Questions from General Economics

Q: What are mutual funds? What different types of mutual funds are

What are mutual funds? What different types of mutual funds are there? And why do you think they are so popular with investors?

Q: Corporations often distribute profits to their shareholders in the form of dividends

Corporations often distribute profits to their shareholders in the form of dividends, which are simply checks mailed out to shareholders. Suppose that you have the chance to buy a share in a fashion c...

Q: Why is it reasonable to ignore diversifiable risk and care only about

Why is it reasonable to ignore diversifiable risk and care only about nondiversifiable risk? What about investors who put all their money into only a single risky stock? Can they properly ignore diver...

Q: If we compare the betas of various investment opportunities, why do

If we compare the betas of various investment opportunities, why do the assets that have higher betas also have higher average expected rates of return?

Q: In this chapter we discussed short-term U.S.

In this chapter we discussed short-term U.S. government bonds. But the U.S. government also issues longer-term bonds with horizons of up to 30 years. Why do 20-year bonds issued by the U.S. government...

Q: What determines the vertical intercept of the Security Market Line (SML

What determines the vertical intercept of the Security Market Line (SML)? What determines its slope? And what will happen to an asset’s price if it initially plots onto a point above the SML?

Q: Suppose that the Federal Reserve thinks that a stock market bubble is

Suppose that the Federal Reserve thinks that a stock market bubble is occurring and wants to reduce stock prices. What should it do to interest rates?

Q: Consider another situation involving the SML. Suppose that the risk-

Consider another situation involving the SML. Suppose that the risk-free interest rate stays the same, but that investors’ dislike of risk grows more intense. Given this change, will average expected...

Q: Contrast the ideas of nominal GDP and real GDP. Why is

Contrast the ideas of nominal GDP and real GDP. Why is one more reliable than the other for comparing changes in the standard of living over a series of years? What is the GDP price index and what is...

Q: Why is it so hard for actively managed funds to generate higher

Why is it so hard for actively managed funds to generate higher rates of return than passively managed index funds having similar levels of risk? Is there a simple way for an actively managed fund to...