FIN 480 EXAM #1 QUESTIONS AND ANSWERS
Money eliminates the need for:
A. a search for a double coincidence of wants.
B. government regulation.
C. specialization of labor.
D. financial Intermediaries. - Answers - A. a search for a double coincidence of wants.
The high transaction costs associated with a barter system refers to the:
A. fact that, these exchanges are taxed by governments.
B. risk associated with having to carry an inventory of goods to trade.
C. high cost associated with finding someone with whom to exchange.
D. cost of drawing up complete contracts. - Answers - C. high cost associated with
finding someone with whom to exchange.
Which of the following is included in both M1 and M2:
A. Short term bonds
B. Savings account deposits
C. Certificate of Deposits
D. Checking account deposits - Answers - D. Checking account deposits (M1 which is
included in M2)
A. neither
B. M2
C. M2
A financial instrument can:
A. Transfer risk to another party
B. Transfer purchasing power into the future
C. Act as a means of payment
D. All of the above - Answers - D. All of the above
Means of Payment
Store of Value
Transfer of Risk
The fundamental characteristics influencing the value of a financial instrument include
each of the following except:
A. the size of the payment promised.
B. when the promised payment will be made.
, C. where the instrument is traded.
D. the likelihood of payment. - Answers - C. where the instrument is traded.
Where doesn't matter because it should all be worth the same amount
Which of the following statements is most correct?
A. All banks are financial intermediaries, but not all financial intermediaries are banks.
B. Financial intermediaries must be public corporations.
C. All financial intermediaries are insurance companies.
D. All financial intermediaries are government agencies. - Answers - A. All banks are
financial intermediaries, but not all financial intermediaries are banks.
If an investment will return $1,600 half of the time and $700 half of the time, the
expected value of the investment is:
A. $1,250.
B. $1,050.
C. $1,150.
D. $2,200. - Answers - C. $1,150.
(1600*0.5) + (700*0.5) = $1,150
An investment pays $1,200 a quarter of the time; $1,000 half of the time; and $800 a
quarter of the time. Its expected value and standard deviation are:
A. $1,000; $141
B. $1,050; $20,000
C. $1,000; $20,000
D. $1,000; $100 - Answers - A. $1,000; $141
E(R) = 0.25(1200) + 0.50(1000) + 0.25 (800) = $1,000
Variance = 0.25(1200-1000)^2 + 0.50(1000-1000)^2 + 0.25(800-1000)^2 = 20,000
SD = sqrt(20,000) = $141
Risk-free investments have rates of return:
A. equal to zero.
B. with a standard deviation equal to zero.
C. that are uncertain, but have a certain time horizon.
D. that exhibit a large spread of potential payoffs. - Answers - B. with a standard
deviation equal to zero.
No spread means you have STD = 0
The difference between standard deviation and value at risk (VaR) is:
Money eliminates the need for:
A. a search for a double coincidence of wants.
B. government regulation.
C. specialization of labor.
D. financial Intermediaries. - Answers - A. a search for a double coincidence of wants.
The high transaction costs associated with a barter system refers to the:
A. fact that, these exchanges are taxed by governments.
B. risk associated with having to carry an inventory of goods to trade.
C. high cost associated with finding someone with whom to exchange.
D. cost of drawing up complete contracts. - Answers - C. high cost associated with
finding someone with whom to exchange.
Which of the following is included in both M1 and M2:
A. Short term bonds
B. Savings account deposits
C. Certificate of Deposits
D. Checking account deposits - Answers - D. Checking account deposits (M1 which is
included in M2)
A. neither
B. M2
C. M2
A financial instrument can:
A. Transfer risk to another party
B. Transfer purchasing power into the future
C. Act as a means of payment
D. All of the above - Answers - D. All of the above
Means of Payment
Store of Value
Transfer of Risk
The fundamental characteristics influencing the value of a financial instrument include
each of the following except:
A. the size of the payment promised.
B. when the promised payment will be made.
, C. where the instrument is traded.
D. the likelihood of payment. - Answers - C. where the instrument is traded.
Where doesn't matter because it should all be worth the same amount
Which of the following statements is most correct?
A. All banks are financial intermediaries, but not all financial intermediaries are banks.
B. Financial intermediaries must be public corporations.
C. All financial intermediaries are insurance companies.
D. All financial intermediaries are government agencies. - Answers - A. All banks are
financial intermediaries, but not all financial intermediaries are banks.
If an investment will return $1,600 half of the time and $700 half of the time, the
expected value of the investment is:
A. $1,250.
B. $1,050.
C. $1,150.
D. $2,200. - Answers - C. $1,150.
(1600*0.5) + (700*0.5) = $1,150
An investment pays $1,200 a quarter of the time; $1,000 half of the time; and $800 a
quarter of the time. Its expected value and standard deviation are:
A. $1,000; $141
B. $1,050; $20,000
C. $1,000; $20,000
D. $1,000; $100 - Answers - A. $1,000; $141
E(R) = 0.25(1200) + 0.50(1000) + 0.25 (800) = $1,000
Variance = 0.25(1200-1000)^2 + 0.50(1000-1000)^2 + 0.25(800-1000)^2 = 20,000
SD = sqrt(20,000) = $141
Risk-free investments have rates of return:
A. equal to zero.
B. with a standard deviation equal to zero.
C. that are uncertain, but have a certain time horizon.
D. that exhibit a large spread of potential payoffs. - Answers - B. with a standard
deviation equal to zero.
No spread means you have STD = 0
The difference between standard deviation and value at risk (VaR) is:
