Answer the following statements true (T) or false (F)
1. Arbitrage refers to the buying and selling activities that cause an equalization of the rates of return on assets that have substantially different characteristics.
2. If investors have two identical assets that have different rates of return, the investors will sell the asset with the higher rate of return to buy the asset with the lower rate of return.
3. Arbitrage activities will make the price of the asset with the higher initial return increase, while the price of the asset with the lower return will decrease.
4. Risk in financial economics refers mainly to the chance that an investment could lose value.
5. Diversification is an investment strategy that seeks to reduce the overall risk in an investment portfolio by selecting a group of assets whose risks differ from one another.
1. FALSE
2. FALSE
3. TRUE
4. FALSE
5. TRUE
You might also like to view...
When the LM curve is vertical,
A) fiscal policy has no impact on equilibrium income. B) fiscal policy has no impact on the equilibrium interest rate. C) the economy is at full employment. D) monetary policy has no impact on equilibrium income.
The profit-maximizing output for the perfectly competitive firm occurs at the point at which
A) TR - MR is at a maximum. B) TR - TC is at a minimum. C) MR = MC. D) TR - ATC is at a maximum.
Which of the following goods are not close substitutes?
a. Peanut butter and jelly b. Margarine and butter c. Tea and coffee d. Beef and chicken
Exhibit 6-3 Unemployment categories CategoryWorkers Frictional unemployment250 Structural unemployment350 Cyclical unemployment600 Discouraged workers400 Underemployment450 According to data in Exhibit 6-3 and assuming the total number of workers is 8,400, the unemployment rate is:
A. 5 percent. B. 15 percent. C. 16 percent. D. 24 percent.