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

Question 2

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

Accepted Answer

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

Question 3

Figure 27-3
The following figure shows the utility function for Paul. 
-Refer to Figure 27-3. Suppose the vertical distance between the points 0, A)  and 0, B)  is 10. If his wealth increased from $700 to $900, then

Accepted Answer

A)   Paul's utility would increase by less than 10 units.
B)   Paul's utility would increase by more than 10 units.
C)   Paul's utility would increase by exactly 10 units.
D)   Any of the above could be correct.E) B) and C)
F) A) and D)

Question 4

Matt's Utility Function  If Matt's current wealth is $51,000, then

Accepted Answer

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

Question 5

Scenario 27-1
Lisa has a utility function  where W is Lisa's wealth in millions of dollars and U is the utility she obtains.
-Refer to Scenario 27-1. Suppose Lisa is faced with a choice between two options. With option A Lisa receives a guaranteed $9 million. With option B Lisa faces a lottery that pays $16 million with probability P and pays $4 million with probability 1-P). Given Lisa's utility function, how high does P need to be before Lisa will prefer option B?

Accepted Answer

Lisa will prefer option B if t...

Question 6

An automobile manufacturer unexpectedly announces that it has hired a new chief executive officer. It is widely believed that the presence of this individual will raise the profitability of the corporation. At the same time interest rates unexpectedly rise. Which of the above would tend to make the price of the stock rise?

Accepted Answer

A)   the announcement and the rise in interest rates
B)   the announcement but not the rise in interest rates
C)   the rise in interest rates, but not the announcement
D)   neither the announcement nor the rise in interest ratesE) None of the above
F) B) and D)

Question 7

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) None of the above

Question 8

Why might someone be willing to pay more than the fundamental value for a stock?

Accepted Answer

She may believe that...

Question 9

Fundamental analysis shows that stock in Johnson's Lumber Company has a price that is less than its present value.

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) C) and D)

Question 10

Sometimes On Time SOT)  Airlines is considering buying a new jet. SOT would be more likely to buy a new jet if there were either

Accepted Answer

A)   a decrease in the price of a new jet or a decrease in the interest rate.
B)   a decrease in the price of a new jet or an increase in the interest rate.
C)   an increase in the price of a new jet or a decrease in the interest rate.
D)   an increase in the price of a new jet or an increase in the interest rate.E) A) and B)
F) A) and C)

Question 11

In the 1990s, several stocks had very, very high price to earnings ratios. These stocks appeared overvalued to many observers. What might the people who bought them have been thinking?

Accepted Answer

There are several possibilities. The fir...

Question 12

John has been a sky diver for many years. When the company John works for offers its employees the option to purchase a life insurance policy, John purchases a policy. This illustrates the problem of

Accepted Answer

A)   moral hazard.
B)   adverse selection.
C)   risk-return tradeoff.
D)   diversification.E) None of the above
F) All of the above

Question 13

Using the rule of 70, about how much would $100 be worth after 50 years if the interest rate were 7 percent?

Accepted Answer

A)   $400
B)   $800
C)   $1,600
D)   $3,200E) B) and D)
F) C) and D)

Question 14

Figure 27-1. The figure shows a utility function. 
-Refer to Figure 27-1. The utility function that is shown exhibits the property of diminishing

Accepted Answer

A)   wealth.
B)   utility.
C)   marginal wealth.
D)   marginal utility.E) B) and D)
F) A) and C)

Question 15

Give two conditions that are important to the efficient market theory. List one implication of the efficient market theory.

Accepted Answer

Efficient market theory says that it sho...

Question 16

Black Oil Company considered building a service station 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 station changed. In which case do these changes both make it less likely that they will now build the station?

Accepted Answer

A)   Interest rates rise and the cost of building the station rises.
B)   Interest rates rise and the cost of building the station falls.
C)   Interest rates fall and the cost of building the station rises.
D)   Interest rates fall and the cost of building the station falls.E) A) and B)
F) None of the above

Question 17

La Rossa Pasta Company is considering expanding its factory. In which case would both the change in the cost and the change in the interest rate each make it less likely that La Rossa's would expand?

Accepted Answer

A)   a decrease in the cost of expanding and a decrease in the interest rate.
B)   a decrease in the cost of expanding and an increase in the interest rate.
C)   an increase in the cost of expanding and a decrease in the interest rate.
D)   an increase in the cost of expanding and an increase in the interest rate.E) C) and D)
F) A) and B)

Question 18

You are tearing down a building and find $1 in change that someone lost when working on the building 140 years ago. If, instead of being careless with the $1 in change, this person had deposited it into a bank and earned 2 percent interest every year for 140 years, how much would be in the account today according to the rule of 70?

