FIN 480 CLICKERS 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
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
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.
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
.5 x 1600 + .5 x 700 = 800 + 350 = 1150
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
EV = .25 x 1200 + .5 x 1000 + .25 x 800 =
= 300 + 500 + 200 = 1000
VAR =
= .25 x (1200 - 1000)2(= 10000)
+ .50 x (1000 - 1000)2 (= 0)
+ .25 x (800 - 1000)2 (= 10000)
VAR = 20,000 => SD = 141.42
, 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.
The difference between standard deviation and value at risk (VaR) is:
A. nothing, they are two names for the same thing.
B. value at risk (VaR) is a more common measure in financial circles than is standard
deviation.
C. standard deviation reflects the spread of possible outcomes while VaR focuses on
the value of the worst outcome.
D. value at risk is expected value times the standard deviation. - Answers - C. standard
deviation reflects the spread of possible outcomes while VaR focuses on the value of
the worst outcome.
An investment with a large spread between possible payoffs will generally have:
A. a low expected return.
B. a high standard deviation.
C. a low value at risk.
D. both a low expected return and a low value at risk. - Answers - B. a high standard
deviation.
Investment A returns 10% half the time and -5% half the time. If you paid $1000 for this
investment, what is your expected value and your VaR?
A. 2% & $0
B. 2.5% & $1000
C. 2.5% & $50
D. 5% & $100 - Answers - C. 2.5% & $50
•EV = .5 x 10% + .5 x -5% = 2.5%
•VAR = .5 x (10 - 2.5)2+ .5 x (-5 - 2.5)2
•VAR = 28.125 + 28.125 = 56.25
•SD = sqrt(56.25) = 7.5
•If you invest $1000, the most you can lose is 5% or $50 so your VaR is $50
Investment A or B or C returns 10% half the time and -5% half the time (CORR = 0). If
you invest in equal amounts of A,B,C your risk will ____ relative to investing in just A.
The Standard deviation of your portfolio will ___ as well.
A. Decrease, decrease
B. Increase, increase
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
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
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.
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
.5 x 1600 + .5 x 700 = 800 + 350 = 1150
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
EV = .25 x 1200 + .5 x 1000 + .25 x 800 =
= 300 + 500 + 200 = 1000
VAR =
= .25 x (1200 - 1000)2(= 10000)
+ .50 x (1000 - 1000)2 (= 0)
+ .25 x (800 - 1000)2 (= 10000)
VAR = 20,000 => SD = 141.42
, 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.
The difference between standard deviation and value at risk (VaR) is:
A. nothing, they are two names for the same thing.
B. value at risk (VaR) is a more common measure in financial circles than is standard
deviation.
C. standard deviation reflects the spread of possible outcomes while VaR focuses on
the value of the worst outcome.
D. value at risk is expected value times the standard deviation. - Answers - C. standard
deviation reflects the spread of possible outcomes while VaR focuses on the value of
the worst outcome.
An investment with a large spread between possible payoffs will generally have:
A. a low expected return.
B. a high standard deviation.
C. a low value at risk.
D. both a low expected return and a low value at risk. - Answers - B. a high standard
deviation.
Investment A returns 10% half the time and -5% half the time. If you paid $1000 for this
investment, what is your expected value and your VaR?
A. 2% & $0
B. 2.5% & $1000
C. 2.5% & $50
D. 5% & $100 - Answers - C. 2.5% & $50
•EV = .5 x 10% + .5 x -5% = 2.5%
•VAR = .5 x (10 - 2.5)2+ .5 x (-5 - 2.5)2
•VAR = 28.125 + 28.125 = 56.25
•SD = sqrt(56.25) = 7.5
•If you invest $1000, the most you can lose is 5% or $50 so your VaR is $50
Investment A or B or C returns 10% half the time and -5% half the time (CORR = 0). If
you invest in equal amounts of A,B,C your risk will ____ relative to investing in just A.
The Standard deviation of your portfolio will ___ as well.
A. Decrease, decrease
B. Increase, increase
