Question 1

You deposit $3,000 into an N-year certificate of deposit that pays 4.5 percent annual interest,and at the end of the N years you have $3,738.54.What is the number of years,N?

Accepted Answer

A)   4
B)   5
C)   6
D)   7E) All of the above
F) A) and B)

Question 2

Lucky Hardware Store considered building a store in a new location.The owners and their accountants decided that this was not the profitable thing to do.However,soon after they made this decision,both the interest rate and the cost of building the store changed.In which case do these changes both make it more likely that they will now build the store?

Accepted Answer

A)   Interest rates rise and the cost of building the store rises.
B)   Interest rates rise and the cost of building the store falls.
C)   Interest rates fall and the cost of building the store rises.
D)   Interest rates fall and the cost of building the store falls.E) All of the above
F) A) and B)

Question 3

Which of the following is correct?

Accepted Answer

A)   Managed funds typically have a higher return than indexed funds.This tends to refute the efficient market hypothesis.
B)   Managed funds typically have a higher return than indexed funds.This tends to support the efficient market hypothesis.
C)   Index funds typically have a higher rate of return than managed funds.This tends to refute the efficient market hypothesis.
D)   Index funds typically have a higher rate of return than managed funds.This tends to support the efficient market hypothesis.E) All of the above
F) B) and C)

Question 4

Which of the following is not correct?

Accepted Answer

A)   The higher average return on stocks than on bonds comes at the price of higher risk.
B)   Risk-averse persons will take the risks involved in holding stocks if the average return is high enough to compensate for the risk.
C)   Insurance markets reduce risk,but not by diversification.
D)   Risk can be reduced by placing a large number of small bets,rather than a small number of large bets.E) B) and D)
F) A) and B)

Question 5

Fundamental analysis shows that stock in "Night and Day" fitness centers has a price below its present value.

Accepted Answer

A)   This stock is undervalued;you should consider adding it to your portfolio.
B)   This stock is undervalued;you shouldn't consider adding it to your portfolio.
C)   This stock is overvalued;you should consider adding it to your portfolio.
D)   This stock is overvalued;you shouldn't consider adding it to your portfolio.E) B) and D)
F) B) and C)

Question 6

Lucretia puts $400 into an account when the interest rate is 10 percent.Later she checks her balance and finds it's worth about $708.62.How many years did she wait to check her balance?

Accepted Answer

A)   5 years
B)   6 years
C)   7 years
D)   8 yearsE) A) and B)
F) A) and C)

Question 7

The present value of a payment to be made in the future falls as

Accepted Answer

A)   the interest rate rises and the time until the payment is made increases.
B)   the interest rate rises and the time until the payment is made decreases.
C)   the interest rate falls and the time until the payment is made increases.
D)   the interest rate falls and the time until the payment is made decreases.E) A) and B)
F) C) and D)

Question 8

At which interest rate is the present value of $360 three years from today equal to about $310 today?

Accepted Answer

A)   4.7 percent
B)   5.1 percent
C)   5.5 percent
D)   5.9 percentE) None of the above
F) B) and D)

Question 9

Moral hazard is illustrated by people who take greater risks after they purchase insurance.

Accepted Answer

A) True 
 B)False

Question 10

Twenty years ago,Dr.Montgomery borrowed money from her parents to pay her tuition at graduate school.Now she wants to pay them back.She gives them double what they gave her.According to the rule of 70,what interest rate would have given her parents the same amount of money if they had put it in the bank rather than lending it to their daughter?

Accepted Answer

A)   3.5 percent
B)   4.5 percent
C)   5 percent
D)   7 percentE) All of the above
F) A) and B)

Question 11

Write the formula to find the present value of $x to be paid in n years.

Accepted Answer

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

Question 12

Hardwood Furniture Store considered building a store in a new location.The owners and their accountants decided that this was the profitable thing to do.However,soon after they made this decision,both the interest rate and the cost of building the store changed.In which case do these changes both make it less likely that they will now build the store?

