Question 1

If you put $300 into an account paying 2 percent interest,what will be the value of this account in 4 years?

Accepted Answer

A)   $320.69
B)   $324.00
C)   $324.73
D)   $327.81E) A) and B)
F) B) and D)

Question 2

People who hold well-diversified portfolios of stocks have greatly reduced or eliminated

Accepted Answer

A)   firm-specific risk,and so they do not need to worry about their wealth decreasing as a result of recessions.
B)   market risk,and so they do not need to worry about their wealth decreasing as a result of recessions.
C)   firm-specific risk,but still they have reason to worry about their wealth decreasing as a result of recessions.
D)   market risk,but still they have reason to worry about their wealth decreasing as a result of recessions.E) All of the above
F) C) and D)

Question 3

Suppose the interest rate is 5 percent.Which of the following payment options has the highest present value today?

Accepted Answer

A)   $550 one year from today.
B)   $580 two years from today.
C)   $600 three years from today.
D)   $615 four years from today.E) B) and C)
F) A) and D)

Question 4

The value of a stock is based on the

Accepted Answer

A)   present values of the dividend stream and final price.As a result,the value of a stock rises when interest rates rise.
B)   present values of the dividend stream and final price.As a result,the value of a stock falls when interest rates rise.
C)   future values of the dividend stream and final price.As a result,the value of a stock rises when interest rates rises.
D)   future values of the dividend stream and final price.As a result,the value of a stock falls when interest rates rise.E) A) and B)
F) None of the above

Question 5

According to fundamental analysis,when choosing stocks for your portfolio,you should prefer undervalued stocks.

Accepted Answer

A) True 
 B)False

Question 6

A person who believes strongly in the use of fundamental analysis to choose a portfolio of stocks

Accepted Answer

A)   has a better chance of outperforming the market if stock prices follow a random walk than if they do not follow a random walk.
B)   almost always chooses to hold index funds in his or her portfolio rather than actively-managed funds.
C)   is spending his or her time wisely if the efficient markets hypothesis is correct.
D)   is interested in the likely ability of a corporation to pay dividends in the future.E) All of the above
F) None of the above

Question 7

A judge requires Harry to make a payment to Sally.The judge says that Harry can pay her either $10,000 today or $12,000 two years from today.Of the following interest rates,which is the highest one at which Harry would be better off paying the money today?

Accepted Answer

A)   4 percent
B)   6 percent
C)   9 percent
D)   11 percentE) A) and C)
F) A) and D)

Question 8

What is the present value of a payment of $100 to be made one year from today?

Accepted Answer

A)   $100*(1 + r) 
B)   $100/(1 + r) 
C)   $100 - $100r
D)   $100 - (1 + r) /$100E) A) and D)
F) A) and C)

Question 9

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

Question 10

If a person had increasing marginal utility,then the decline in utility from losing $1,000 would be greater than the increase in utility from gaining $1,000.

Accepted Answer

A) True 
 B)False

Question 11

Stockholders of ComfortAir Corporation,an air conditioner and furnace manufacturer,are concerned that the companies executives may take on greater risks than stockholders desire.This example illustrates

Accepted Answer

A)   moral hazard and market risk.
B)   moral hazard and firm specific risk.
C)   adverse selection and market risk.
D)   adverse selection and firm specific risk.E) A) and B)
F) A) and C)

Question 12

Other things the same,an increase in the interest rate makes the quantity of loanable funds demanded

Accepted Answer

A)   rise,and investment spending rise.
B)   rise,and investment spending fall.
C)   fall,and investment spending rise.
D)   fall,and investment spending fall.E) A) and D)
F) A) and C)

Question 13

Which of the following games might a risk-averse person play?

Accepted Answer

A)   a game where she has a 50 percent chance of winning $1 and a 50 percent chance of losing $1
B)   a game where she has a 50 percent chance of winning $100 and a 50 percent chance of losing $100
C)   a game where she has a 60 percent chance of winning $1 and a 40 percent chance of losing $1
D)   a game where she has a 40 percent chance of winning $1 and a 60 percent chance of losing $1E) All of the above
F) C) and D)

Question 14

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 B)
F) All of the above

Question 15

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

Question 16

Figure 14-1.The figure shows a utility function. 
-Refer to Figure 14-1.Suppose the person to whom this utility function applies begins with $600 in wealth.Starting from there,

Accepted Answer

A)   she would be willing to accept a coin-flip bet that would result in her winning $200 if the result was "heads" or losing $200 if the result was "tails."
B)   the pain of losing $200 of her wealth would equal the pleasure of adding $200 to her wealth.
C)   the pain of losing $200 of her wealth would exceed the pleasure of adding $200 to her wealth.
D)   the pleasure of adding $200 to her wealth would exceed the pain of losing $200 of her wealth.E) None of the above
F) B) and C)

Question 17

A person with diminishing marginal utility of wealth is risk averse.

