Question

1. You invested $100 at the start of the year. You now have $103. Inflation is 3% since the start of the year. Which of the following is a FALSE statement?
A. The nominal interest rate you earned is 3%.
B. The real rate of return on your investment is 3%.

C. You can buy no more goods and services with your money than you could at the start of the year.
D. The nominal interest rate you earned is well approximated by adding the inflation rate to the real rate. E. The nominal interest rate you earned is equal to (1 + the real rate) times (1 + the inflation rate).

2. The__________is an example of an over-the-counter market, while the________is an example of an exchange.

A. Super DOT ; NASDAQ
B. ECN ; Securities Exchange Commission C. NASDAQ ; NYSE
D. NYSE ; Board of Directors
E. Floor broker ; Proxy

3. Which voting mechanism makes it easier for minority shareholders to replace directors?

A. Straight.

B. Cumulative.
C. Secret ballot.
D. Prodigy.
E. All of the above.

Answer 1

1: B. The real rate of return on your investment is 3%.

(The nominal interest rate = (103-100)/100 =3%. Since inflation was 3%, the real interest rate was 3%-3%=0. Hence Statements A,E and D are right. Statement C is true since the investor has earned a real interest of 0% which means that he has the same purchasing power. )

2.SuperDOT/ NASDAQ

(The phrase "over-the-counter" refer to stocks that trade via a dealer network as opposed to on a centralized exchange. SuperDOT is a system which accepts market orders up to 30,099 shares and limit orders up to 99,999 shares from member firms and routes them directly to the exchange floor.)

3. Cumulative

(Cumulative voting is a voting system used by organizations that allow shareholders to vote proportionately to the number of shares they hold. This beneficial to minority shareholders because they can focus all their attention on a single candidate or point. This way If multiple minority shareholders come together, they can influence a change or appointment in their desired direction.)