Accepted Answer

A)   Interest rates rise and the cost of building the store rises.
B)   Interest rates rise and the cost of building the store falls.
C)   Interest rates fall and the cost of building the store rises.
D)   Interest rates fall and the cost of building the store falls.E) A) and D)
F) All of the above

Question 13

Give an example of adverse selection and an example of moral hazard using homeowners insurance.

Accepted Answer

An example of adverse selection is that ...

Question 14

Fundamental analysis shows that Moonlight Company is fairly valued.Then Moonlight Company unexpectedly improves its production techniques and unexpectedly hires a new CEO away from another very successful tea producer.Suppose this has no effect on the price of the stock of Moonlight Company.

Accepted Answer

A)   Fundamental analysis would now show the corporation is overvalued.The fact that the price was unchanged is consistent with the efficient markets hypothesis.
B)   Fundamental analysis would now show the corporation is overvalued.The fact that the price was unchanged is not consistent with the efficient markets hypothesis.
C)   Fundamental analysis would now show the corporation is undervalued.The fact that the price was unchanged is consistent with the efficient markets hypothesis.
D)   Fundamental analysis would now show the corporation is undervalued.The fact that the price was unchanged is not consistent with the efficient markets hypothesis.E) A) and B)
F) B) and D)

Question 15

Robert put $15,000 into an account with a fixed interest rate two years ago and now the account balance is $16,695.38.What rate of interest did Robert earn?

Accepted Answer

A)   4.5 percent
B)   5.5 percent
C)   6.5 percent
D)   8.0 percentE) A) and B)
F) A) and D)

Question 16

Which of the following is not correct?

Accepted Answer

A)   There is a greater reduction in risk by increasing the number of stocks in a portfolio from 1 to 10,than by increasing it from 100 to 120 stocks.
B)   The historical rate of return on stocks has been about 5 percentage points higher than the historical rate of return on bonds.
C)   Stock in an industry that is very sensitive to economic conditions is likely to have a higher average return than stock in an industry that is not so sensitive to economic conditions.
D)   If you had information about a corporation that no one else had,you could earn a very high rate of return.This contradicts the efficient market hypothesis.E) A) and D)
F) B) and C)

Question 17

Which of the following concepts is most helpful in explaining why investment increases when the interest rate falls?

Accepted Answer

A)   deadweight loss
B)   present value
C)   economic growth
D)   financial intermediationE) B) and C)
F) A) and D)

Question 18

A University of Iowa basketball standout is offered a choice of contracts by the New York Liberty.The first one gives her $100,000 one year from today and $100,000 two years from today.The second one gives her $132,000 one year from today and $66,000 two years from today.As her agent,you must compute the present value of each contract.Which of the following interest rates is the lowest one at which the present value of the second contract exceeds that of the first?

Accepted Answer

A)   7 percent
B)   8 percent
C)   9 percent
D)   10 percentE) All of the above
F) B) and D)

Question 19

What is the present value of a payment of $150 one year from today if the interest rate is 6 percent?

Accepted Answer

A)   $141.11
B)   $141.36
C)   $141.75
D)   None of the above are correct to the nearest cent.E) B) and C)
F) A) and B)

Question 20

A manufacturing company is thinking about building a new factory.The factory,if built,will yield the company $300 million in 7 years,and it would cost $220 million today to build.The company will decide to build the factory if the interest rate is

Accepted Answer

A)   no less than 4.53 percent.
B)   no greater than 4.53 percent.
C)   no less than 5.81 percent.
D)   no greater than 5.81 percent.E) None of the above
F) B) and C)

Exam 27: The Basic Tools of Finance

Moral hazard is illustrated by people who take greater risks after they purchase insurance.

Correct Answer
verified

You deposit $3,000 into an N-year certificate of deposit that pays 4.5 percent annual interest,and at the end of the N years you have $3,738.54.What is the number of years,N?