Accepted Answer

A) True 
 B)False

Question 18

Allen Steel Company is considering whether to build a new mill.If the interest rate rises,

Accepted Answer

A)   the present value of the returns from the mill will fall,so Allen will be less likely to build the mill.
B)   the present value of the returns from the mill will fall,so Allen will be more likely to build the mill.
C)   the present value of the returns from the mill will rise,so Allen will be less likely to build the mill.
D)   the present value of the returns from the mill will rise,so Allen will be more likely to build the mill.E) A) and D)
F) A) and B)

Question 19

What is the future value of $375 at an interest rate of 3 percent one year from today?

Accepted Answer

A)   $371.75
B)   $386.25
C)   $393.33
D)   None of the above are correct to the nearest cent.E) A) and D)
F) A) and B)

Question 20

There are many concerns for risk-averse lenders.Consider the following: 1.Lenders are concerned that borrowers with the greatest risk are the ones most likely to actively pursue loans.2.Lenders are concerned that real GDP will decline leading to reduced corporate profits.3.Lenders are concerned that products produced by certain corporations will become obsolete.

Accepted Answer

A)   1 is market risk;2 is firm-specific risk
B)   2 is market risk;3 is firm-specific risk
C)   3 is market risk;1 is firm-specific risk
D)   2 is firm-specific risk;3 is market riskE) B) and D)
F) A) and B)

Exam 27: The Basic Tools of Finance

Which of the following is the largest?

Correct Answer
verified

A judge requires Harry to make a payment to Sally.The judge says that Harry can pay her either $10,000 today or $12,000 two years from today.Of the following interest rates,which is the highest one at which Harry would be better off paying the money today?

Correct Answer
verified

A person who believes strongly in the use of fundamental analysis to choose a portfolio of stocks

Correct Answer
verified

What is the present value of a payment of $100 to be made one year from today?

Correct Answer
verified

Suppose the interest rate is 5 percent.Which of the following payment options has the highest present value today?

Correct Answer
verified

The value of a stock is based on the

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

A person with diminishing marginal utility of wealth is risk averse.

Correct Answer
verified

Allen Steel Company is considering whether to build a new mill.If the interest rate rises,

Correct Answer
verified

Correct Answer
verified

What is the future value of $375 at an interest rate of 3 percent one year from today?

Correct Answer
verified

Stockholders of ComfortAir Corporation,an air conditioner and furnace manufacturer,are concerned that the companies executives may take on greater risks than stockholders desire.This example illustrates

Correct Answer
verified

Which of the following games might a risk-averse person play?

Correct Answer
verified

If you put $300 into an account paying 2 percent interest,what will be the value of this account in 4 years?

Correct Answer
verified

If a person had increasing marginal utility,then the decline in utility from losing $1,000 would be greater than the increase in utility from gaining $1,000.

Correct Answer
verified

Figure 14-1.The figure shows a utility function. -Refer to Figure 14-1.Suppose the person to whom this utility function applies begins with $600 in wealth.Starting from there,

Correct Answer
verified

People who hold well-diversified portfolios of stocks have greatly reduced or eliminated

Correct Answer
verified

Other things the same,an increase in the interest rate makes the quantity of loanable funds demanded

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

According to fundamental analysis,when choosing stocks for your portfolio,you should prefer undervalued stocks.

Correct Answer
verified

Exam 27: The Basic Tools of Finance

Which of the following is the largest?

Correct AnswerverifiedShow Answer

A judge requires Harry to make a payment to Sally.The judge says that Harry can pay her either $10,000 today or $12,000 two years from today.Of the following interest rates,which is the highest one at which Harry would be better off paying the money today?

Correct AnswerverifiedShow Answer

A person who believes strongly in the use of fundamental analysis to choose a portfolio of stocks

Correct AnswerverifiedShow Answer

What is the present value of a payment of $100 to be made one year from today?

Correct AnswerverifiedShow Answer

Suppose the interest rate is 5 percent.Which of the following payment options has the highest present value today?

Correct AnswerverifiedShow Answer

The value of a stock is based on the

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

A person with diminishing marginal utility of wealth is risk averse.

Correct AnswerverifiedShow Answer

Allen Steel Company is considering whether to build a new mill.If the interest rate rises,

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

What is the future value of $375 at an interest rate of 3 percent one year from today?

Correct AnswerverifiedShow Answer

Stockholders of ComfortAir Corporation,an air conditioner and furnace manufacturer,are concerned that the companies executives may take on greater risks than stockholders desire.This example illustrates

Correct AnswerverifiedShow Answer

Which of the following games might a risk-averse person play?

Correct AnswerverifiedShow Answer

If you put $300 into an account paying 2 percent interest,what will be the value of this account in 4 years?

Correct AnswerverifiedShow Answer

If a person had increasing marginal utility,then the decline in utility from losing $1,000 would be greater than the increase in utility from gaining $1,000.

Correct AnswerverifiedShow Answer

Figure 14-1.The figure shows a utility function. -Refer to Figure 14-1.Suppose the person to whom this utility function applies begins with $600 in wealth.Starting from there,

Correct AnswerverifiedShow Answer

People who hold well-diversified portfolios of stocks have greatly reduced or eliminated

Correct AnswerverifiedShow Answer

Other things the same,an increase in the interest rate makes the quantity of loanable funds demanded

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

According to fundamental analysis,when choosing stocks for your portfolio,you should prefer undervalued stocks.

Correct AnswerverifiedShow Answer

Correct Answer
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