Question

1. In general, financial assets that have a(n) _______ amount of risk have a _________ rate of return.

• higher; higher

• lower; higher

• higher; lower

• equal; higher

2. The more liquid markets are the:

• lower the interest rates, and the lower the amount of investment.

• higher the interest rates, and the higher the amount of investment.

• lower the interest rates, and the higher the amount of investment.

• higher the interest rates, and the lower the amount of investment.

3. When purchasing a future contract, the buyer of a futures contract:

• agrees to pay the seller later where the payment is based on the future price of some asset.

• assumes very little risk of the future price fluctuation of some asset.

• must pay a set amount to the seller regardless of what the future price turns out to be.

• none of these are true.

4. Those who believe that market prices always incorporate all available information believe:

• in the efficient-market hypothesis.

• that randomly choosing a stock is not as effective as technical or fundamental analysis.

• that current stock prices do not represent true value as correctly as is possible.

• All of these are true.

5. The rate of return in loanable funds describes the:

• the profit firms should make when investing borrowed funds.

• interest rate on loans.

• cost of borrowing.

• expected profit that a project will generate per dollar invested.

Answer 1

1. higher; higher
(Risk and return both are higher.)

2. lower the interest rates, and the higher the amount of investment.
(Higher is the liquidity, lower is the interest rate.)

3. must pay a set amount to the seller regardless of what the future price turns out to be.
(Buyer pays a predetermined price.)

4. in the efficient-market hypothesis.
(They believe in the efficient market hypothesis.)

5. the profit firms should make when investing borrowed funds.
(Rate of return describes the profit firms make.)