Question 1

Assuming the interest rate is 5 percent,which of the following has the greatest present value?

Accepted Answer

A)   $240 paid in three years
B)   $225 paid in two years
C)   $210 paid in one year
D)   $200 todayE) B) and D)
F) B) and C)

Question 2

You receive $500 today which you plan to save for two years.Also,in two years you will be given another $500.If the interest rate is 5 percent,what is the present value of the payment of $500 today and the $500 in two years?

Accepted Answer

A)   $500(1.05) 2 + $500/(1.05) 2
B)   $500(1.05) 2 + $500
C)   $500 + $500/(1.05) 2
D)   $500 + $500E) C) and D)
F) All of the above

Question 3

An index fund

Accepted Answer

A)   holds only stocks and bonds that are indexed to inflation.
B)   holds all the stocks in a given stock index.
C)   guarantees a return that follows the index of leading economic indicators.
D)   typically has a lower return than a managed fund.E) None of the above
F) B) and D)

Question 4

What is the future value of $800 one year from today if the interest rate is 7 percent?

Accepted Answer

A)   $747.66
B)   $756.00
C)   $856.00
D)   None of the above are correct to the nearest cent.E) B) and C)
F) A) and C)

Question 5

The value of a stock is based on the

Accepted Answer

A)   present values of the dividend stream and final price.So,the value of a stock rises when interest rates rise.
B)   present values of the dividend stream and final price.So,the value of a stock falls when interest rates rise.
C)   future values of the dividend stream and final price.So,the value of a stock rises when interest rates rises.
D)   future values of the dividend stream and final price.So,the value of a stock falls when interest rates rise.E) A) and B)
F) All of the above

Question 6

Fundamental analysis shows that stock in Wallace Electronics Corporation has a present value that is higher than its price.

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 C)
F) A) and B)

Question 7

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

Question 8

According to the rule of 70,if you earn an interest rate of 3.5 percent,your savings will double about every 20 years.

Accepted Answer

A) True 
 B)False

Question 9

Rita puts $10,000 into each of two different assets.The first asset pays 10 percent interest and the second pays 5 percent.According to the rule of 70,what is the approximate difference in the value of the two assets after 14 years?

Accepted Answer

A)   $12,000
B)   $14,000
C)   $15,500
D)   $20,000E) All of the above
F) A) and D)

Question 10

Tamar is risk averse.Which of the following is correct about Tamar?

Accepted Answer

A)   Her marginal utility of wealth increases as her income increases.
B)   She will always accept a bet if the probability of winning a dollar is the same as the probability of losing a dollar.
C)   Her utility function is a straight line.
D)   None of the above are correct.E) C) and D)
F) A) and B)

Question 11

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

Question 12

The market for insurance is one example of reducing risk by using diversification.

Accepted Answer

A) True 
 B)False

Question 13

Suppose that Thom experiences a greater loss in utility if he loses $50 than he would gain in utility if he wins $50.This implies that Thom's

Accepted Answer

A)   marginal utility diminishes as wealth rises,so he must be risk averse.
B)   marginal utility diminishes as wealth rises,but we can't tell from this if he is risk averse.
C)   marginal utility increases as wealth rises,so he must be risk averse.
D)   marginal utility increases as wealth rises,but we can't tell from this if he is risk averse.E) A) and B)
F) A) and C)

Question 14

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) All of the above
F) B) and D)

Question 15

At which interest rate is the present value of $183.60 two years from today equal to about $173.06 today?

Accepted Answer

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

Question 16

Increasing the number of corporations whose stocks are in your portfolio reduces market risk.

Accepted Answer

A) True 
 B)False

Question 17

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 18

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) All of the above
F) A) and C)

Question 19

Dakota rearranges her portfolio so that it has a higher average return.In doing this rearranging,she

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

Question 20

Figure 27-2.On the graph,x represents risk and y represents return. 
-Robert is risk averse and has $1,000 with which to make a financial investment.He 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.Robert should choose

Accepted Answer

A)   option A.
B)   option B.
C)   option C.
D)   either A or B because they are the same to him.E) A) and B)
F) None of the above

Exam 27: The Basic Tools of Finance

Rita puts $10,000 into each of two different assets.The first asset pays 10 percent interest and the second pays 5 percent.According to the rule of 70,what is the approximate difference in the value of the two assets after 14 years?

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

Fundamental analysis shows that stock in Wallace Electronics Corporation has a present value that is higher than its price.

Correct Answer
verified

The value of a stock is based on the

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

According to the rule of 70,if you earn an interest rate of 3.5 percent,your savings will double about every 20 years.

Correct Answer
verified

An index fund

Correct Answer
verified

Risk

Correct Answer
verified

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

You receive $500 today which you plan to save for two years.Also,in two years you will be given another $500.If the interest rate is 5 percent,what is the present value of the payment of $500 today and the $500 in two years?

Correct Answer
verified

What is the future value of $800 one year from today if the interest rate is 7 percent?

Correct Answer
verified

Suppose that Thom experiences a greater loss in utility if he loses $50 than he would gain in utility if he wins $50.This implies that Thom's

Correct Answer
verified

Dakota rearranges her portfolio so that it has a higher average return.In doing this rearranging,she

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

The market for insurance is one example of reducing risk by using diversification.

Correct Answer
verified

Correct Answer
verified

Tamar is risk averse.Which of the following is correct about Tamar?

Correct Answer
verified

Assuming the interest rate is 5 percent,which of the following has the greatest present value?

Correct Answer
verified

At which interest rate is the present value of $183.60 two years from today equal to about $173.06 today?

Correct Answer
verified

Increasing the number of corporations whose stocks are in your portfolio reduces market risk.

Correct Answer
verified

Exam 27: The Basic Tools of Finance

Rita puts $10,000 into each of two different assets.The first asset pays 10 percent interest and the second pays 5 percent.According to the rule of 70,what is the approximate difference in the value of the two assets after 14 years?

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

Fundamental analysis shows that stock in Wallace Electronics Corporation has a present value that is higher than its price.

Correct AnswerverifiedShow Answer

The value of a stock is based on the

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

According to the rule of 70,if you earn an interest rate of 3.5 percent,your savings will double about every 20 years.

Correct AnswerverifiedShow Answer

An index fund

Correct AnswerverifiedShow Answer

Risk

Correct AnswerverifiedShow 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

You receive $500 today which you plan to save for two years.Also,in two years you will be given another $500.If the interest rate is 5 percent,what is the present value of the payment of $500 today and the $500 in two years?

Correct AnswerverifiedShow Answer

What is the future value of $800 one year from today if the interest rate is 7 percent?

Correct AnswerverifiedShow Answer

Suppose that Thom experiences a greater loss in utility if he loses $50 than he would gain in utility if he wins $50.This implies that Thom's

Correct AnswerverifiedShow Answer

Dakota rearranges her portfolio so that it has a higher average return.In doing this rearranging,she

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

The market for insurance is one example of reducing risk by using diversification.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Tamar is risk averse.Which of the following is correct about Tamar?

Correct AnswerverifiedShow Answer

Assuming the interest rate is 5 percent,which of the following has the greatest present value?

Correct AnswerverifiedShow Answer

At which interest rate is the present value of $183.60 two years from today equal to about $173.06 today?

Correct AnswerverifiedShow Answer

Increasing the number of corporations whose stocks are in your portfolio reduces market risk.

Correct AnswerverifiedShow Answer

Correct Answer
verified

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
verified

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

Correct Answer
verified

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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