Question 1

If you put $250 into an account with a 4 percent interest rate, how many years would you have to wait to have $432.92?

Accepted Answer

A)   10
B)   14
C)   17
D)   20E) All of the above
F) C) and D)

Question 2

A measure of the volatility of a variable is its

Accepted Answer

A)   present value.
B)   future value.
C)   return.
D)   standard deviation.E) A) and D)
F) All of the above

Question 3

Which of the following is correct concerning a risk-averse person?

Accepted Answer

A)   She would not play games where the probability of winning and losing a dollar are the same.
B)   She might not buy health insurance if she thinks her risks are low.
C)   Her marginal utility of wealth decreases as her income increases.
D)   All of the above are correct.E) A) and D)
F) B) and C)

Question 4

PZX Corporation has the opportunity to undertake an investment project that will cost $10,000 today and yield the company $13,310 in 3 years. PZX will forgo the project if the interest rate is higher than 10 percent.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following methods of picking stocks is not consistent with fundamental analysis?

Accepted Answer

A)   doing research such as thoroughly reading and analyzing companies' annual reports
B)   choosing mutual funds that are managed by individuals with good reputations
C)   viewing individual stock prices as unpredictable
D)   relying upon the advice of Wall Street analystsE) None of the above
F) All of the above

Question 6

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.

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

Question 7

What is the future value of $450 at an interest rate of 9 percent two years from today?

Accepted Answer

A)   $534.65
B)   $546.35
C)   $565.18
D)   $574.13E) B) and C)
F) All of the above

Question 8

A bond promises to pay $500 in one year and $10,500 in two years. What is the correct way to find the present value of this bond?

Accepted Answer

A)   $5001 + r)  + $10,500/1 + r) 2
B)   $500/1 + r)  + $10,500/1 + r) 2
C)   $11,000/1 + r) 2
D)   $5001 + r)  + $10,5001 + r) 2E) B) and C)
F) A) and B)

Question 9

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

Question 10

Figure 27-2. The figure shows a utility function for Britney. 
-Refer to Figure 27-2. Suppose Britney begins with $1,050 in wealth. Starting from there,

Accepted Answer

A)   she would be willing to accept a coin­flip bet that would result in her winning $300 if the result was "heads" or losing $300 if the result was "tails."
B)   the pain of losing $300 of her wealth would equal the pleasure of adding $300 to her wealth.
C)   the pain of losing $300 of her wealth would exceed the pleasure of adding $300 to her wealth.
D)   the pleasure of adding $300 to her wealth would exceed the pain of losing $300 of her wealth.E) None of the above
F) B) and D)

Question 11

Can insurance be thought of as diversification? Defend your answer.

Accepted Answer

Yes. It replaces a l...

Question 12

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 13

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 14

Fundamental analysis shows that stock in Cedar Valley Furniture Corporation has a price that exceeds 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) A) and D)
F) None of the above

Question 15

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) None of the above

Question 16

The concept of present value helps explain why the quantity of loanable funds demanded decreases when the interest rate increases.

Accepted Answer

A) True 
 B)False

Question 17

Suppose that an increased risk of mortgage defaults lowers the expected profitability of banks. Then we would expect to see

Accepted Answer

A)   the demand for bank stocks rise which would raise the prices of bank stocks.
B)   the demand for bank stocks rise which would reduce the prices of bank stocks.
C)   the demand for bank stocks fall which would raise the prices of bank stocks.
D)   the demand for bank stocks fall which would reduce the prices of bank stocks.E) A) and B)
F) C) and D)

Question 18

Anthony closes out his account in which he deposited $500 five years ago at an interest rate of 5%. Mark closes out his account in which he deposited $500 ten years ago at an interest rate of 5%. Who had more in their account? About how much more did he have?

Accepted Answer

Mark had more in his account. ...

Question 19

A company that produces baseball gloves is considering buying some new equipment that it expects will increase future profits. If the interest rate rises, then the present value of these future profits

Accepted Answer

A)   rises. The company is more likely to buy the equipment.
B)   rises. The company is less likely to buy the equipment.
C)   falls. The company is more likely to buy the equipment.
D)   falls. The company is less likely to buy the equipment.E) A) and B)
F) C) and D)

Question 20

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) A) and C)

Exam 14: The Basic Tools of Finance

A bond promises to pay $500 in one year and $10,500 in two years. What is the correct way to find the present value of this bond?

