Question 1

Alice says that the present value of $700 to be received one year from today if the interest rate is 6 percent is less than the present value of $700 to be received two years from today if the interest rate is 3 percent.Beth says that $700 saved for one year at 6 percent interest has a smaller future value than $700 saved for two years at 3 percent interest.

Accepted Answer

A)   Both Alice and Beth are correct.
B)   Both Alice and Beth are incorrect.
C)   Only Alice is correct.
D)   Only Beth is correct.E) None of the above
F) A) and D)

Question 2

People who are risk averse dislike bad outcomes more than they like comparable good outcomes.

Accepted Answer

A) True 
 B)False

Question 3

An increase in the number of corporations in a portfolio from 1 to 10 reduces

Accepted Answer

A)   market risk by more than an increase from 110 to 120.
B)   market risk by less than an increase from 110 to 120.
C)   firm-specific risk by more than an increase from 110 to 120.
D)   firm-specific risk by less than an increase from 110 to 120.E) A) and B)
F) None of the above

Question 4

You are better off choosing $100 today rather than $200 in 9 years if the interest rate is

Accepted Answer

A)   lower than about 8 percent.
B)   higher than about 8 percent.
C)   lower than about 10 percent.
D)   higher than about 10 percent.E) None of the above
F) A) and D)

Question 5

If Robert is risk-averse,then he will always

Accepted Answer

A)   choose not to play a game where he has a 50 percent chance of winning $1 and a 50 percent chance of losing $1.
B)   choose not to play a game where he has a 75 percent chance of winning $1 and a 25 percent chance of losing $1.
C)   choose to play a game where he has a 52 percent chance of winning $1 and a 48 percent chance of losing $1.
D)   All of the above are correct.E) B) and C)
F) A) and D)

Question 6

Studies find that mutual fund managers who do well in one year are likely to do well the next year.

Accepted Answer

A) True 
 B)False

Question 7

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

Question 8

The word "efficient" in the term "efficient markets hypothesis" refers to the idea that

Accepted Answer

A)   fundamental analysis is an efficient way to go about choosing which stocks to buy or sell.
B)   stock prices move upward and downward "efficiently," rather than following a "random walk."
C)   the stock market is "informationally efficient."
D)   All of the above are correct.E) A) and B)
F) A) and C)

Question 9

In the 15 years ending June 2010,most active portfolio managers failed to beat the market.

Accepted Answer

A) True 
 B)False

Question 10

At which interest rate is the present value of $79.50 one year from today equal to $75 today?

Accepted Answer

A)   4 percent
B)   5 percent
C)   6 percent
D)   7 percentE) A) and D)
F) C) and D)

Question 11

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 12

Three people go to the bank to cash in their accounts.Amy had her money in an account for 25 years at 4 percent interest.Bill had his money in an account for 20 years at 5 percent interest.Celia had her money in an account for 5 years at 20 percent interest.If each of them originally deposited $500 in their accounts,which of them gets the most money when they cash in their accounts?

Accepted Answer

A)   Amy
B)   Bill
C)   Celia
D)   They each get the same amount.E) All of the above
F) B) and C)

Question 13

Other things the same,an increase in the interest rate makes the quantity of loanable funds demanded

Accepted Answer

A)   rise,and investment spending rise.
B)   rise,and investment spending fall.
C)   fall,and investment spending rise.
D)   fall,and investment spending fall.E) A) and B)
F) A) and C)

Question 14

Braden says that $400 saved for one year at 4 percent interest has a smaller future value than $400 saved for two years at 2 percent interest.Lefty says that the present value of $400 to be received one year from today if the interest rate is 4 percent exceeds the present value of $400 to be received two years from today if the interest rate is 2 percent.

Accepted Answer

A)   Braden and Lefty are both correct.
B)   Braden and Lefty are both incorrect.
C)   Only Braden is correct.
D)   Only Lefty is correct.E) C) and D)
F) B) and C)

Question 15

Which of the following pairs of portfolios exemplifies the risk-return tradeoff?

Accepted Answer

A)   For Portfolio A,the average return is 6 percent and the standard deviation is 15 percent; for Portfolio B,the average return is 6 percent and the standard deviation is 25 percent.
B)   For Portfolio A,the average return is 5 percent and the standard deviation is 15 percent; for Portfolio B,the average return is 8 percent and the standard deviation is 15 percent.
C)   For Portfolio A,the average return is 5 percent and the standard deviation is 25 percent; for Portfolio B,the average return is 8 percent and the standard deviation is 15 percent.
D)   For Portfolio A,the average return is 5 percent and the standard deviation is 15 percent; for Portfolio B,the average return is 8 percent and the standard deviation is 25 percent.E) B) and D)
F) B) and C)

Question 16

Samantha holds stocks in four companies.If she adds stocks of several more companies she will decrease

Accepted Answer

A)   firm specific risk and market risk.
B)   firm specific risk but not market risk.
C)   market risk but not firm specific risk.
D)   neither firm specific nor market risk.E) A) and B)
F) All of the above

Question 17

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) None of the above

Question 18

At an annual interest rate of 20 percent,about how many years will it take $100 to triple in value?

Accepted Answer

A)   5
B)   6
C)   8
D)   9E) B) and D)
F) All of the above

Question 19

John says that the future value of $250 saved for one year at 6 percent interest is less than the future value of $250 saved for two years at 3 percent interest.George says that the present value of a $250 payment to be received in one year when the interest rate is 6 percent is less than the value of a $250 payment to be received in two years when the interest rate is 3 percent.

Accepted Answer

A)   John and George are both correct.
B)   John and George are both incorrect.
C)   Only John is correct.
D)   Only George is correct.E) B) and D)
F) B) and C)

Question 20

A firm has three different investment options,each costing $10 million.Option A will generate $12 million in revenue at the end of one year.Option B will generate $15 million in revenue at the end of two years.Option C will generate $18 million in revenue at the end of three years.Which option should the firm choose?

Accepted Answer

A)   Option A
B)   Option B
C)   Option C
D)   The answer depends on the rate of interest,which is not specified here.E) All of the above
F) None of the above

Exam 19: The Basic Tools of Finance

At which interest rate is the present value of $79.50 one year from today equal to $75 today?

Correct Answer
verified

Studies find that mutual fund managers who do well in one year are likely to do well the next year.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Samantha holds stocks in four companies.If she adds stocks of several more companies she will decrease

Correct Answer
verified

Which of the following pairs of portfolios exemplifies the risk-return tradeoff?

Correct Answer
verified

You are better off choosing $100 today rather than $200 in 9 years if the interest rate is

Correct Answer
verified

Correct Answer
verified

Other things the same,an increase in the interest rate makes the quantity of loanable funds demanded

Correct Answer
verified

An increase in the number of corporations in a portfolio from 1 to 10 reduces

Correct Answer
verified

Discounting refers directly to

Correct Answer
verified

At an annual interest rate of 20 percent,about how many years will it take $100 to triple in value?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

The word "efficient" in the term "efficient markets hypothesis" refers to the idea that

Correct Answer
verified

If Robert is risk-averse,then he will always

Correct Answer
verified

People who are risk averse dislike bad outcomes more than they like comparable good outcomes.

Correct Answer
verified

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

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

In the 15 years ending June 2010,most active portfolio managers failed to beat the market.

Correct Answer
verified

Exam 19: The Basic Tools of Finance

At which interest rate is the present value of $79.50 one year from today equal to $75 today?

Correct AnswerverifiedShow Answer

Studies find that mutual fund managers who do well in one year are likely to do well the next year.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Samantha holds stocks in four companies.If she adds stocks of several more companies she will decrease

Correct AnswerverifiedShow Answer

Which of the following pairs of portfolios exemplifies the risk-return tradeoff?

Correct AnswerverifiedShow Answer

You are better off choosing $100 today rather than $200 in 9 years if the interest rate is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Other things the same,an increase in the interest rate makes the quantity of loanable funds demanded

Correct AnswerverifiedShow Answer

An increase in the number of corporations in a portfolio from 1 to 10 reduces

Correct AnswerverifiedShow Answer

Discounting refers directly to

Correct AnswerverifiedShow Answer

At an annual interest rate of 20 percent,about how many years will it take $100 to triple in value?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The word "efficient" in the term "efficient markets hypothesis" refers to the idea that

Correct AnswerverifiedShow Answer

If Robert is risk-averse,then he will always

Correct AnswerverifiedShow Answer

People who are risk averse dislike bad outcomes more than they like comparable good outcomes.

Correct AnswerverifiedShow 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

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

In the 15 years ending June 2010,most active portfolio managers failed to beat the market.

Correct AnswerverifiedShow Answer

Correct Answer
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