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1.5   LO5: Learn Five Principle Themes of Finance 1) The higher

Question : 1.5   LO5: Learn Five Principle Themes of Finance 1) The higher : 1907269

1.5   LO5: Learn Five Principle Themes of Finance

1) The higher the probability that the return on an investment will not pay off its averaged promised value, the higher the expected return must be to induce an investor to invest in it.

2) A firm's net income is a true representation of cash flows available to the stockholders.

3) $100 today is worth

A) the same as $100 to be received in one year, since the inflation rate has been low recently and funds received in the near future should have the same purchasing power that they have today.

B) less than $100 to be received in one year, since many people will spend money foolishly today and will become more careful in their spending habits as they mature.

C) more than $100 to be received in one year, since you can invest the money received today for this period, leaving you with more than $100 in the future.

D) the same as a future receipt of $100, since the physical characteristics of U.S. currency are unchanged for long periods of time.

E) less than $100 received by someone ten years ago, since many products have been improved over this time period.

4) As the risk of a stock investment increases,

A) return will increase.

B) return will decrease.

C) required rate of return will decrease.

D) required rate of return will increase.

E) the beta approaches zero.

5) Which of the following statements about risk is false?

A) Risk is one of the determinants of the required return.

B) Risk requires the possibility of at least one outcome less favorable than the expected value.

C) Risk requires the possibility of more than one outcome.

D) High risk should require low return.

6) The efficient market hypothesis states that:

A) Requiring firms to issue more stock will reduce volatility.

B) Requiring investors to hold securities longer will reduce volatility.

C) Electing a pro-business Republican president makes the market more efficient.

D) Taxing security returns will raise prices .

E) Markets price securities fairly at all times and that new information is rapidly reflected in the price.

7) Information Asymmetry is:

A) false information spread by competitors.

B) when two pieces of information counteract each other.

C) when some know more than others.

D) when information is not reflected properly in the market.

Solution
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