Question 1

Which of the following is correct?

Accepted Answer

A)   Risk-averse people will not hold stock.
B)   Diversification cannot reduce firm-specific risk.
C)   The larger the percentage of stock in a portfolio,the greater the risk,but the greater the average return.
D)   Stock prices are determined by fundamental analysis rather than by supply and demand.E) All of the above
F) None of the above

Question 2

An asset market is said to experience a speculative bubble when

Accepted Answer

A)   the price of the asset rises above what appears to be its fundamental value.
B)   the price of the asset appears to follow a random walk.
C)   the market cannot establish an equilibrium price for the asset.
D)   the asset is a natural resource and its supply is manipulated by foreign nations and foreign firms.E) B) and D)
F) A) and B)

Question 3

Suppose you put $350 into a bank account today.Interest is paid annually and the annual interest rate is 6 percent.The future value of the $350 after 4 years is

Accepted Answer

A)   $414.09.
B)   $434.00.
C)   $441.87.
D)   $481.24.E) All of the above
F) C) and D)

Question 4

Historically the return on stocks has been higher than the return on bonds.In part this reflects the higher risk from holding stock.

Accepted Answer

A) True 
 B)False

Question 5

Which,if any,of the present values below are correctly computed?

Accepted Answer

A)   A payment of $1,000 to be received one year from today,with a 8 percent interest rate,has a present value of $945.45.
B)   A payment of $1,000 to be received one year from today,with a 9 percent interest rate,has a present value of $911.11.
C)   A payment of $1,000 to be received one year from today,with a 10 percent interest rate,has a present value of $905.06.
D)   None of the above are correct to the nearest cent.E) None of the above
F) A) and C) D

Question 6

Figure 14-4.The figure shows a utility function for Dexter. 
-Refer to Figure 14-4.Suppose the vertical distance between the points (0,A) and (0,B) is 12.If his wealth increased from $1,300 to $1,800,then

Accepted Answer

A)   Dexter's subjective measure of his well-being would increase by less than 12 units.
B)   Dexter's subjective measure of his well-being would increase by more than 12 units.
C)   Dexter would change from being a risk-averse person into a person who is not risk averse.
D)   Dexter would forgo the insurance he bought when his wealth was $1,300.E) A) and B)
F) A) and C)

Question 7

By holding insurance a person

Accepted Answer

A)   reduces the risk of a bad outcome,such as their house burning down.
B)   shares risk and so reduces the burden of risk.
C)   Both A and B are correct.
D)   Neither A nor B are correct.E) B) and C)
F) None of the above

Question 8

Available evidence indicates that stock prices,even if not exactly a random walk,are very close to a random walk.

Accepted Answer

A) True 
 B)False  True

Question 9

You are expecting to receive $3,500 at some time in the future.Which of the following would unambiguously increase the present value of this future payment?

Accepted Answer

A)   Interest rates rise and you get the payment sooner.
B)   Interest rates rise and you have to wait longer for the payment.
C)   Interest rates fall and you get the payment sooner.
D)   Interest rates fall and you have to wait longer to get the payment.E) C) and D)
F) A) and C) C

Question 10

You could borrow $2,000 today from Bank A and repay the loan,with interest,by paying Bank A $2,170 one year from today.Or,you could borrow X dollars today from Bank B and repay the loan,with interest,by paying Bank B $2,712.50 one year from today.In order for the same interest rate to apply to the two loans,X =

Accepted Answer

A)   $2,366.67.
B)   $2,450.00.
C)   $2,500.00.
D)   $2,525.50.E) B) and C)
F) A) and D)

Question 11

Which of the following actions best illustrates adverse selection?

Accepted Answer

A)   A person purposely chooses bonds of corporations with high default risk because of the high returns.
B)   A person dislikes losing $400 more than he likes winning $400.
C)   After obtaining automobile insurance a person drives less carefully than before.
D)   A person intending to take up dangerous hobbies applies for life insurance.E) A) and D)
F) A) and C)

Question 12

The market for insurance is an example of diversification.

