17. When the interest rate in an economy rises, the stock market typically reacts negatively.This is because(a) the future dividends companies provide to their investors are discounted more heav-ily.(b) the present values of the future dividends companies provide to their investorsdecrease.(e) investors sell their investments in the stock market and deposit the money intobanks.(d) All of the above are correct.18. Suppose that the interest rate is 8%. The sum of the present values of three paymentsof $500 to be received in 3 consecutive years is calculated as(a) 8500 x 1.08 x 3(b)S00(1.08)(1.081O8(c) 8500 x 1.08 + 8500 x (1.08)2 + 8500 x (1.08)3(d)x 31O819. When a person buys insurance, which of the following best describes the economictransaction?(a) The person donates money to the insurance company.(b) The insurance company pays the person to buy the risk, a desirable commodity,from him/her.(c) The person pays to sell the risk, an undesirable commodity, to the insurance com-рацу.(d) The person is more efficient than the insurance company in diversifying risk.20. Which of the following about investment diversification is true?(a) The risk of an investment portfolio decreases as the number of stocks in the portfolioincreases, until the risk (measured by standard deviation) is zero.(b) The diversification can reduce both systematic risk and unsystematic risk.(c) The diversification can reduce systematic risk but not unsystematic risk.(d) The diversification can reduce unsystematic risk but not systematic risk.

17. When the interest rate in the economy rises, it affects the stock market negatively because…

17. When the interest rate in an economy rises, the stock market typically reacts negatively. This is because (a) the future dividends companies provide to their investors are discounted more heav- ily. (b) the present values of the future dividends companies provide to their investors decrease. (c) investors sell their investments in the stock market and deposit the money into banks. (d) All of the above are correct.

17. When the interest rate in an economy rises, the stock market typically reacts negatively. This is because (a) the future dividends companies provide to their investors are discounted more heav- ily. (b) the present values of the future dividends companies provide to their investors decrease. (c) investors sell their investments in the stock market and deposit the money into banks. (d) All of the above are correct.

ECON MICRO

5th Edition

ISBN:9781337000536

Author:William A. McEachern

Publisher:William A. McEachern

Chapter13: Capital, Interest, Entrepreneurship, And Corporate Finance

Section: Chapter Questions

Problem 4.8P

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