Question 1

After much anticipation a company releases a new smartphone. The smartphone doesn't work as well as expected and lacks many of the features buyers had been expecting. The unexpectedly negative reaction to the smartphone would

Accepted Answer

A)   raise the present value and the price of the corporation's stock.
B)   raise the present value and reduce the price of the corporation's stock.
C)   reduce the present value and the price of the corporation's stock.
D)   reduce the present value and raise the price of the corporation's stock.E) A) and B)
F) C) and D)

Question 2

Of the following interest rates, which is the highest one at which the present value of $200 ten years from today is greater than $150?

Accepted Answer

A)   2 percent
B)   4 percent
C)   6 percent
D)   8 percentE) None of the above
F) B) and D)

Question 3

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 D)
F) A) and C)

Question 4

Suppose that John can buy a savings bond for $500 that matures in ten years and pays John $1,000 with certainty. He is indifferent between this bond and another $500 bond that has some risk but on which the interest rate is 5% higher. How much, to the nearest penny, does the riskier bond pay in ten years?

Accepted Answer

A)   $1,275.91
B)   $1,422.63
C)   $1,577.69
D)   $1,631.17E) All of the above
F) B) and D)

Question 5

The future value of $1 saved today is $1/1 + r).

Accepted Answer

A) True 
 B)False

Question 6

The performance of index funds

Accepted Answer

A)   usually falls short of the performance of actively-managed funds.
B)   provides evidence in support of the notion that stock prices do not depend upon supply and demand.
C)   provides evidence in support of the efficient markets hypothesis.
D)   provides evidence in support of the notion that stock-market participants are irrational.E) All of the above
F) A) and D)

Question 7

The market for insurance is an example of diversification.

Accepted Answer

A) True 
 B)False

Question 8

Yoyo's Frozen Yogurt, Inc. is thinking of building a new warehouse. They believe that this will give them $50,000 of additional revenue at the end of one year, $60,000 additional revenue at the end of two years, and $70,000 in additional revenue at the end of three years. If the interest rate is 5 percent, Yoyo would be willing to pay

Accepted Answer

A)   $140,000, but not $150,000.
B)   $150,000, but not $160,000.
C)   $160,000, but not $170,000.
D)   $170,000, but not $180,000.E) All of the above
F) B) and C)

Question 9

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

Question 10

Diversification can reduce firm-specific risk.

Accepted Answer

A) True 
 B)False

Question 11

At which interest rate is the present value of $168.54 two years from today equal to $150 today?

Accepted Answer

A)   4 percent
B)   5 percent
C)   6 percent
D)   None of the above would give a present value within a cent of $162.24.E) B) and C)
F) All of the above

Question 12

Suppose you are deciding whether or not to buy a particular bond for $5,980.17. If you buy the bond and hold it for 5 years, then at that time you will receive a payment of $10,000. You will buy the bond today if the interest rate is

Accepted Answer

A)   no less than 9.48 percent.
B)   no greater than 9.48 percent.
C)   no less than 10.83 percent.
D)   no greater than 10.83 percent.E) A) and B)
F) A) and C)

Question 13

A previously well-respected and trusted president of a corporation is accused of fraud. At the same time interest rates unexpectedly fall. Which of the above would tend to make the price of the stock rise?

Accepted Answer

A)   the announcement and the fall in interest rates
B)   the announcement but not the fall in interest rates
C)   the fall in interest rates, but not the announcement
D)   neither the announcement nor the fall in interest ratesE) B) and C)
F) A) and B)

Exam 19: The Basic Tools of Finance

The market for insurance is an example of diversification.

Correct Answer
verified

Suppose you are deciding whether or not to buy a particular bond for $5,980.17. If you buy the bond and hold it for 5 years, then at that time you will receive a payment of $10,000. You will buy the bond today if the interest rate is

Correct Answer
verified

Correct Answer
verified

At which interest rate is the present value of $168.54 two years from today equal to $150 today?

Correct Answer
verified

A previously well-respected and trusted president of a corporation is accused of fraud. At the same time interest rates unexpectedly fall. Which of the above would tend to make the price of the stock rise?

Correct Answer
verified

Of the following interest rates, which is the highest one at which the present value of $200 ten years from today is greater than $150?

Correct Answer
verified

After much anticipation a company releases a new smartphone. The smartphone doesn't work as well as expected and lacks many of the features buyers had been expecting. The unexpectedly negative reaction to the smartphone would

Correct Answer
verified

Diversification can reduce firm-specific risk.

Correct Answer
verified

Correct Answer
verified

The future value of $1 saved today is $1/1 + r).

Correct Answer
verified

The performance of index funds

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

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

Correct Answer
verified

Exam 19: The Basic Tools of Finance

The market for insurance is an example of diversification.

Correct AnswerverifiedShow Answer

Suppose you are deciding whether or not to buy a particular bond for $5,980.17. If you buy the bond and hold it for 5 years, then at that time you will receive a payment of $10,000. You will buy the bond today if the interest rate is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

At which interest rate is the present value of $168.54 two years from today equal to $150 today?

Correct AnswerverifiedShow Answer

A previously well-respected and trusted president of a corporation is accused of fraud. At the same time interest rates unexpectedly fall. Which of the above would tend to make the price of the stock rise?

Correct AnswerverifiedShow Answer

Of the following interest rates, which is the highest one at which the present value of $200 ten years from today is greater than $150?

Correct AnswerverifiedShow Answer

After much anticipation a company releases a new smartphone. The smartphone doesn't work as well as expected and lacks many of the features buyers had been expecting. The unexpectedly negative reaction to the smartphone would

Correct AnswerverifiedShow Answer

Diversification can reduce firm-specific risk.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The future value of $1 saved today is $1/1 + r).

Correct AnswerverifiedShow Answer

The performance of index funds

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

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

Correct AnswerverifiedShow Answer

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verified

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