Accepted Answer

A) True 
 B)False

Question 13

Of the following interest rates,which is the highest one at which the present value of $200 ten years from today is greater than $150?

Accepted Answer

A)   2 percent
B)   4 percent
C)   6 percent
D)   8 percentE) A) and B)
F) A) and C)

Question 14

$550 two years from today. Which of the following is correct?

Accepted Answer

A)   1 has the lowest present value and 3 has the highest.
B)   2 has the lowest present value and 1 has the highest.
C)   3 has the lowest present value and 2 has the highest.
D)   None of the above is correct.E) None of the above
F) A) and D)

Question 15

Phillip is a mortgage broker,who is paid by commission.When interest rates decline,he does a lot of business and earns a lot of money,as more people buy houses or refinance their mortgages.But when interest rates rise,business falls substantially.To diversify,Phillip should choose investments that

Accepted Answer

A)   provide a higher return than the market average.
B)   provide a lower return than the market average.
C)   pay higher returns when interest rates rise and lower returns when interest rates fall.
D)   pay lower returns when interest rates rise and higher returns when interest rates fall.E) None of the above
F) A) and C)

Question 16

What does "random walk" mean? According to the efficient markets hypothesis,should stock prices follow a random walk?

Accepted Answer

A random walk means the path of a variab...

Question 17

If you wish to rely on fundamental analysis to choose a portfolio of stocks,then you have no choice but to do all the necessary research yourself.

Accepted Answer

A) True 
 B)False

Question 18

A risk-averse person has

Accepted Answer

A)   a utility function whose slope gets flatter as wealth rises.This means they have increasing marginal utility of wealth.
B)   a utility function whose slope gets flatter as wealth rises.This means they have diminishing marginal utility of wealth.
C)   a utility function whose slope gets steeper as wealth rises.This means they have increasing marginal utility of wealth.
D)   a utility function whose slope gets steeper as wealth rises.This means they have diminishing utility of wealth.E) A) and B)
F) None of the above

Question 19

Recently,Lisa's wealth increased by $500.If her wealth were to increase by another $500 in the near future,then her utility would increase,but not by as much as it increased with the recent increase to her wealth.Based on this information,Lisa's utility function

Accepted Answer

A)   and marginal utility function are both upward sloping.
B)   and marginal utility function are both downward sloping.
C)   is upward sloping and her marginal utility function is downward sloping.
D)   is downward sloping and her marginal utility function is upward sloping.E) A) and D)
F) A) and C)

Question 20

A high-ranking corporate official of a well-known company is unexpectedly sentenced to prison for criminal activity in trading stocks.This should

Accepted Answer

A)   raise the price and raise the present value of the corporation's stock.
B)   raise the price and lower the present value of the corporation's stock.
C)   lower the price and raise the present value of the corporation's stock.
D)   lower the price and lower the present value of the corporation's stock.E) A) and C)
F) B) and C)

Exam 27: The Basic Tools of Finance

Which of the following is correct?

Correct Answer
verified

An asset market is said to experience a speculative bubble when

Correct Answer
verified

Suppose you put $350 into a bank account today.Interest is paid annually and the annual interest rate is 6 percent.The future value of the $350 after 4 years is

Correct Answer
verified

Historically the return on stocks has been higher than the return on bonds.In part this reflects the higher risk from holding stock.

Correct Answer
verified

Which,if any,of the present values below are correctly computed?

Correct Answer
verified
D

Figure 14-4.The figure shows a utility function for Dexter. -Refer to Figure 14-4.Suppose the vertical distance between the points (0,A) and (0,B) is 12.If his wealth increased from $1,300 to $1,800,then

Correct Answer
verified

By holding insurance a person

Correct Answer
verified

Available evidence indicates that stock prices,even if not exactly a random walk,are very close to a random walk.

Correct Answer
verified
True

You are expecting to receive $3,500 at some time in the future.Which of the following would unambiguously increase the present value of this future payment?

Correct Answer
verified
C

Correct Answer
verified

Which of the following actions best illustrates adverse selection?

