Question 1

Diversifying

Accepted Answer

A)  increases the standard deviation of the value of a portfolio indicating its risk has increased.
B)  increases the standard deviation of the value of a portfolio indicating its risk has decreased.
C)  decreases the standard deviation of the value of a portfolio indicating its risk has increased.
D)  decreases the standard deviation of the value of a portfolio indicating its risk has decreased.E) All of the above
F) A) and B)

Question 2

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

Accepted Answer

A)  a decrease 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) B) and C)
F) All of the above

Question 3

You have a choice among three options. Option 1: receive $900 immediately. Option 2: receive $1,200 one year from now. Option 3: receive $2,000 five years from now. The interest rate is 15 percent. Rank these three options from highest present value to lowest present value.

Accepted Answer

A)  Option 1; Option 2; Option 3
B)  Option 3; Option 2; Option 1
C)  Option 2; Option 3; Option 1
D)  Option 3; Option 1; Option 2E) C) and D)
F) A) and B)

Question 4

A high-ranking corporate official of a well-known company is unexpectedly sentenced to prison for criminal activity in trading stocks. This should

Accepted Answer

A)  raise the price and raise the present value of the corporation's stock.
B)  raise the price and lower the present value of the corporation's stock.
C)  lower the price and raise the present value of the corporation's stock.
D)  lower the price and lower the present value of the corporation's stock.E) C) and D)
F) None of the above

Question 5

Suppose you put $350 into a bank account today. Interest is paid annually and the annual interest rate is 6 percent. The future value of the $350 after 4 years is

Accepted Answer

A)  $414.09.
B)  $434.00.
C)  $441.87.
D)  $481.24.E) A) and B)
F) A) and C)

Question 6

Fourteen years ago William put money in his account at First National Bank. William decides to cash in his account and is told that his money has quadrupled. According to the rule of 70, what rate of interest did Alfred earn?

Accepted Answer

A)  5 percent
B)  7 percent
C)  10 percent
D)  14 percentE) A) and B)
F) B) and C)

Question 7

Which of the following statements is correct?

Accepted Answer

A)  A high-risk person is more likely to apply for insurance than a low-risk person because a high-risk person would benefit more from insurance protection.
B)  A low-risk person is more likely to apply for insurance than a high-risk person because a low-risk person would benefit more from insurance protection.
C)  Insurance companies can fully guard against the problem of adverse selection, but they cannot fully guard against the problem of moral hazard.
D)  Insurance companies can fully guard against the problem of moral hazard, but they cannot fully guard against the problem of adverse selection.E) A) and B)
F) A) and C)

Question 8

Which of the following has the highest future value?

Accepted Answer

A)  $100 saved for 2 years at 10 percent interest
B)  $110 saved for 2 years at 9 percent interest
C)  $120 saved for 2 years at 8 percent interest
D)  $130 saved for 2 years at 7 percent interestE) A) and D)
F) All of the above

Question 9

Which of the following is the largest?

Accepted Answer

A)  the future value of $250 with 3% interest for 2 years
B)  the future value of $250 at 2% interest for 3 years
C)  the present value of $250 to be paid in two years when the interest rate is 3%
D)  the present value of $250 to be paid in three years when the interest rate is 2%E) A) and C)
F) A) and B)

Question 10

You deposit $3,000 into an N-year certificate of deposit that pays 4.5 percent annual interest, and at the end of the N years you have $3,738.54. What is the number of years, N?

Accepted Answer

A)  4
B)  5
C)  6
D)  7E) A) and B)
F) B) and D)

Question 11

If you put $400 into a bank account today and it promises to pay 5% interest for 6 years, how much is in the account at the end of the six years?

Accepted Answer

A)    $400×6×(1.05) \$ 400 	imes 6 	imes ( 1.05 ) $400×6×(1.05)  
B)   $400×(1.05) 6\$ 400 	imes ( 1.05 )  ^ { 6 }$400×(1.05) 6 
C)   $400×(1.30) \$ 400 	imes ( 1.30 ) $400×(1.30)  
D)   $400×(1+.056) \$ 400 	imes \left( 1 + .05 ^ { 6 } ight) $400×(1+.056) E) C) and D)
F) B) and D)

Question 12

If you put $1,000 in the bank today at an interest rate of 6% what is its value in two years?

Accepted Answer

A)  $2,000(1.06) 
B)  $1,000 + $(1.06) 2
C)  $1,000(1.06) 2
D)  None of the above are correct.E) A) and C)
F) All of the above

Question 13

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

Question 14

As the interest rate increases, what happens to the present value of a future payment? Explain why changes in the interest rate will lead to changes in the quantity of loanable funds demanded and investment spending.

Accepted Answer

An increase in the interest rate reduces...

Question 15

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 16

At an annual interest rate of 10 percent, about how many years will it take $100 to double in value?

Accepted Answer

A)  5
B)  7
C)  9
D)  11E) A) and C)
F) None of the above

Question 17

Which, if any, of the present values below are correctly computed?