Accepted Answer

A)   $4
B)   $8
C)   $16
D)   $32E) B) and D)
F) C) and D)

Question 19

Melissa offers you $1,000 today or $1,500 in 5 years. You would prefer to take the $1,500 in 5 years if the interest rate is

Accepted Answer

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

Question 20

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

Exam 19: The Basic Tools of Finance

Correct Answer
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Lisa will prefer option B if t...
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La Rossa Pasta Company is considering expanding its factory. In which case would both the change in the cost and the change in the interest rate each make it less likely that La Rossa's would expand?

Correct Answer
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Which of the following is correct?

Correct Answer
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Matt's Utility Function If Matt's current wealth is $51,000, then

Correct Answer
verified

John has been a sky diver for many years. When the company John works for offers its employees the option to purchase a life insurance policy, John purchases a policy. This illustrates the problem of

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

Sometimes On Time SOT) Airlines is considering buying a new jet. SOT would be more likely to buy a new jet if there were either

Correct Answer
verified

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

Correct Answer
verified

Why might someone be willing to pay more than the fundamental value for a stock?

Correct Answer
verified
She may believe that...
View Answer

Fundamental analysis shows that stock in Johnson's Lumber Company has a price that is less than its present value.

Correct Answer
verified

Figure 27-3 The following figure shows the utility function for Paul. -Refer to Figure 27-3. Suppose the vertical distance between the points 0, A) and 0, B) is 10. If his wealth increased from $700 to $900, then

Correct Answer
verified

Using the rule of 70, about how much would $100 be worth after 50 years if the interest rate were 7 percent?

Correct Answer
verified

Correct Answer
verified

In the 1990s, several stocks had very, very high price to earnings ratios. These stocks appeared overvalued to many observers. What might the people who bought them have been thinking?

Correct Answer
verified
There are several possibilities. The fir...
View Answer

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

Correct Answer
verified

Figure 27-1. The figure shows a utility function. -Refer to Figure 27-1. The utility function that is shown exhibits the property of diminishing

Correct Answer
verified

Correct Answer
verified

Melissa offers you $1,000 today or $1,500 in 5 years. You would prefer to take the $1,500 in 5 years if the interest rate is

Correct Answer
verified

Give two conditions that are important to the efficient market theory. List one implication of the efficient market theory.

Correct Answer
verified
Efficient market theory says that it sho...
View Answer

Correct Answer
verified

Exam 19: The Basic Tools of Finance

Correct AnswerverifiedLisa will prefer option B if t...View AnswerShow Answer

La Rossa Pasta Company is considering expanding its factory. In which case would both the change in the cost and the change in the interest rate each make it less likely that La Rossa's would expand?

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

Matt's Utility Function If Matt's current wealth is $51,000, then

Correct AnswerverifiedShow Answer

John has been a sky diver for many years. When the company John works for offers its employees the option to purchase a life insurance policy, John purchases a policy. This illustrates the problem of

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

Sometimes On Time SOT) Airlines is considering buying a new jet. SOT would be more likely to buy a new jet if there were either

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Why might someone be willing to pay more than the fundamental value for a stock?

Correct AnswerverifiedShe may believe that...View AnswerShow Answer

Fundamental analysis shows that stock in Johnson's Lumber Company has a price that is less than its present value.

Correct AnswerverifiedShow Answer

Figure 27-3 The following figure shows the utility function for Paul. -Refer to Figure 27-3. Suppose the vertical distance between the points 0, A) and 0, B) is 10. If his wealth increased from $700 to $900, then

Correct AnswerverifiedShow Answer

Using the rule of 70, about how much would $100 be worth after 50 years if the interest rate were 7 percent?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In the 1990s, several stocks had very, very high price to earnings ratios. These stocks appeared overvalued to many observers. What might the people who bought them have been thinking?

Correct AnswerverifiedThere are several possibilities. The fir...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Figure 27-1. The figure shows a utility function. -Refer to Figure 27-1. The utility function that is shown exhibits the property of diminishing

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Melissa offers you $1,000 today or $1,500 in 5 years. You would prefer to take the $1,500 in 5 years if the interest rate is

Correct AnswerverifiedShow Answer

Give two conditions that are important to the efficient market theory. List one implication of the efficient market theory.

Correct AnswerverifiedEfficient market theory says that it sho...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
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Lisa will prefer option B if t...
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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
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She may believe that...
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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
There are several possibilities. The fir...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
Efficient market theory says that it sho...
View Answer

Correct Answer
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