Question 1

Available evidence indicates that stock prices,even if not exactly a random walk,are very close to a random walk.

Accepted Answer

A) True 
 B)False

Question 2

Figure 27-1.The figure shows a utility function. 
-Refer to Figure 27-1.What is measured along the vertical axis?

Accepted Answer

A)   risk aversion
B)   marginal utility
C)   utility
D)   the number of units of a good that can be purchasedE) A) and B)
F) A) and C)

Question 3

Studies find that mutual fund managers who do well in one year,are likely to do well the next year.

Accepted Answer

A) True 
 B)False

Question 4

A risk-averse person has

Accepted Answer

A)   utility and marginal utility curves that slope upward.
B)   utility and marginal utility curves that slope downward.
C)   a utility curve that slopes down and a marginal utility curve that slopes upward.
D)   a utility curve that slopes upward and a marginal utility curve that slopes downward.E) A) and D)
F) All of the above

Question 5

The You Look Marvelous! cosmetic company is considering building a new shampoo factory.Its accountants and board of directors meet and decide that it is not a good idea to build the factory.If interest rates fall after the meeting

Accepted Answer

A)   the present value of the factory rises.It's more likely the company will build the factory.
B)   the present value of the factory rises.It's less likely the company will build the factory.
C)   the present value of the factory falls.It's more likely the company will build the factory.
D)   the present value of the factory falls.It's less likely the company will build the factory.E) A) and B)
F) A) and C)

Question 6

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

Question 7

Economists have developed models of risk aversion using the concept of

Accepted Answer

A)   utility and the associated assumption of diminishing marginal utility.
B)   utility and the associated assumption of increasing marginal utility.
C)   income and the associated assumption of diminishing marginal wealth.
D)   income and the associated assumption of increasing marginal wealth.E) A) and D)
F) B) and D)

Question 8

Give an example of adverse selection and an example of moral hazard using homeowners insurance.

Accepted Answer

An example of adverse selection is that ...

Question 9

A University of Iowa basketball standout is offered a choice of contracts by the New York Liberty.The first one gives her $100,000 one year from today and $100,000 two years from today.The second one gives her $132,000 one year from today and $66,000 two years from today.As her agent,you must compute the present value of each contract.Which of the following interest rates is the lowest one at which the present value of the second contract exceeds that of the first?

Accepted Answer

A)   7 percent
B)   8 percent
C)   9 percent
D)   10 percentE) A) and B)
F) A) and C)

Question 10

Your accountant tells you that if you can continue to earn the current interest rate on your balance of $800 for the next two years you will have $898.88 in your account.If your accountant is correct what is the current interest rate?

Accepted Answer

A)   6 percent
B)   7 percent
C)   8 percent
D)   9 percentE) A) and D)
F) A) and C)

Question 11

From the standpoint of the economy as a whole,the role of insurance is

Accepted Answer

A)   to entice risk-loving people to become risk averse.
B)   to promote the phenomenon of adverse selection.
C)   not to eliminate the risks inherent in life,but to spread them around more efficiently.
D)   not to spread risks,but to eliminate them for individual policy holders.E) A) and B)
F) A) and C)

Question 12

The financial system

Accepted Answer

A)   involves bank accounts,mortgages,stock prices,and many other items.
B)   involves decisions and actions undertaken by people at a point in time that affect their lives in the future.
C)   coordinates the economy's saving and investment.
D)   All of the above are correct.E) A) and B)
F) A) and C)

Question 13

Suppose the interest rate is 5 percent.Consider three payment options:
1) $500 today.
2) $520 one year from today.
3) $550 two years from today.
Which of the following is correct?

Accepted Answer

A)   1 has the lowest present value and 3 has the highest.
B)   2 has the lowest present value and 1 has the highest.
C)   3 has the lowest present value and 2 has the highest.
D)   None of the above is correct.E) None of the above
F) B) and C)

Question 14

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

Question 15

Al,Ralph,and Stan are all intending to retire.Each currently has $1 million in assets.Al will earn 16% interest and retire in two years.Ralph will earn 8% interest and retire in four years.Stan will earn 4% interest and retire in eight years.Who will have the largest sum when he retires?

Accepted Answer

A)   Al
B)   Ralph
C)   Stan
D)   They all retire with the same amount.E) B) and C)
F) A) and B)

Question 16

Suppose the interest rate is 8 percent.Consider three payment options.
1) $300 today.
2) $330 one year from today.
3) $360 two years from today.
Which of the following is correct?

Accepted Answer

A)   1 has the highest present value and 2 has the lowest.
B)   2 has the highest present value and 3 has the lowest.
C)   3 has the highest present value and 1 has the lowest.
D)   None of the above is correct.E) A) and B)
F) All of the above

Question 17

At which interest rate is the present value of $162.24 two years from today equal to $150 today?

Accepted Answer

A)   4 percent
B)   5 percent
C)   6 percent
D)   None of the above would give a present value within a cent of $162.24.E) None of the above
F) A) and C)

Question 18

Other things the same,as the number of stocks in a portfolio rises,

Accepted Answer

A)   risk increases and the standard deviation of the return rises.
B)   risk increases and the standard deviation of the return falls.
C)   risk decreases and the standard deviation of the return rises.
D)   risk decreases and the standard deviation of the return falls.E) C) and D)
F) B) and C)

Question 19

To diversify,a homeowner with a variable-rate mortgage should choose investments that

Accepted Answer

A)   pay higher returns when interest rates rise and lower returns when interest rates fall.
B)   pay lower returns when interest rates rise and higher returns when interest rates fall.
C)   provide a higher return than the market average.
D)   provide a lower return than the market average.E) B) and C)
F) All of the above

Question 20

Hector puts $150 into an account when the interest rate is 4 percent.Later he checks his balance and finds he has about $168.73.How long did Hector wait to check his balance?