Correct Answer
verified

The market for insurance is an example of diversification.

Correct Answer
verified

Of the following interest rates,which is the highest one at which the present value of $200 ten years from today is greater than $150?

Correct Answer
verified

$550 two years from today. Which of the following is correct?

Correct Answer
verified

Phillip is a mortgage broker,who is paid by commission.When interest rates decline,he does a lot of business and earns a lot of money,as more people buy houses or refinance their mortgages.But when interest rates rise,business falls substantially.To diversify,Phillip should choose investments that

Correct Answer
verified

What does "random walk" mean? According to the efficient markets hypothesis,should stock prices follow a random walk?

Correct Answer
verified
A random walk means the path of a variab...
View Answer

If you wish to rely on fundamental analysis to choose a portfolio of stocks,then you have no choice but to do all the necessary research yourself.

Correct Answer
verified

A risk-averse person has

Correct Answer
verified

Recently,Lisa's wealth increased by $500.If her wealth were to increase by another $500 in the near future,then her utility would increase,but not by as much as it increased with the recent increase to her wealth.Based on this information,Lisa's utility function

Correct Answer
verified

A high-ranking corporate official of a well-known company is unexpectedly sentenced to prison for criminal activity in trading stocks.This should

Correct Answer
verified

Exam 27: The Basic Tools of Finance

Which of the following is correct?

Correct AnswerverifiedShow Answer

An asset market is said to experience a speculative bubble when

Correct AnswerverifiedShow Answer

Suppose you put $350 into a bank account today.Interest is paid annually and the annual interest rate is 6 percent.The future value of the $350 after 4 years is

Correct AnswerverifiedShow Answer

Historically the return on stocks has been higher than the return on bonds.In part this reflects the higher risk from holding stock.

Correct AnswerverifiedShow Answer

Which,if any,of the present values below are correctly computed?

Correct AnswerverifiedD

Figure 14-4.The figure shows a utility function for Dexter. -Refer to Figure 14-4.Suppose the vertical distance between the points (0,A) and (0,B) is 12.If his wealth increased from $1,300 to $1,800,then

Correct AnswerverifiedShow Answer

By holding insurance a person

Correct AnswerverifiedShow Answer

Available evidence indicates that stock prices,even if not exactly a random walk,are very close to a random walk.

Correct AnswerverifiedTrue

You are expecting to receive $3,500 at some time in the future.Which of the following would unambiguously increase the present value of this future payment?

Correct AnswerverifiedC

Correct AnswerverifiedShow Answer

Which of the following actions best illustrates adverse selection?

Correct AnswerverifiedShow Answer

The market for insurance is an example of diversification.

Correct AnswerverifiedShow Answer

Of the following interest rates,which is the highest one at which the present value of $200 ten years from today is greater than $150?

Correct AnswerverifiedShow Answer

$550 two years from today. Which of the following is correct?

Correct AnswerverifiedShow Answer

Phillip is a mortgage broker,who is paid by commission.When interest rates decline,he does a lot of business and earns a lot of money,as more people buy houses or refinance their mortgages.But when interest rates rise,business falls substantially.To diversify,Phillip should choose investments that

Correct AnswerverifiedShow Answer

What does "random walk" mean? According to the efficient markets hypothesis,should stock prices follow a random walk?

Correct AnswerverifiedA random walk means the path of a variab...View AnswerShow Answer

If you wish to rely on fundamental analysis to choose a portfolio of stocks,then you have no choice but to do all the necessary research yourself.

Correct AnswerverifiedShow Answer

A risk-averse person has

Correct AnswerverifiedShow Answer

Recently,Lisa's wealth increased by $500.If her wealth were to increase by another $500 in the near future,then her utility would increase,but not by as much as it increased with the recent increase to her wealth.Based on this information,Lisa's utility function

Correct AnswerverifiedShow Answer

A high-ranking corporate official of a well-known company is unexpectedly sentenced to prison for criminal activity in trading stocks.This should

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
D

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
True

Correct Answer
verified
C

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
A random walk means the path of a variab...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified