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What is the present value of a payment of $100 to be made one year from today?


A) $100*(1 + r)
B) $100/(1 + r)
C) $100 - $100 What is the present value of a payment of $100 to be made one year from today? A) $100*(1 + r) B) $100/(1 + r) C) $100 - $100 r D) $100 - (1 + r) /$100 r
D) $100 - (1 + r) /$100

E) C) and D)
F) A) and D)

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What is the present value of a payment of $100 to be made one year from today if the interest rate is 6 percent?


A) $105.26
B) $105.00
C) $97.24
D) $94.34

E) A) and B)
F) B) and C)

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When a person engages in detailed analysis of a company to determine its value, he or she is engaging in


A) standard deviation analysis.
B) informational analysis.
C) fundamental analysis.
D) efficiency analysis.

E) A) and B)
F) A) and C)

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If asset markets are driven by the "animal spirits" of investors, then


A) those markets reflect rational behavior.
B) those markets reflect irrational behavior.
C) the efficient markets hypothesis is correct.
D) the stock market exhibits informational efficiency.

E) None of the above
F) B) and D)

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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?


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

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Suppose you put $500 into a bank account today. Interest is paid annually and the annual interest rate is 3%. The future value of the $500 in 5 years to the nearest cent is


A) $575.00
B) $578.81
C) $579.64
D) None of the above is correct.

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

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Suppose you win the lottery and one of your payment options is to receive $20,000 today, $20,000 one year from now, and $20,000 two years from now. If the interest rate is 5%, what is the present value of this option?


A) $51,830.26
B) $54,464.96
C) $57,188.21
D) $58,237.71

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

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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?


A) Option A
B) Option B
C) Option C
D) The answer depends on the rate of interest, which is not specified here.

E) C) and D)
F) B) and D)

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Which of the following is a source of market risk?


A) Holding stocks in many companies carries the risk of a reduced average return.
B) Real GDP varies over time and sales and profits move with real GDP.
C) When a paper producer has declining sales, it is likely that so will other paper producers.
D) If stockholders become aggravated with the way a CEO runs a company, the price of that company's stock might fall in the stock market.

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

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Suppose the interest rate is 5% and that you are to receive three annual payments of $10,000, with the first payment one year from now, the second payment two years from now, and the third payment three years from now. What is the present value of this stream of payments?

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The presen...

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

A) True
B) False

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By diversifying, the risk of holding stock


A) can be eliminated. On average over the past two centuries stocks paid a higher average real return than bonds.
B) can be eliminated. On average over the past two centuries stocks paid a lower average real return than bonds.
C) can be reduced but not eliminated. On average over the past two centuries stocks paid a higher average real return than bonds.
D) can be reduced but not eliminated. On average over the past two centuries stocks paid a lower average real return than bonds.

E) C) and D)
F) B) and D)

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Assuming the interest rate is 6 percent, which of the following has the greatest present value?


A) $300 paid in two years
B) $150 paid in one year plus $140 paid in two years
C) $100 paid today plus $100 paid in one year plus $100 paid in two years
D) $285 today

E) B) and D)
F) C) and D)

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As the number of stocks in a person's portfolio increases,


A) the risk of the portfolio increases, as indicated by the increasing value of the standard deviation of the portfolio.
B) the risk of the portfolio increases, as indicated by the decreasing value of the standard deviation of the portfolio.
C) the risk of the portfolio decreases, as indicated by the increasing value of the standard deviation of the portfolio.
D) the risk of the portfolio decreases, as indicated by the decreasing value of the standard deviation of the portfolio.

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

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


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

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Because the statistic called the standard deviation measures the volatility of a variable, it is used to measure the return of a portfolio.

A) True
B) False

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What's the difference between firm-specific risk and market risk? Will diversification eliminate one or both? Explain.

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Market risk refers to economy wide risk ...

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Cleo promises to pay Jacques $1,000 two years from today. If the interest rate is 4 percent, then how much is this future payment worth today?


A) $924.56
B) $931.44
C) $937.87
D) None of the above are correct to the nearest cent.

E) A) and D)
F) None of the above

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Figure 27-1. The figure shows a utility function. Figure 27-1. The figure shows a utility function. -Refer to Figure 27-1. Suppose the person to whom this utility function applies begins with $600 in wealth. Starting from there, A) she would be willing to accept a coin­flip bet that would result in her winning $200 if the result was heads or losing $200 if the result was tails. B) the pain of losing $200 of her wealth would equal the pleasure of adding $200 to her wealth. C) the pain of losing $200 of her wealth would exceed the pleasure of adding $200 to her wealth. D) the pleasure of adding $200 to her wealth would exceed the pain of losing $200 of her wealth. -Refer to Figure 27-1. Suppose the person to whom this utility function applies begins with $600 in wealth. Starting from there,


A) she would be willing to accept a coin­flip bet that would result in her winning $200 if the result was "heads" or losing $200 if the result was "tails."
B) the pain of losing $200 of her wealth would equal the pleasure of adding $200 to her wealth.
C) the pain of losing $200 of her wealth would exceed the pleasure of adding $200 to her wealth.
D) the pleasure of adding $200 to her wealth would exceed the pain of losing $200 of her wealth.

E) A) and B)
F) A) and C)

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Of the following interest rates, which is the highest one at which you would prefer to have $170 ten years from today instead of $100 today?


A) 3 percent
B) 5 percent
C) 7 percent
D) 9 percent

E) B) and C)
F) All of the above

Correct Answer

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