Accepted Answer

A)   3 years
B)   3.5 years
C)   4 years
D)   4.5 yearsE) B) and C)
F) B) and D)

Exam 27: The Basic Tools of Finance

From the standpoint of the economy as a whole,the role of insurance is

Correct Answer
verified

Economists have developed models of risk aversion using the concept of

Correct Answer
verified

Other things the same,as the number of stocks in a portfolio rises,

Correct Answer
verified

A risk-averse person has

Correct Answer
verified

Studies find that mutual fund managers who do well in one year,are likely to do well the next year.

Correct Answer
verified

Hector puts $150 into an account when the interest rate is 4 percent.Later he checks his balance and finds he has about $168.73.How long did Hector wait to check his balance?

Correct Answer
verified

Suppose the interest rate is 5 percent.Consider three payment options: 1) $500 today. 2) $520 one year from today. 3) $550 two years from today. Which of the following is correct?

Correct Answer
verified

Figure 27-1.The figure shows a utility function. -Refer to Figure 27-1.What is measured along the vertical axis?

Correct Answer
verified

Your accountant tells you that if you can continue to earn the current interest rate on your balance of $800 for the next two years you will have $898.88 in your account.If your accountant is correct what is the current interest rate?

Correct Answer
verified

Available evidence indicates that stock prices,even if not exactly a random walk,are very close to a random walk.

Correct Answer
verified

Suppose the interest rate is 8 percent.Consider three payment options. 1) $300 today. 2) $330 one year from today. 3) $360 two years from today. Which of the following is correct?

Correct Answer
verified

Give an example of adverse selection and an example of moral hazard using homeowners insurance.

Correct Answer
verified
An example of adverse selection is that ...
View Answer

The You Look Marvelous! cosmetic company is considering building a new shampoo factory.Its accountants and board of directors meet and decide that it is not a good idea to build the factory.If interest rates fall after the meeting

Correct Answer
verified

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

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

Al,Ralph,and Stan are all intending to retire.Each currently has $1 million in assets.Al will earn 16% interest and retire in two years.Ralph will earn 8% interest and retire in four years.Stan will earn 4% interest and retire in eight years.Who will have the largest sum when he retires?

Correct Answer
verified

To diversify,a homeowner with a variable-rate mortgage should choose investments that

Correct Answer
verified

At which interest rate is the present value of $162.24 two years from today equal to $150 today?

Correct Answer
verified

The financial system

Correct Answer
verified

Exam 27: The Basic Tools of Finance

From the standpoint of the economy as a whole,the role of insurance is

Correct AnswerverifiedShow Answer

Economists have developed models of risk aversion using the concept of

Correct AnswerverifiedShow Answer

Other things the same,as the number of stocks in a portfolio rises,

Correct AnswerverifiedShow Answer

A risk-averse person has

Correct AnswerverifiedShow Answer

Studies find that mutual fund managers who do well in one year,are likely to do well the next year.

Correct AnswerverifiedShow Answer

Hector puts $150 into an account when the interest rate is 4 percent.Later he checks his balance and finds he has about $168.73.How long did Hector wait to check his balance?

Correct AnswerverifiedShow Answer

Suppose the interest rate is 5 percent.Consider three payment options: 1) $500 today. 2) $520 one year from today. 3) $550 two years from today. Which of the following is correct?

Correct AnswerverifiedShow Answer

Figure 27-1.The figure shows a utility function. -Refer to Figure 27-1.What is measured along the vertical axis?

Correct AnswerverifiedShow Answer

Your accountant tells you that if you can continue to earn the current interest rate on your balance of $800 for the next two years you will have $898.88 in your account.If your accountant is correct what is the current interest rate?

Correct AnswerverifiedShow Answer

Available evidence indicates that stock prices,even if not exactly a random walk,are very close to a random walk.

Correct AnswerverifiedShow Answer

Suppose the interest rate is 8 percent.Consider three payment options. 1) $300 today. 2) $330 one year from today. 3) $360 two years from today. Which of the following is correct?

Correct AnswerverifiedShow Answer

Give an example of adverse selection and an example of moral hazard using homeowners insurance.

Correct AnswerverifiedAn example of adverse selection is that ...View AnswerShow Answer

The You Look Marvelous! cosmetic company is considering building a new shampoo factory.Its accountants and board of directors meet and decide that it is not a good idea to build the factory.If interest rates fall after the meeting

Correct AnswerverifiedShow Answer

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

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

Al,Ralph,and Stan are all intending to retire.Each currently has $1 million in assets.Al will earn 16% interest and retire in two years.Ralph will earn 8% interest and retire in four years.Stan will earn 4% interest and retire in eight years.Who will have the largest sum when he retires?

Correct AnswerverifiedShow Answer

To diversify,a homeowner with a variable-rate mortgage should choose investments that

Correct AnswerverifiedShow Answer

At which interest rate is the present value of $162.24 two years from today equal to $150 today?

Correct AnswerverifiedShow Answer

The financial system

Correct AnswerverifiedShow 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
verified

Correct Answer
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Correct Answer
verified

Correct Answer
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Correct Answer
verified

Correct Answer
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Correct Answer
verified
An example of adverse selection is that ...
View Answer

Correct Answer
verified

Correct Answer
verified

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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