Question 1

You have a contract with someone who has agreed to pay you $20,000 in four years.She offers to pay you now instead.For which of the following interest rates and payments would you take the money today?.

Accepted Answer

A)   8 percent,$15,000
B)   7 percent,$16,000
C)   6 percent,$17,000
D)   All of the above are correct.E) None of the above
F) C) and D)

Question 2

You may be unwilling to buy a used car because you suspect the last owner found out the car was a lemon.You may treat a car you rented with a little less care than you'd use on your own car.

Accepted Answer

A)   Both examples primarily illustrate adverse selection.
B)   Both examples primarily illustrate moral hazard.
C)   The first example primarily illustrates adverse selection; the second primarily illustrates moral hazard.
D)   The first example primarily illustrates moral hazard; the second primarily illustrates adverse selection.E) A) and B)
F) C) and D)

Question 3

Figure 19-2.The figure shows a utility function for Mary Ann. 
-Refer to Figure 19-2.From the appearance of the utility function,we know that

Accepted Answer

A)   Mary Ann is risk averse.
B)   Mary Ann gains less satisfaction when her wealth increases by X dollars than she loses in satisfaction when her wealth decreases by X dollars.
C)   the property of diminishing marginal utility applies to Mary Ann.
D)   All of the above are correct.E) A) and B)
F) All of the above

Question 4

At which interest rate is the present value of $260.10 two years from today equal to $250 today?

Accepted Answer

A)   2 percent
B)   3 percent
C)   4 percent
D)   5 percentE) A) and B)
F) B) and C)

Question 5

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 firs...

Question 6

If the interest rate is 4.5 percent,what is the present value of a payment of $500 to be made one year from today?

Accepted Answer

A)   $457.14
B)   $468.02
C)   $478.47
D)   None of the above are correct to the nearest cent.E) C) and D)
F) B) and C)

Question 7

A firm has four different investment options.Option A will give the firm $10 million at the end of one year,$10 million at the end of two years,and $10 million at the end of three years.Option B will give the firm $5 million at the end of one year,$10 million at the end of two years,and $15 million at the end of three years.Option C will give the firm $15 million at the end of one year,$10 million at the end of two years,and $5 million at the end of three years.Option D will give the firm $21 million at the end of one year,nothing at the end of two years,and $9 million at the end of three years.Which of these options has the highest present value if the rate of interest is 5 percent?

Accepted Answer

A)   Option A
B)   Option B
C)   Option C
D)   Option DE) A) and B)
F) None of the above

Question 8

Which of the following changes would increase the present value of a future payment?

Accepted Answer

A)   an increase in the size of the payment
B)   an increase in the time until the payment is made
C)   an increase in the interest rate
D)   All of the above are correct.E) A) and B)
F) A) and C)

Question 9

If you are convinced that stock prices are impossible to predict from available information,then you probably also believe that

Accepted Answer

A)   the efficient markets hypothesis is not a correct hypothesis.
B)   the stock market is informationally efficient.
C)   the stock market is informationally inefficient.
D)   there is no reason to establish a diversified portfolio of stocks.E) None of the above
F) B) and C)

Question 10

During a financial crisis the possibility of bank failures rose.An increase in the likelihood of a bank failing shifts demand for its stock

Accepted Answer

A)   right,so the price rises.
B)   right,so the price falls.
C)   left,so the price rises.
D)   left,so the price falls.E) None of the above
F) All of the above

Question 11

You put $75 in the bank one year ago and forgot about it.The bank sends you a notice that you now have $81 in your account.What interest rate did you earn?

Accepted Answer

A)   5 percent
B)   6 percent
C)   7 percent
D)   8 percentE) A) and B)
F) B) and C)

Question 12

Anna deposited $10,000 into an account three years ago.The first year she earned 12 percent interest,the second year she earned 8 percent interest,and the third year she earned 4 percent interest.How much money does she have in her account today?

Accepted Answer

A)   $12,579.84
B)   $12,596.80
C)   $12,597.12
D)   None of the above are correct to the nearest cent.E) C) and D)
F) A) and B)

Question 13

No particular stock is a better buy than any other stock if

Accepted Answer

A)   stock prices are driven by investors' "animal spirits."
B)   the random-walk theory of stock prices is incorrect.
C)   the efficient markets hypothesis is correct.
D)   actively managed mutual funds always outperform index funds.E) B) and C)
F) All of the above

Question 14

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) None of the above
F) B) and C)

Question 15

According to the rule of 70,if a person's saving doubles in 10 years,what interest rate were they earning?

Accepted Answer

A)   3.5
B)   7
C)   14
D)   None of the above is correct.E) C) and D)
F) B) and C)

Question 16

Risk

Accepted Answer

A)   can be reduced by placing a large number of small bets rather than a small number of large bets.
B)   can be reduced by increasing the number of stocks in a portfolio.
C)   Both A and B are correct.
D)   Neither A nor B are correct.E) B) and C)
F) A) and D)

Question 17

The sooner a payment is received and the higher the interest rate,the greater the present value of a future payment.

Accepted Answer

A) True 
 B)False

Question 18

A company that can build a project that will cost $50,000,but returns $52,000 in one year would make a good decision by turning this project down if the interest rate were 3 percent.

