Question 1

On May 25,1980 three pals graduated from high school,pooled together $3,000 and put the money into an account promising to pay 8% for the next 30 years.On May 25,2010 they withdrew all the money from the account.To the nearest dollar,how much did they withdraw?

Accepted Answer

A)   $25,962
B)   $27,297
C)   $30,188
D)   None of the above are correct to the nearest dollar.E) B) and C)
F) None of the above

Question 2

Diversification of a portfolio

Accepted Answer

A)   can eliminate market risk,but it cannot eliminate firm-specific risk.
B)   can eliminate firm-specific risk,but it cannot eliminate market risk.
C)   increases the portfolio's standard deviation.
D)   is not necessary for a person who is risk averse.E) B) and C)
F) A) and D)

Question 3

Write the formula to find the present value of $750 to be paid in 5 years if the interest rate is 3 percent.

Accepted Answer

The answer of Write the formula to find the present...

Question 4

Roger determines that if Aim Corporation has high revenues,then Zest Corporation will have low revenues,and that if Aim Corporation has low revenues,Zest Corporation will have high revenues.He buys stock in both corporations.

Accepted Answer

A)   He has reduced firm-specific risk but not market risk.
B)   He has reduced market risk,but not firm-specific risk.
C)   He had reduce both firm-specific risk and market risk.
D)   He has reduced neither firm-specific risk nor market risk.E) B) and D)
F) C) and D)

Question 5

What is the future value of $500 one year from today if the interest rate is 6 percent?

Accepted Answer

A)   $515
B)   $520
C)   $530
D)   None of the above is correct.E) C) and D)
F) A) and D)

Question 6

Compounding refers directly to

Accepted Answer

A)   finding the present value of a future sum of money.
B)   finding the future value of a present sum of money.
C)   changes in the interest rate over time on a bank account or a similar savings vehicle.
D)   interest being earned on previously-earned interest.E) A) and B)
F) B) and C)

Question 7

To diversify,a homeowner with a variable-rate mortgage should choose investments that

Accepted Answer

A)   pay higher returns when interest rates rise and lower returns when interest rates fall.
B)   pay lower returns when interest rates rise and higher returns when interest rates fall.
C)   provide a higher return than the market average.
D)   provide a lower return than the market average.E) B) and D)
F) C) and D)

Question 8

Figure 14-4.The figure shows a utility function for Dexter. 
-Refer to Figure 14-4.From the appearance of the graph,we know that

Accepted Answer

A)   Dexter's level of satisfaction increases by more when his wealth increases from $1,001 to $1,002 than it does when his wealth increases from $1,000 to $1,001.
B)   Dexter's level of satisfaction increases by less when his wealth increases from $1,001 to $1,002 than it does when his wealth increases from $1,000 to $1,001.
C)   Dexter's level of satisfaction increases by the same amount when his wealth increases from $1,001 to $1,002 as it does when his wealth increases from $1,000 to $1,001.
D)   None of the above answers can be inferred from the appearance of the utility function.E) A) and D)
F) B) and C)

Question 9

At an annual interest rate of 10 percent,about how many years will it take $100 to double in value?

Accepted Answer

A)   5
B)   7
C)   9
D)   11E) None of the above
F) All of the above

Question 10

How does moral hazard matter in the market for insurance?

Accepted Answer

Once people have ins...

Question 11

Eloise deposits $250 into an account and one year later has $272.50.What interest rate was paid on Eloise's deposit?

Accepted Answer

A)   8 percent
B)   9 percent
C)   10 percent
D)   None of the above is correct.E) A) and B)
F) A) and C)

Question 12

Rita puts $10,000 into each of two different assets.The first asset pays 10 percent interest and the second pays 5 percent.According to the rule of 70,what is the approximate difference in the value of the two assets after 14 years?

