Question 1

You are expecting to receive $750 at some time in the future. Which of the following would unambiguously decrease 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) A) and B)
F) A) and C)

Question 2

In the 15 years ending February 2016, most active portfolio managers failed to beat the market.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following is the correct way to compute the future value of $X that earns r percent interest for N years?

Accepted Answer

A)  $X(1 + rN) N
B)  $X(1 + r) N
C)  $X(1 + rN) 
D)  $X(1 + r/N) NE) All of the above
F) C) and D)

Question 4

Thompson Corporation is considering the purchase of a new piece of machinery. Thompson expects the new machinery to increase its revenues by $70,000 at the end of year 1, $60,000 at the end of year 2, and $50,000 at the end of year 3 at which point the machinery will have exhausted its useful life. If the interest rate is 4%, what is the most Thompson should be willing to pay today for this piece of machinery?

Accepted Answer

The present value of the futur...

Question 5

A company has an investment project that will cost $2 million today and yield a payoff of $3 million in 5 years. What interest rate represents the cutoff between profitability and nonprofitability for this project?

Accepted Answer

The present value of the futur...

Question 6

Which of the following has a present value of $100?

Accepted Answer

A)  $109.12 in two years when the interest rate is 4 percent
B)  $113.98 in two years when the interest rate is 6 percent
C)  $116.64 in two years when the interest rate is 8 percent
D)  $123.17 in two years when the interest rate is 10 percentE) A) and B)
F) C) and D)

Question 7

Suppose you put $500 into a bank account today. Interest is paid annually and the annual interest rate is 5.5 percent. The future value of the $500 is

Accepted Answer

A)  $637.50 after 5 years and $822.09 after 10 years.
B)  $637.50 after 5 years and $775.00 after 10 years.
C)  $653.48 after 5 years and $854.07 after 10 years.
D)  $688.36 after 5 years and $915.56 after 10 years.E) C) and D)
F) B) and C)

Question 8

A judge requires Harry to make a payment to Sally. The judge says that Harry can pay her either $10,000 today or $12,000 two years from today. Of the following interest rates, which is the highest one at which Harry would be better off paying the money today?

Accepted Answer

A)  4 percent
B)  6 percent
C)  9 percent
D)  11 percentE) A) and D)
F) C) and D)

Question 9

​Suppose you have a choice between receiving a lump-sum payment of $10,000 today or four annual payments of $2,750 (with the first payment one year from today) . Of the following, which is the lowest annual interest rate at which you would prefer the lump-sum payment over the four annual payments?

Accepted Answer

A)  2%
B)  ​5%
C)  ​7%
D)  ​10%E) All of the above
F) A) and B)

Question 10

If the interest rate is 5 percent, then what is the present value of $2,000 to be received in three years?

Accepted Answer

The presen...

Question 11

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) All of the above
F) C) and D)

Question 12

David's Utility Function  If David's current wealth is $61,000, then

Accepted Answer

A)  his gain in utility from gaining $1,000 is less than his loss in utility from losing $1,000. David is risk averse.
B)  his gain in utility from gaining $1,000 is less than his loss in utility from losing $1,000. David is not risk averse.
C)  his gain in utility from gaining $1,000 is greater than his loss in utility from losing $1,000. David is risk averse.
D)  his gain in utility from gaining $1,000 is greater than his loss in utility from losing $1,000. David is not risk averse.E) B) and C)
F) C) and D)

Question 13

What is the present value of a payment of $2,000 to be received two years from today if the interest rate is 5%?

Accepted Answer

A)  $2205
B)  $2200
C)  $1818.18
D)  $1814.06E) A) and B)
F) A) and C)

Question 14

Imagine that two years ago you inherited $20,000 and put it into an account paying a fixed 8 percent annual interest rate. How much money do you have in your account now?

Accepted Answer

A)  $22,880.00
B)  $23,200.00
C)  $23,232.00
D)  $23,328.00E) A) and D)
F) B) and C)

Question 15

Fundamental analysis shows that stock in Widgets-R-Us has a present value that is lower than its price.

Accepted Answer

A)  This stock is overvalued; you should consider adding it to your portfolio.
B)  This stock is overvalued; you shouldn't consider adding it to your portfolio.
C)  This stock is undervalued; you should consider adding it to your portfolio.
D)  This stock is undervalued; you shouldn't consider adding it to your portfolio.E) None of the above
F) A) and C)

Question 16

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) A) and D)
F) B) and C)

Question 17

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) A) and B)
F) None of the above

Question 18

At an annual interest rate of 14 percent, about how many years will it take $100 to double in value?

Accepted Answer

A)  3
B)  4
C)  5
D)  7E) B) and D)
F) A) and B)

Question 19

Fundamental analysis is

Accepted Answer

A)  the study of the relation between risk and return of stock portfolios.
B)  the determination of the allocation of savings between stocks and bonds based on a person's degree of risk aversion.
C)  the study of a company's accounting statements and future prospects to determine its value.
D)  a method used to determine how adding stocks to a portfolio will change the risk of the portfolio.E) B) and D)
F) B) and C)

Question 20

Which of the following is the correct way to compute the future value of $100 put into an account that earns 4 percent interest for 10 years?