Accepted Answer

A) True 
 B)False

Question 19

Diversification cannot reduce market risk.

Accepted Answer

A) True 
 B)False

Question 20

Suppose you are deciding whether to buy a particular bond.If you buy the bond and hold it for 4 years,then at that time you will receive a payment of $10,000.If the interest rate is 6 percent,you will buy the bond if its price today is no greater than

Accepted Answer

A)   $8,225.06.
B)   $7,920.94.
C)   $7,672.58.
D)   $6,998.98.E) A) and B)
F) B) and D)

Exam 19: The Basic Tools of Finance

Which of the following changes would increase the present value of a future payment?

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 firs...
View Answer

The sooner a payment is received and the higher the interest rate,the greater the present value of a future payment.

Correct Answer
verified

A company that can build a project that will cost $50,000,but returns $52,000 in one year would make a good decision by turning this project down if the interest rate were 3 percent.

Correct Answer
verified

You may be unwilling to buy a used car because you suspect the last owner found out the car was a lemon.You may treat a car you rented with a little less care than you'd use on your own car.

Correct Answer
verified

Risk

Correct Answer
verified

You have a contract with someone who has agreed to pay you $20,000 in four years.She offers to pay you now instead.For which of the following interest rates and payments would you take the money today?.

Correct Answer
verified

No particular stock is a better buy than any other stock if

Correct Answer
verified

Figure 19-2.The figure shows a utility function for Mary Ann. -Refer to Figure 19-2.From the appearance of the utility function,we know that

Correct Answer
verified

According to the rule of 70,if a person's saving doubles in 10 years,what interest rate were they earning?

Correct Answer
verified

During a financial crisis the possibility of bank failures rose.An increase in the likelihood of a bank failing shifts demand for its stock

Correct Answer
verified

Suppose you are deciding whether to buy a particular bond.If you buy the bond and hold it for 4 years,then at that time you will receive a payment of $10,000.If the interest rate is 6 percent,you will buy the bond if its price today is no greater than

Correct Answer
verified

If you are convinced that stock prices are impossible to predict from available information,then you probably also believe that

Correct Answer
verified

Diversification cannot reduce market risk.

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

At which interest rate is the present value of $260.10 two years from today equal to $250 today?

Correct Answer
verified

If the interest rate is 4.5 percent,what is the present value of a payment of $500 to be made one year from today?

Correct Answer
verified

You put $75 in the bank one year ago and forgot about it.The bank sends you a notice that you now have $81 in your account.What interest rate did you earn?

Correct Answer
verified

Anna deposited $10,000 into an account three years ago.The first year she earned 12 percent interest,the second year she earned 8 percent interest,and the third year she earned 4 percent interest.How much money does she have in her account today?

Correct Answer
verified

Correct Answer
verified

Exam 19: The Basic Tools of Finance

Which of the following changes would increase the present value of a future payment?

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 firs...View AnswerShow Answer

The sooner a payment is received and the higher the interest rate,the greater the present value of a future payment.

Correct AnswerverifiedShow Answer

A company that can build a project that will cost $50,000,but returns $52,000 in one year would make a good decision by turning this project down if the interest rate were 3 percent.

Correct AnswerverifiedShow Answer

You may be unwilling to buy a used car because you suspect the last owner found out the car was a lemon.You may treat a car you rented with a little less care than you'd use on your own car.

Correct AnswerverifiedShow Answer

Risk

Correct AnswerverifiedShow Answer

You have a contract with someone who has agreed to pay you $20,000 in four years.She offers to pay you now instead.For which of the following interest rates and payments would you take the money today?.

Correct AnswerverifiedShow Answer

No particular stock is a better buy than any other stock if

Correct AnswerverifiedShow Answer

Figure 19-2.The figure shows a utility function for Mary Ann. -Refer to Figure 19-2.From the appearance of the utility function,we know that

Correct AnswerverifiedShow Answer

According to the rule of 70,if a person's saving doubles in 10 years,what interest rate were they earning?

Correct AnswerverifiedShow Answer

During a financial crisis the possibility of bank failures rose.An increase in the likelihood of a bank failing shifts demand for its stock

Correct AnswerverifiedShow Answer

Suppose you are deciding whether to buy a particular bond.If you buy the bond and hold it for 4 years,then at that time you will receive a payment of $10,000.If the interest rate is 6 percent,you will buy the bond if its price today is no greater than

Correct AnswerverifiedShow Answer

If you are convinced that stock prices are impossible to predict from available information,then you probably also believe that

Correct AnswerverifiedShow Answer

Diversification cannot reduce market risk.

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

At which interest rate is the present value of $260.10 two years from today equal to $250 today?

Correct AnswerverifiedShow Answer

If the interest rate is 4.5 percent,what is the present value of a payment of $500 to be made one year from today?

Correct AnswerverifiedShow Answer

You put $75 in the bank one year ago and forgot about it.The bank sends you a notice that you now have $81 in your account.What interest rate did you earn?

Correct AnswerverifiedShow Answer

Anna deposited $10,000 into an account three years ago.The first year she earned 12 percent interest,the second year she earned 8 percent interest,and the third year she earned 4 percent interest.How much money does she have in her account today?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified
There are several possibilities.The firs...
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
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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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Correct Answer
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Correct Answer
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