Accepted Answer

A)  A payment of $1,000 to be received one year from today, with a 8 percent interest rate, has a present value of $945.45.
B)  A payment of $1,000 to be received one year from today, with a 9 percent interest rate, has a present value of $911.11.
C)  A payment of $1,000 to be received one year from today, with a 10 percent interest rate, has a present value of $905.06.
D)  None of the above are correct to the nearest cent.E) C) and D)
F) A) and B)

Question 18

If a person is risk averse, then as wealth increases, total utility of wealth

Accepted Answer

A)  increases at an increasing rate.
B)  increases at a decreasing rate.
C)  decreases at an increasing rate.
D)  decreases at a decreasing rate.E) B) and D)
F) A) and B)

Question 19

Cleo promises to pay Jacques $1,000 in two years. If the interest rate is 6 percent, how much is this future payment worth today?

Accepted Answer

A)  $883.60
B)  $887.97
C)  $890.00
D)  None of the above are correct to the nearest cent.E) All of the above
F) A) and B)

Question 20

Mary Beth is risk averse and has $1,000 with which to make a financial investment. She has three options. Option A is a risk-free government bond that pays 5 percent interest each year for two years. Option B is a low-risk stock that analysts expect to be worth about $1,102.50 in two years. Option C is a high-risk stock that is expected to be worth about $1,200 in four years. Mary Beth should choose

Accepted Answer

A)  option A.
B)  option B.
C)  option C.
D)  either A or B because they are the same to her.E) A) and B)
F) A) and C)

Exam 14: The Basic Tools of Finance

Diversifying

Correct Answer
verified

Suppose you put $350 into a bank account today. Interest is paid annually and the annual interest rate is 6 percent. The future value of the $350 after 4 years is

Correct Answer
verified

If you put $1,000 in the bank today at an interest rate of 6% what is its value in two years?

Correct Answer
verified

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

Correct Answer
verified

You have a choice among three options. Option 1: receive $900 immediately. Option 2: receive $1,200 one year from now. Option 3: receive $2,000 five years from now. The interest rate is 15 percent. Rank these three options from highest present value to lowest present value.

Correct Answer
verified

Cleo promises to pay Jacques $1,000 in two years. If the interest rate is 6 percent, how much is this future payment worth today?

Correct Answer
verified

Which of the following has the highest future value?

Correct Answer
verified

Correct Answer
verified

If a person is risk averse, then as wealth increases, total utility of wealth

Correct Answer
verified

As the interest rate increases, what happens to the present value of a future payment? Explain why changes in the interest rate will lead to changes in the quantity of loanable funds demanded and investment spending.

Correct Answer
verified
An increase in the interest rate reduces...
View Answer

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

Correct Answer
verified

A high-ranking corporate official of a well-known company is unexpectedly sentenced to prison for criminal activity in trading stocks. This should

Correct Answer
verified

Which of the following statements is correct?

Correct Answer
verified

Which, if any, of the present values below are correctly computed?

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

Fourteen years ago William put money in his account at First National Bank. William decides to cash in his account and is told that his money has quadrupled. According to the rule of 70, what rate of interest did Alfred earn?

Correct Answer
verified

Which of the following is the largest?

Correct Answer
verified

At an annual interest rate of 10 percent, about how many years will it take $100 to double in value?

Correct Answer
verified

If you put $400 into a bank account today and it promises to pay 5% interest for 6 years, how much is in the account at the end of the six years?

Correct Answer
verified

You deposit $3,000 into an N-year certificate of deposit that pays 4.5 percent annual interest, and at the end of the N years you have $3,738.54. What is the number of years, N?

Correct Answer
verified

Exam 14: The Basic Tools of Finance

Diversifying

Correct AnswerverifiedShow Answer

Suppose you put $350 into a bank account today. Interest is paid annually and the annual interest rate is 6 percent. The future value of the $350 after 4 years is

Correct AnswerverifiedShow Answer

If you put $1,000 in the bank today at an interest rate of 6% what is its value in two years?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

You have a choice among three options. Option 1: receive $900 immediately. Option 2: receive $1,200 one year from now. Option 3: receive $2,000 five years from now. The interest rate is 15 percent. Rank these three options from highest present value to lowest present value.

Correct AnswerverifiedShow Answer

Cleo promises to pay Jacques $1,000 in two years. If the interest rate is 6 percent, how much is this future payment worth today?

Correct AnswerverifiedShow Answer

Which of the following has the highest future value?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If a person is risk averse, then as wealth increases, total utility of wealth

Correct AnswerverifiedShow Answer

As the interest rate increases, what happens to the present value of a future payment? Explain why changes in the interest rate will lead to changes in the quantity of loanable funds demanded and investment spending.

Correct AnswerverifiedAn increase in the interest rate reduces...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

A high-ranking corporate official of a well-known company is unexpectedly sentenced to prison for criminal activity in trading stocks. This should

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Which, if any, of the present values below are correctly computed?

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

Fourteen years ago William put money in his account at First National Bank. William decides to cash in his account and is told that his money has quadrupled. According to the rule of 70, what rate of interest did Alfred earn?

Correct AnswerverifiedShow Answer

Which of the following is the largest?

Correct AnswerverifiedShow Answer

At an annual interest rate of 10 percent, about how many years will it take $100 to double in value?

Correct AnswerverifiedShow Answer

If you put $400 into a bank account today and it promises to pay 5% interest for 6 years, how much is in the account at the end of the six years?

Correct AnswerverifiedShow Answer

You deposit $3,000 into an N-year certificate of deposit that pays 4.5 percent annual interest, and at the end of the N years you have $3,738.54. What is the number of years, N?

Correct AnswerverifiedShow Answer

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
verified
An increase in the interest rate reduces...
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
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
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