Question 1

The idea of insurance

Accepted Answer

A)  would not appeal to a risk-averse person.
B)  is, other things the same, to reduce the probability of a fire, accident, or death.
C)  is to share risk.
D)  is to provide a sure thing, not a gamble.E) A) and D)
F) A) and C)

Question 2

Risk-averse people will choose different asset portfolios than people who are not risk averse. Over a long period of time, we would expect that

Accepted Answer

A)  every risk-averse person will earn a higher rate of return than every non-risk-averse person.
B)  every risk-averse person will earn a lower rate of return than every non-risk-averse person.
C)  the average risk-averse person will earn a higher rate of return than the average non-risk-averse person.
D)  the average risk-averse person will earn a lower rate of return than the average non-risk-averse person.E) None of the above
F) All of the above

Question 3

Whenever the price of an asset rises above what appears to be its fundamental value, the market is said to be experiencing a

Accepted Answer

A)  conjectural mistake.
B)  fundamental mishap.
C)  speculative bubble.
D)  temporary inefficiency.E) B) and C)
F) C) and D)

Question 4

Halvorson Construction has an investment project that would cost $150,000 today and yield a one-time payoff of $167,000 in three years. What is the highest interest rate at which Halvorson would find this project profitable?

Accepted Answer

A)  7%
B)  6%
C)  5%
D)  It is not profitable at any of these interest rates.E) A) and D)
F) A) and B)

Question 5

Missy recently rearranged her portfolio so that it has a higher average return. As a result of this rearranging, Missy

Accepted Answer

A)  raised both firm-specific risk and market risk.
B)  raised firm-specific risk, but not market risk.
C)  raised market risk, but not firm-specific risk.
D)  None of the above is correct.E) A) and B)
F) B) and C)

Question 6

Which of the following is the correct expression for finding the present value of a $1,000 payment one year from today if the interest rate is 6 percent?

Accepted Answer

A)  $1,000 (1.06)  
C)  $1,000/(1.06)  
D)  None of the above is correct." class="answers-bank-image d-inline" rel="preload" > (1.06) 
B)  $1,000(1.06) 
C)  $1,000/(1.06) 
D)  None of the above is correct.E) B) and C)
F) A) and B)

Question 7

When you were 10 years old, your grandparents put $500 into an account for you paying 7 percent interest. Now that you are 18 years old, your grandparents tell you that you can take the money out of the account. What is the balance to the nearest cent?

Accepted Answer

A)  $1,200.00
B)  $1,111.77
C)  $983.58
D)  $859.09E) None of the above
F) A) and B)

Question 8

Write the formula to find the present value of $750 to be paid in 5 years if the interest rate is 3 percent.

Accepted Answer

The answer of Write the formula to find the present...

Question 9

The concept of present value helps explain why

Accepted Answer

A)  investment decreases when the interest rate increases, and it also helps explain why the quantity of loanable funds demanded decreases when the interest rate increases.
B)  investment decreases when the interest rate increases, but it is of no help in explaining why the quantity of loanable funds demanded decreases when the interest rate increases.
C)  the quantity of loanable funds demanded decreases when the interest rate increases, but it is of no help in explaining why investment decreases when the interest rate increases.
D)  None of the above are correct; the concept of present value is of no help in explaining why either investment or the quantity of loanable funds demanded decreases when the interest rate increases.E) A) and D)
F) A) and C)

Question 10

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

Question 11

Diminishing marginal utility of wealth implies that the utility function

Accepted Answer

A)  has increasing slope and a person is risk averse.
B)  has increasing slope and a person is not risk averse.
C)  has decreasing slope and a person is risk averse
D)  has decreasing slope and a person is not risk averse.E) All of the above
F) B) and C)

Question 12

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

Accepted Answer

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

Question 13

Ronaldo's Foods considered building a store in a new location. The owners and their accountants decided that this was not the profitable thing to do. However, soon after they made this decision, both the interest rate and the cost of building the store changed. In which case do these changes both make it more likely that they will now build the store?

Accepted Answer

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

Question 14

In general, as a person includes fewer stocks and more bonds in his portfolio,

Accepted Answer

A)  both risk and expected return rise.
B)  risk rises but expected return falls.
C)  risk falls, but expected return rises.
D)  both risk and expected return fall.E) A) and B)
F) None of the above

Question 15

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

Accepted Answer

She may believe that...

