Financial Economics (Business Economics)

Present value is best defined as the: 

• worth or value today of future expected returns or costs.

• worth in the future of a current flow of returns or costs.

• current worth of a financial asset purchased in the past.

• expected future value of a financial asset purchased today.

$200 invested at an annual interest rate of 5 percent will be worth how much at the end of one year? 

• 205

• 210

• 220

• 240

What concept describes how quickly an investment increases in value when interest is paid not only on the original amount invested, but also on the accumulated interest payments? 

• Present value

• Future value

• Real rate of interest

• Compound interest

Which of the following is NOT common to all investments? 

• Investors are required to pay some price to acquire them.

• Owners are given the opportunity to receive future payments.

• Future payments are typically risky.

• Paying a positive rate of interest.

Payments to shareholders from corporate profits are known as:

• dividends.

• capital gains.

• interest.

• appreciation.

Which of the following is a difference between stocks and bonds? 

• Bonds represent ownership; stocks represent debt.

• Bonds make interest payments; stocks pay dividends.

• Stock payouts are predictable; bond payouts are not.

• All of these are differences between stocks and bonds.

Lee buys a bond for $10,000 and receives interest payments of $400 every six months. The interest rate on the bond is approximately: 

• 4%

• 8%

• 12.5%

• 25%

The buying and selling process that leads profit-seeking investors to equalize average expected rates of return from identical assets is known as: 

• diversification.

• hedging.

• arbitrage.

• securitization.