Accepted Answer

A)   $12,000
B)   $14,000
C)   $15,500
D)   $20,000E) All of the above
F) A) and C)

Question 13

Discounting refers directly to

Accepted Answer

A)   finding the present value of a future sum of money.
B)   finding the future value of a present sum of money.
C)   calculations that ignore the phenomenon of compounding for the sake of ease and simplicity.
D)   decreases in interest rates over time,while compounding refers to increases in interest rates over time.E) B) and D)
F) A) and C)

Question 14

Svetlana is risk averse.Which of the following is correct about Svetlana?

Accepted Answer

A)   Her marginal utility of wealth increases as her income increases.
B)   She will always accept a bet if the probability of winning a dollar is the same as the probability of losing a dollar.
C)   Her utility function is a straight line.
D)   None of the above are correct.E) All of the above
F) None of the above

Question 15

Sage decides to cash in all his savings to open a recording studio.He has three accounts to cash in.The first earned 9 percent for two years.The second earned 6 percent for three years.And the last earned 3 percent for six years.Supposing he started with $5,000 in each account,from which account will he get the most cash?

Accepted Answer

A)   the two-year account at 9 percent
B)   the three-year account at 6 percent
C)   the six-year account at 3 percent
D)   The accounts are all worth the same.E) B) and C)
F) None of the above

Question 16

According to the efficient market hypothesis

Accepted Answer

A)   changes in the prices of stocks are predictable.Evidence shows that managed funds typically do better than indexed funds.
B)   changes in the prices of stocks are predictable.Evidence shows that indexed funds typically do better than managed funds.
C)   changes in the prices of stocks are not predictable.Evidence shows that managed funds typically do better than indexed funds.
D)   changes in the prices of stocks are not predictable.Evidence shows that indexed funds typically do better than managed funds.E) B) and C)
F) All of the above

Question 17

As the interest rate increases,what happens to the present value of a future payment? Explain why changes in the interest rate will lead to changes in the quantity of loanable funds demanded and investment spending.

Accepted Answer

An increase in the interest rate reduces...

Question 18

Fundamental analysis determines the value of a stock based on

Accepted Answer

A)   dividends.
B)   the expected final sale price.
C)   the ability of the corporation to earn profits.
D)   All of the above are correct.E) B) and D)
F) All of the above

Question 19

Which of the following actions best illustrates adverse selection?

Accepted Answer

A)   A person adds risky stock to his portfolio.
B)   A person who has narrowly avoided many accidents applies for automobile insurance.
C)   A person is unwilling to buy a stock when she believes its price has an equal chance of rising or falling $10.
D)   A person purchases homeowners insurance and then checks his smoke detector batteries less frequently.E) All of the above
F) None of the above

Question 20

You put $150 in the bank two years ago and forgot about it.The bank sends you a notice that you now have $169.34 in your account.What interest rate did you earn?

Accepted Answer

A)   5.50 percent
B)   5.65 percent
C)   6.25 percent
D)   7.05 percentE) A) and B)
F) A) and C)

Exam 27: The Basic Tools of Finance

Which of the following actions best illustrates adverse selection?

Correct Answer
verified

On May 25,1980 three pals graduated from high school,pooled together $3,000 and put the money into an account promising to pay 8% for the next 30 years.On May 25,2010 they withdrew all the money from the account.To the nearest dollar,how much did they withdraw?

Correct Answer
verified

Discounting refers directly to

Correct Answer
verified

Correct Answer
verified

Fundamental analysis determines the value of a stock based on

Correct Answer
verified

Write the formula to find the present value of $750 to be paid in 5 years if the interest rate is 3 percent.

Correct Answer
verified

Figure 14-4.The figure shows a utility function for Dexter. -Refer to Figure 14-4.From the appearance of the graph,we know that

Correct Answer
verified

To diversify,a homeowner with a variable-rate mortgage should choose investments that

Correct Answer
verified

Roger determines that if Aim Corporation has high revenues,then Zest Corporation will have low revenues,and that if Aim Corporation has low revenues,Zest Corporation will have high revenues.He buys stock in both corporations.

Correct Answer
verified

You put $150 in the bank two years ago and forgot about it.The bank sends you a notice that you now have $169.34 in your account.What interest rate did you earn?