Correct Answer
verified

The present value of a payment to be made in the future falls as

Correct Answer
verified

A manufacturing company is thinking about building a new factory.The factory,if built,will yield the company $300 million in 7 years,and it would cost $220 million today to build.The company will decide to build the factory if the interest rate is

Correct Answer
verified

Which of the following is correct?

Correct Answer
verified

Fundamental analysis shows that stock in "Night and Day" fitness centers has a price below its present value.

Correct Answer
verified

Lucretia puts $400 into an account when the interest rate is 10 percent.Later she checks her balance and finds it's worth about $708.62.How many years did she wait to check her balance?

Correct Answer
verified

Robert put $15,000 into an account with a fixed interest rate two years ago and now the account balance is $16,695.38.What rate of interest did Robert earn?

Correct Answer
verified

Which of the following concepts is most helpful in explaining why investment increases when the interest rate falls?

Correct Answer
verified

Give an example of adverse selection and an example of moral hazard using homeowners insurance.

Correct Answer
verified
An example of adverse selection is that ...
View Answer

At which interest rate is the present value of $360 three years from today equal to about $310 today?

Correct Answer
verified

Fundamental analysis shows that Moonlight Company is fairly valued.Then Moonlight Company unexpectedly improves its production techniques and unexpectedly hires a new CEO away from another very successful tea producer.Suppose this has no effect on the price of the stock of Moonlight Company.

Correct Answer
verified

Correct Answer
verified

What is the present value of a payment of $150 one year from today if the interest rate is 6 percent?

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Which of the following is not correct?

Correct Answer
verified

Correct Answer
verified

Which of the following is not correct?

Correct Answer
verified

Write the formula to find the present value of $x to be paid in n years.

Correct Answer
verified

Exam 27: The Basic Tools of Finance

Moral hazard is illustrated by people who take greater risks after they purchase insurance.

Correct AnswerverifiedShow Answer

You deposit $3,000 into an N-year certificate of deposit that pays 4.5 percent annual interest,and at the end of the N years you have $3,738.54.What is the number of years,N?

Correct AnswerverifiedShow Answer

The present value of a payment to be made in the future falls as

Correct AnswerverifiedShow Answer

A manufacturing company is thinking about building a new factory.The factory,if built,will yield the company $300 million in 7 years,and it would cost $220 million today to build.The company will decide to build the factory if the interest rate is

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

Fundamental analysis shows that stock in "Night and Day" fitness centers has a price below its present value.

Correct AnswerverifiedShow Answer

Lucretia puts $400 into an account when the interest rate is 10 percent.Later she checks her balance and finds it's worth about $708.62.How many years did she wait to check her balance?

Correct AnswerverifiedShow Answer

Robert put $15,000 into an account with a fixed interest rate two years ago and now the account balance is $16,695.38.What rate of interest did Robert earn?

Correct AnswerverifiedShow Answer

Which of the following concepts is most helpful in explaining why investment increases when the interest rate falls?

Correct AnswerverifiedShow Answer

Give an example of adverse selection and an example of moral hazard using homeowners insurance.

Correct AnswerverifiedAn example of adverse selection is that ...View AnswerShow Answer

At which interest rate is the present value of $360 three years from today equal to about $310 today?

Correct AnswerverifiedShow Answer

Fundamental analysis shows that Moonlight Company is fairly valued.Then Moonlight Company unexpectedly improves its production techniques and unexpectedly hires a new CEO away from another very successful tea producer.Suppose this has no effect on the price of the stock of Moonlight Company.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

What is the present value of a payment of $150 one year from today if the interest rate is 6 percent?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is not correct?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is not correct?

Correct AnswerverifiedShow Answer

Write the formula to find the present value of $x to be paid in n years.

Correct AnswerverifiedShow Answer

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Correct Answer
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Correct Answer
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Correct Answer
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An example of adverse selection is that ...
View Answer

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Correct Answer
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