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1299076188159_Eco412_quiz3and4_fa10

# 1299076188159_Eco412_quiz3and4_fa10 - NOTE Quizzes 3 and 4...

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NOTE: Quizzes 3 and 4 from last fall, both included on this document, have material from chapters 5 and 6 which are relevant for our quiz 3. On quiz 4 below, questions 1 - 6, 11, and 12 are from chapter 6. Quiz 3: ECO412, October 14, 2010 Name ____________________________ Multiple Choice Questions: Read each question carefully. Always select the best answer, especially if more than one appears to be correct. QUESTIONS 1 10 WORTH 1 POINT EACH _____1. A zero coupon bond: a. Does not make any coupon payments because the issuer is in default. b. Pays coupons only once a year rather than the usual twice a year. * c. Promises a single future payment. d. Pays coupons only if the bond price is below face value. _____2. A discount bond * a. always sells at a price below its face value. b. can be priced above or below its face value, just as with a coupon bond. c. always sells at a price above its face value; it is the yield that is discounted. d. can only be issued by government agencies since it does not make regular interest payments. _____3. The expected return on an asset is given by a. the arithmetic average of the possible returns. b. the arithmetic average of the deviations of possible returns from the arithmetic average return. * c. the probability-weighted average of the possible returns. d. the midpoint between the highest and lowest returns. _____4. Investing in a mutual fund made up of hundreds of stocks of different companies is an example of all of the following except : a. spreading risk. b. diversifying. c. risk reduction. * d. hedging. _____5. Which of the following statement(s) is (are) true? a. The variance is the arithmetic average of the squared deviations of the possible outcomes from the arithmetic average of the outcomes. b. The variance is the probability-weighted average of the squared deviations between the possible outcomes and the expected outcome. c. The variance is expressed in squared units; to express risk in terms of the original units, use the standard deviation, which is the square root of the variance. d. both (a) and (c). * e. both (b) and (c). _____6. An individual who is risk averse: a. Never takes risks. b. Accepts risk but only when the expected return is very large. * c. Requires additional compensation when the risk increases.

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1299076188159_Eco412_quiz3and4_fa10 - NOTE Quizzes 3 and 4...

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