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MC Finance Questions

A characteristic of an efficient market is that
A) prices are equal for all securities
B) bid-asked spreads are large
C) prices reflect all available information
D) all investors receive a positive rate of return

An important implication of the idea that markets are efficient is
A) an investor can make money by buying undervalued stocks and selling overvalued ones
B) the price of a share immediately incorporates new publicly available information that affects its value
C) dealers can ignore some new information on a share that affects its value
D) an investor can make above average returns in the stock market by doing careful research of public information about selected stocks

Which of the following assets is not subject to default risk?
A) general obligation municipal bonds
B) residential mortgages
C) AAA-rated corporate bonds
D) U.S. Treasury bonds

Which of the following borrowers would pay the lowest interest rate on debt of equal maturity?
A) J.P. Morgan Chase Bank
B) the U.S. government
C) the city of Boston
D) Yahoo

Holding a group of assets reduces risk of holding a single asset as long as the assets
A) are dependent on each other
B) are positively correlated
C) are uncorrelated
D) do not have precisely the same pattern of returns

A mutual fund that purchases a wide variety of stocks will
A) eliminate systematic risk
B) minimize nonsystematic risk
C) minimize market risk
D) minimize default risk

An increase in German treasury interest rates, all else held constant, causes a rightward shift in the _______ euros and causes the dollar to ________ against the euro.
A) supply of, appreciate
B) supply of, depreciate
C) demand for, appreciate
D) demand for, depreciate

Suppose that one-year treasury bills yield 4% in the U.S. and 5% in Germany. Investors will be (approximately) indifferent between them if they expect the dollar over the next year to
A) depreciate against the euro by 1 percent
B) appreciate against the euro by 1 percent
C) depreciate against the euro by 20 percent
D) appreciate against the euro by 20 percent

A sudden expectation of future appreciation of the dollar causes funds to flow ______ the U.S. and the dollar to actually __________.
A) out of, depreciate
B) out of, appreciate
C) into, depreciate
D) into, appreciate

Speculation that a currency is about to be devalued can ________ the need for that evaluation as asset-holders get ________ assets denominated in that currency.
A) delay, into
B) delay, out of
C) hasten, into
D) hasten, out of

Solution Preview

A characteristic of an efficient market is that
C) prices reflect all available information

An important implication of the idea that markets are efficient is
B) the price of a share immediately incorporates new publicly available information that affects its value

Which of the following assets is not subject to default risk?
D) U.S. Treasury bonds ...

Solution Summary

This solution correctly identifies the answer to the MC finance questions that touch on the concepts of efficient market, default risk, demand/supply, and speculation.

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