Correct Answer
verified

Fundamental analysis shows that stock in Cedar Valley Furniture Corporation has a price that exceeds its present value.

Correct Answer
verified

Correct Answer
verified

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.

Correct Answer
verified

The concept of present value helps explain why the quantity of loanable funds demanded decreases when the interest rate increases.

Correct Answer
verified

If you put $250 into an account with a 4 percent interest rate, how many years would you have to wait to have $432.92?

Correct Answer
verified

Which of the following is correct concerning a risk-averse person?

Correct Answer
verified

Figure 27-2. The figure shows a utility function for Britney. -Refer to Figure 27-2. Suppose Britney begins with $1,050 in wealth. Starting from there,

Correct Answer
verified

Anthony closes out his account in which he deposited $500 five years ago at an interest rate of 5%. Mark closes out his account in which he deposited $500 ten years ago at an interest rate of 5%. Who had more in their account? About how much more did he have?

Correct Answer
verified
Mark had more in his account. ...
View Answer

Can insurance be thought of as diversification? Defend your answer.

Correct Answer
verified
Yes. It replaces a l...
View Answer

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

Suppose that an increased risk of mortgage defaults lowers the expected profitability of banks. Then we would expect to see

Correct Answer
verified

A measure of the volatility of a variable is its

Correct Answer
verified

Which of the following methods of picking stocks is not consistent with fundamental analysis?

Correct Answer
verified

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

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

Correct Answer
verified

What is the future value of $450 at an interest rate of 9 percent two years from today?

Correct Answer
verified

A company that produces baseball gloves is considering buying some new equipment that it expects will increase future profits. If the interest rate rises, then the present value of these future profits

Correct Answer
verified

PZX Corporation has the opportunity to undertake an investment project that will cost $10,000 today and yield the company $13,310 in 3 years. PZX will forgo the project if the interest rate is higher than 10 percent.

Correct Answer
verified

Exam 14: The Basic Tools of Finance

A bond promises to pay $500 in one year and $10,500 in two years. What is the correct way to find the present value of this bond?

Correct AnswerverifiedShow Answer

Fundamental analysis shows that stock in Cedar Valley Furniture Corporation has a price that exceeds its present value.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

The concept of present value helps explain why the quantity of loanable funds demanded decreases when the interest rate increases.

Correct AnswerverifiedShow Answer

If you put $250 into an account with a 4 percent interest rate, how many years would you have to wait to have $432.92?

Correct AnswerverifiedShow Answer

Which of the following is correct concerning a risk-averse person?

Correct AnswerverifiedShow Answer

Figure 27-2. The figure shows a utility function for Britney. -Refer to Figure 27-2. Suppose Britney begins with $1,050 in wealth. Starting from there,

Correct AnswerverifiedShow Answer

Anthony closes out his account in which he deposited $500 five years ago at an interest rate of 5%. Mark closes out his account in which he deposited $500 ten years ago at an interest rate of 5%. Who had more in their account? About how much more did he have?

Correct AnswerverifiedMark had more in his account. ...View AnswerShow Answer

Can insurance be thought of as diversification? Defend your answer.

Correct AnswerverifiedYes. It replaces a l...View AnswerShow 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

Suppose that an increased risk of mortgage defaults lowers the expected profitability of banks. Then we would expect to see

Correct AnswerverifiedShow Answer

A measure of the volatility of a variable is its

Correct AnswerverifiedShow Answer

Which of the following methods of picking stocks is not consistent with fundamental analysis?

Correct AnswerverifiedShow Answer

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

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

Correct AnswerverifiedShow Answer

What is the future value of $450 at an interest rate of 9 percent two years from today?

Correct AnswerverifiedShow Answer

A company that produces baseball gloves is considering buying some new equipment that it expects will increase future profits. If the interest rate rises, then the present value of these future profits

Correct AnswerverifiedShow Answer

PZX Corporation has the opportunity to undertake an investment project that will cost $10,000 today and yield the company $13,310 in 3 years. PZX will forgo the project if the interest rate is higher than 10 percent.

Correct AnswerverifiedShow Answer

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Mark had more in his account. ...
View Answer

Correct Answer
verified
Yes. It replaces a l...
View Answer

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

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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