Accepted Answer

A)  $100(1 + .0410) 
B)  $100(1 + .04 10)  
B)  $100(1 + .04   10)  
C)  $100 × 10   (1 + .04)  
D)  $100(1 + .04) 10" class="answers-bank-image d-inline" rel="preload" > 10) 
C)  $100 × 10 10)  
B)  $100(1 + .04   10)  
C)  $100 × 10   (1 + .04)  
D)  $100(1 + .04) 10" class="answers-bank-image d-inline" rel="preload" > (1 + .04) 
D)  $100(1 + .04) 10E) A) and B)
F) C) and D)

Exam 27: Tools of Finance

A company has an investment project that will cost $2 million today and yield a payoff of $3 million in 5 years. What interest rate represents the cutoff between profitability and nonprofitability for this project?

Correct Answer
verified
The present value of the futur...
View Answer

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

Correct Answer
verified

Suppose you put $500 into a bank account today. Interest is paid annually and the annual interest rate is 5.5 percent. The future value of the $500 is

Correct Answer
verified

David's Utility Function If David's current wealth is $61,000, then

Correct Answer
verified

At an annual interest rate of 14 percent, about how many years will it take $100 to double in value?

Correct Answer
verified

You are expecting to receive $750 at some time in the future. Which of the following would unambiguously decrease the present value of this future payment?

Correct Answer
verified

Which of the following has a present value of $100?

Correct Answer
verified

Imagine that two years ago you inherited $20,000 and put it into an account paying a fixed 8 percent annual interest rate. How much money do you have in your account now?

Correct Answer
verified

Fundamental analysis is

Correct Answer
verified

Correct Answer
verified
The present value of the futur...
View Answer

Fundamental analysis shows that stock in Widgets-R-Us has a present value that is lower than its price.

Correct Answer
verified

Which of the following is the correct way to compute the future value of $X that earns r percent interest for N years?

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

Suppose you have a choice between receiving a lump-sum payment of $10,000 today or four annual payments of $2,750 (with the first payment one year from today) . Of the following, which is the lowest annual interest rate at which you would prefer the lump-sum payment over the four annual payments?

Correct Answer
verified

Correct Answer
verified

If the interest rate is 5 percent, then what is the present value of $2,000 to be received in three years?

Correct Answer
verified
The presen...
View Answer

Which of the following is the correct way to compute the future value of $100 put into an account that earns 4 percent interest for 10 years?

Correct Answer
verified

A judge requires Harry to make a payment to Sally. The judge says that Harry can pay her either $10,000 today or $12,000 two years from today. Of the following interest rates, which is the highest one at which Harry would be better off paying the money today?

Correct Answer
verified

What is the present value of a payment of $2,000 to be received two years from today if the interest rate is 5%?

Correct Answer
verified

In the 15 years ending February 2016, most active portfolio managers failed to beat the market.

Correct Answer
verified

Exam 27: Tools of Finance

A company has an investment project that will cost $2 million today and yield a payoff of $3 million in 5 years. What interest rate represents the cutoff between profitability and nonprofitability for this project?

Correct AnswerverifiedThe present value of the futur...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

Suppose you put $500 into a bank account today. Interest is paid annually and the annual interest rate is 5.5 percent. The future value of the $500 is

Correct AnswerverifiedShow Answer

David's Utility Function If David's current wealth is $61,000, then

Correct AnswerverifiedShow Answer

At an annual interest rate of 14 percent, about how many years will it take $100 to double in value?

Correct AnswerverifiedShow Answer

You are expecting to receive $750 at some time in the future. Which of the following would unambiguously decrease the present value of this future payment?

Correct AnswerverifiedShow Answer

Which of the following has a present value of $100?

Correct AnswerverifiedShow Answer

Imagine that two years ago you inherited $20,000 and put it into an account paying a fixed 8 percent annual interest rate. How much money do you have in your account now?

Correct AnswerverifiedShow Answer

Fundamental analysis is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe present value of the futur...View AnswerShow Answer

Fundamental analysis shows that stock in Widgets-R-Us has a present value that is lower than its price.

Correct AnswerverifiedShow Answer

Which of the following is the correct way to compute the future value of $X that earns r percent interest for N years?

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If the interest rate is 5 percent, then what is the present value of $2,000 to be received in three years?

Correct AnswerverifiedThe presen...View AnswerShow Answer

Which of the following is the correct way to compute the future value of $100 put into an account that earns 4 percent interest for 10 years?

Correct AnswerverifiedShow Answer

A judge requires Harry to make a payment to Sally. The judge says that Harry can pay her either $10,000 today or $12,000 two years from today. Of the following interest rates, which is the highest one at which Harry would be better off paying the money today?

Correct AnswerverifiedShow Answer

What is the present value of a payment of $2,000 to be received two years from today if the interest rate is 5%?

Correct AnswerverifiedShow Answer

In the 15 years ending February 2016, most active portfolio managers failed to beat the market.

Correct AnswerverifiedShow Answer

Correct Answer
verified
The present value of the futur...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

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
The present value of the futur...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The presen...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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