the long run.

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A) U.S. T-Bills, corporate bonds, small stocks, S&P 500 Index fund
B) corporate bonds, U.S. T-Bills, small stocks, S&P 500 Index fund
C) U.S. T-Bills, corporate bonds, S&P 500 Index fund, small stocks
D) corporate bonds, U.S. T-Bills, S&P 500 Index fund, small stocks

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The four pieces of advice on financial i...

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A) has been able to beat the market in the long run if enough data is analyzed.
B) has been unable to consistently beat the market.
C) is also known as active investing.
D) is difficult since stock market data is hard to come by.

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