Accounting for inflation
1. Suppose a foundation invested 1000 dollars in the stock market in 1870. Accounting for inflation, what would
have been the dollar value of this investment in September 2019?
A. 2850 dollars. B. 7660 dollars. C. 19,500 dollars. D. 19,500,000 dollars.
2. Which of the following is an arbitrage opportunity?
A. Two stocks, one has expected return of 5%, the other 4%. B. The bank offers you a loan at 5% interest and a savings account that pays 4% interest. C. The bank offers you a loan at 4% interest and a savings account that pays 5% interest. D. For every $1 you deposit today, the bank offers to pay you $1 in a year if the economy is bad and $2 in a year if the economy is good.
3. Which of the following offers would a risk-averse investor find most valuable?
A. A coin toss that pays $1.50 on heads and $-0.50 on tails. B. A financial instrument that pays $0.75 if the investor still has a job tomorrow and $1.25 if the investor is unemployed. There is a 50% chance that the investor loses their job tomorrow. C. A coin toss that pays $2 on heads and $-2 on tails. D. A coin toss that pays $1 on heads and $-1 on tails.
4. Which of the following is not a real asset?
A. Human capital accumulated taking courses at NYU Stern. B. NYU classes website. C. A dollar bill. D. A gold coin.