Quiz 2011-2 Term 1 answers

Quiz 2011-2 Term 1 answers - ECO 3420A Financial Economics...

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Financial Economics -- Answers Midterm Quiz (2011-12 Term 1) (Closed-Book) Time allowed = 40 minutes. Answer all eight questions. Section 1 Multiple Choice (Eleven questions, 5 marks each. Choose the best option and indicate it in the space provided.) v.1 1. Which of the following statements is not true in a riskless consumption- investment equilibrium? A. All projects with positive NPV at the market interest rate is accepted B. The agent may end up being a net borrower or lender C. The investment decisions of different agents depend on indifference curves D. Present value wealth is maximized. E. None of the above Answer: __ C__ 2. Suppose you are faced with an investment project that gives a certain stream of future earnings. The stream is +10 at the end of one year, -5 at the end of two years, and +20 at the end of three years. What is the maximum amount that you are willing to pay for this project if your cost of capital is 5%? A. 20.374 B. 18.265 C. 24.597 D. 22.265 E. None of the above Answer: __ D___ 3. A risk averse investor ranks portfolio A over portfolio B. Which of the following statement(s) may be true descriptions of A and B? a. A first order stochastically dominates B b. A second order stochastically dominates B c. A has a higher mean than B d. A has a higher variance than B A. a only B. b only C. a and b D. a, b, and c E. a, c, and d Answer: __ C___ 4. Which of the following statements is not true at a Markowitz equilibrium? A. The optimal portfolio must be inside the efficient set B. Investors who are relatively more risk averse prefer portfolios with lower risks and lower returns C. Investors may not be well diversified. D. All investors have the same marginal rate of substitution between
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This note was uploaded on 03/03/2012 for the course ECON 3420 taught by Professor Kwong during the Spring '11 term at CUHK.

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Quiz 2011-2 Term 1 answers - ECO 3420A Financial Economics...

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