Correct Answer
verified

Svetlana is risk averse.Which of the following is correct about Svetlana?

Correct Answer
verified

How does moral hazard matter in the market for insurance?

Correct Answer
verified
Once people have ins...
View Answer

Compounding refers directly to

Correct Answer
verified

Rita puts $10,000 into each of two different assets.The first asset pays 10 percent interest and the second pays 5 percent.According to the rule of 70,what is the approximate difference in the value of the two assets after 14 years?

Correct Answer
verified

According to the efficient market hypothesis

Correct Answer
verified

At an annual interest rate of 10 percent,about how many years will it take $100 to double in value?

Correct Answer
verified

What is the future value of $500 one year from today if the interest rate is 6 percent?

Correct Answer
verified

Diversification of a portfolio

Correct Answer
verified

Eloise deposits $250 into an account and one year later has $272.50.What interest rate was paid on Eloise's deposit?

Correct Answer
verified

As the interest rate increases,what happens to the present value of a future payment? Explain why changes in the interest rate will lead to changes in the quantity of loanable funds demanded and investment spending.

Correct Answer
verified
An increase in the interest rate reduces...
View Answer

Exam 27: The Basic Tools of Finance

Which of the following actions best illustrates adverse selection?

Correct AnswerverifiedShow Answer

On May 25,1980 three pals graduated from high school,pooled together $3,000 and put the money into an account promising to pay 8% for the next 30 years.On May 25,2010 they withdrew all the money from the account.To the nearest dollar,how much did they withdraw?

Correct AnswerverifiedShow Answer

Discounting refers directly to

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Fundamental analysis determines the value of a stock based on

Correct AnswerverifiedShow Answer

Write the formula to find the present value of $750 to be paid in 5 years if the interest rate is 3 percent.

Correct AnswerverifiedShow Answer

Figure 14-4.The figure shows a utility function for Dexter. -Refer to Figure 14-4.From the appearance of the graph,we know that

Correct AnswerverifiedShow Answer

To diversify,a homeowner with a variable-rate mortgage should choose investments that

Correct AnswerverifiedShow Answer

Roger determines that if Aim Corporation has high revenues,then Zest Corporation will have low revenues,and that if Aim Corporation has low revenues,Zest Corporation will have high revenues.He buys stock in both corporations.

Correct AnswerverifiedShow Answer

You put $150 in the bank two years ago and forgot about it.The bank sends you a notice that you now have $169.34 in your account.What interest rate did you earn?

Correct AnswerverifiedShow Answer

Svetlana is risk averse.Which of the following is correct about Svetlana?

Correct AnswerverifiedShow Answer

How does moral hazard matter in the market for insurance?

Correct AnswerverifiedOnce people have ins...View AnswerShow Answer

Compounding refers directly to

Correct AnswerverifiedShow Answer

Rita puts $10,000 into each of two different assets.The first asset pays 10 percent interest and the second pays 5 percent.According to the rule of 70,what is the approximate difference in the value of the two assets after 14 years?

Correct AnswerverifiedShow Answer

According to the efficient market hypothesis

Correct AnswerverifiedShow Answer

At an annual interest rate of 10 percent,about how many years will it take $100 to double in value?

Correct AnswerverifiedShow Answer

What is the future value of $500 one year from today if the interest rate is 6 percent?

Correct AnswerverifiedShow Answer

Diversification of a portfolio

Correct AnswerverifiedShow Answer

Eloise deposits $250 into an account and one year later has $272.50.What interest rate was paid on Eloise's deposit?

Correct AnswerverifiedShow Answer

As the interest rate increases,what happens to the present value of a future payment? Explain why changes in the interest rate will lead to changes in the quantity of loanable funds demanded and investment spending.

Correct AnswerverifiedAn increase in the interest rate reduces...View AnswerShow Answer

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Correct Answer
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Correct Answer
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Once people have ins...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
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Correct Answer
verified
An increase in the interest rate reduces...
View Answer