Question 16

You could borrow $2,000 today from Bank A and repay the loan, with interest, by paying Bank A $2,154 one year from today. Or, you could borrow X dollars today from Bank B and repay the loan, with interest, by paying Bank B $2,477.10 one year from today. In order for the same interest rate to apply to the two loans, X =

Accepted Answer

A)  $2,300.00.
B)  $2,450.00.
C)  $2,500.00.
D)  $2,525.50.E) A) and D)
F) C) and D)

Question 17

A manufacturing company is thinking about building a new factory. The factory, if built, will yield the company $300 million in 7 years, and it would cost $220 million today to build. The company will decide to build the factory if the interest rate is

Accepted Answer

A)  no less than 4.53 percent.
B)  no greater than 4.53 percent.
C)  no less than 5.81 percent.
D)  no greater than 5.81 percent.E) None of the above
F) All of the above

Question 18

Writing in The Wall Street Journal in 2009, economist Jeremy Siegel pointed out that the efficient markets hypothesis

Accepted Answer

A)  was responsible for the financial crisis of 2008-2009.
B)  was responsible for the Great Depression of the 1930s.
C)  claims that prices observed in financial markets are always "right."
D)  claims that prices observed in financial markets are mostly "wrong."E) C) and D)
F) A) and B)

Question 19

The present value of any future sum of money is the amount that would be needed today, at current interest rates, to produce that future sum.

Accepted Answer

A) True 
 B)False

Question 20

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

Exam 27: Tools of Finance

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

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

Correct Answer
verified

The concept of present value helps explain why

Correct Answer
verified

Diminishing marginal utility of wealth implies that the utility function

Correct Answer
verified

Correct Answer
verified

Which of the following is the correct expression for finding the present value of a $1,000 payment one year from today if the interest rate is 6 percent?

Correct Answer
verified

Risk-averse people will choose different asset portfolios than people who are not risk averse. Over a long period of time, we would expect that

Correct Answer
verified

When you were 10 years old, your grandparents put $500 into an account for you paying 7 percent interest. Now that you are 18 years old, your grandparents tell you that you can take the money out of the account. What is the balance to the nearest cent?

Correct Answer
verified

In general, as a person includes fewer stocks and more bonds in his portfolio,

Correct Answer
verified

Missy recently rearranged her portfolio so that it has a higher average return. As a result of this rearranging, Missy

Correct Answer
verified

Writing in The Wall Street Journal in 2009, economist Jeremy Siegel pointed out that the efficient markets hypothesis

Correct Answer
verified

The idea of insurance

Correct Answer
verified

A manufacturing company is thinking about building a new factory. The factory, if built, will yield the company $300 million in 7 years, and it would cost $220 million today to build. The company will decide to build the factory if the interest rate is

Correct Answer
verified

Whenever the price of an asset rises above what appears to be its fundamental value, the market is said to be experiencing a

Correct Answer
verified

Write the formula to find the present value of $750 to be paid in 5 years if the interest rate is 3 percent.

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

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

Correct Answer
verified

The present value of any future sum of money is the amount that would be needed today, at current interest rates, to produce that future sum.

Correct Answer
verified

Halvorson Construction has an investment project that would cost $150,000 today and yield a one-time payoff of $167,000 in three years. What is the highest interest rate at which Halvorson would find this project profitable?

Correct Answer
verified

Exam 27: Tools of Finance

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

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

Correct AnswerverifiedShow Answer

The concept of present value helps explain why

Correct AnswerverifiedShow Answer

Diminishing marginal utility of wealth implies that the utility function

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is the correct expression for finding the present value of a $1,000 payment one year from today if the interest rate is 6 percent?

Correct AnswerverifiedShow Answer

Risk-averse people will choose different asset portfolios than people who are not risk averse. Over a long period of time, we would expect that

Correct AnswerverifiedShow Answer

When you were 10 years old, your grandparents put $500 into an account for you paying 7 percent interest. Now that you are 18 years old, your grandparents tell you that you can take the money out of the account. What is the balance to the nearest cent?

Correct AnswerverifiedShow Answer

In general, as a person includes fewer stocks and more bonds in his portfolio,

Correct AnswerverifiedShow Answer

Missy recently rearranged her portfolio so that it has a higher average return. As a result of this rearranging, Missy

Correct AnswerverifiedShow Answer

Writing in The Wall Street Journal in 2009, economist Jeremy Siegel pointed out that the efficient markets hypothesis

Correct AnswerverifiedShow Answer

The idea of insurance

Correct AnswerverifiedShow Answer

A manufacturing company is thinking about building a new factory. The factory, if built, will yield the company $300 million in 7 years, and it would cost $220 million today to build. The company will decide to build the factory if the interest rate is

Correct AnswerverifiedShow Answer

Whenever the price of an asset rises above what appears to be its fundamental value, the market is said to be experiencing a

Correct AnswerverifiedShow Answer

Write the formula to find the present value of $750 to be paid in 5 years if the interest rate is 3 percent.

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

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

Correct AnswerverifiedShow Answer

The present value of any future sum of money is the amount that would be needed today, at current interest rates, to produce that future sum.

Correct AnswerverifiedShow Answer

Halvorson Construction has an investment project that would cost $150,000 today and yield a one-time payoff of $167,000 in three years. What is the highest interest rate at which Halvorson would find this project profitable?

Correct AnswerverifiedShow Answer

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She may believe that...
View Answer

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Correct Answer
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Correct Answer
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