Question 1

Your accountant tells you that if you can continue to earn the current interest rate on your balance of $500 for ten years,you will have about $983.58.If your accountant is correct,what is the current rate of interest?

Accepted Answer

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

Question 2

Which of the following is not consistent with the efficient market hypothesis?

Accepted Answer

A)   Stock prices should follow a random walk.
B)   Index funds should typically outperform highly managed funds.
C)   News has no effect on stock prices..
D)   There is little point in spending many hours studying the business pages looking for undervalued stocks.E) A) and C)
F) A) and D)

Question 3

Figure 27-2.On the graph,x represents risk and y represents return. 
-Refer to Figure 27-2.Point A represents a situation in which

Accepted Answer

A)   all of a person's savings are allocated to a class of safe assets.
B)   the person knows with certainty that his or her return will be 3 percent.
C)   the standard deviation of the person's portfolio is zero.
D)   All of the above are correct.E) None of the above
F) A) and B)

Question 4

Your parents put $500 into an account paying 7 percent interest for you when you were ten.Ten years later they tell you that you can take the money out of the account.What is the balance to the nearest cent?

Accepted Answer

A)   $1,200.00
B)   $1,111.77
C)   $983.58
D)   $850.00E) None of the above
F) A) and B)

Question 5

Mixster Concrete Company is considering buying a new cement truck.The owners and their accountants decide that this is the profitable thing to do.Before they can buy the truck,the interest rate and price of trucks change.In which case do these changes both make them less likely to buy the truck?

Accepted Answer

A)   Interest rates rise and truck prices rise.
B)   Interest rates fall and truck prices rise.
C)   Interest rates rise and truck prices fall.
D)   Interest rates fall and truck prices fall.E) A) and B)
F) A) and C)

Question 6

The concept of present value helps explain why

Accepted Answer

A)   investment decreases when the interest rate increases,and it also helps explain why the quantity of loanable funds demanded decreases when the interest rate increases.
B)   investment decreases when the interest rate increases,but it is of no help in explaining why the quantity of loanable funds demanded decreases when the interest rate increases.
C)   the quantity of loanable funds demanded decreases when the interest rate increases,but it is of no help in explaining why investment decreases when the interest rate increases.
D)   None of the above are correct;the concept of present value is of no help in explaining why either investment or the quantity of loanable funds demanded decreases when the interest rate increases.E) None of the above
F) All of the above

Question 7

Happy Trails,a bicycle rental company,is considering purchasing three additional bicycles.Each bicycle would cost them $249.66.At the end of the first year the increase to their revenues would be $140 per bicycle.At the end of the second year the increase to their revenues again would be $140 per bicycle.Thereafter,there are no increases to their revenues.At which of the following interest rates is the sum of the present values of the additional revenues closest to the price of a bicycle?

Accepted Answer

A)   5 percent
B)   6 percent
C)   7 percent
D)   8 percentE) All of the above
F) B) and C)

Question 8

Two years ago Brian put some money into an account.He earned 6 percent interest on this account and now has about $1,000.About how much did he deposit into his account two years ago?

Accepted Answer

A)   about $860
B)   about $870
C)   about $880
D)   about $890E) C) and D)
F) A) and D)

Question 9

What's the difference between firm-specific risk and market risk? Will diversification eliminate one or both? Explain.

Accepted Answer

Market risk refers to economywide risk c...

Question 10

On the Internet you find the following offers for opening an online account.Which of them is the best offer if you have $2,000 to save for two years?

Accepted Answer

A)   an interest rate of 5 percent,with the bank charging you a $15 processing fee at the time you open your account
B)   an interest rate of 3.5 percent,with the bank giving you a $35 bonus to open your account
C)   an interest rate of 4 percent,with the bank giving you a $20 bonus at the time you open your account
D)   an interest rate of 4.5 percent,with no processing fee and no bonusE) B) and D)
F) None of the above

Question 11

Imagine that someone offers you $1,000 today or $1,500 in 5 years.You would prefer to take the $1,500 in 5 years if the interest rate is

Accepted Answer

A)   7 percent.
B)   10 percent.
C)   12 percent.
D)   All of the above are correct.E) A) and B)
F) B) and D)

Question 12

Given that Isabella is a risk-averse person,she might accept a bet with a 50 percent chance of losing $100 today if she had a 50 percent

Accepted Answer

A)   chance of winning $120 in two years and the interest rate was 11%.
B)   chance of winning $114 in two years and the interest rate was 7%.
C)   chance of winning $110 in two years and the interest rate was 3%.
D)   None of the above are correct;a risk averse person would not accept any of the above bets.E) B) and D)
F) A) and B)

Question 13

Risk aversion simply means that people dislike bad things to happen.

Accepted Answer

A) True 
 B)False

Question 14

At which interest rate is the present value of $95.40 one year from today equal to $90 today?

Accepted Answer

A)   4 percent
B)   5 percent
C)   6 percent
D)   7 percentE) A) and B)
F) A) and C)

Question 15

Marcia has four savings accounts.Which account has the largest balance?

Accepted Answer

A)   $100 deposited 1 year ago at an 8 percent interest rate
B)   $100 deposited 2 years ago at a 4 percent interest rate
C)   $100 deposited 4 years ago at a 2 percent interest rate
D)   $100 deposited 8 years ago at a 1 percent interest rateE) A) and B)
F) A) and C)

Question 16

Some people claim that stocks follow a random walk.What does this mean?

Accepted Answer

A)   The price of stock one day is about what it was on the previous day.
B)   Changes in stock prices cannot be predicted from available information.
C)   Stock prices are not determined by market fundamentals such as supply and demand.
D)   Prices of stocks of different firms in the same industry show no or little tendency to move together.E) All of the above
F) None of the above

Question 17

When he was 18,Gerald put $100 into an account at an interest rate of 8 percent.He now has $171.38 in this account.For how many years did Gerald leave this money in his account?

Accepted Answer

A)   5 years
B)   6 years
C)   7 years
D)   8 yearsE) B) and C)
F) A) and C)

Question 18

What is the present value of a payment of $2,000 to be received two years from today if the interest rate is 5%?

Accepted Answer

A)   $2205
B)   $2200
C)   $1818.18
D)   $1814.06E) B) and D)
F) B) and C)

Question 19

Other things the same,as the stocks of a greater number of corporations are held in a portfolio,

Accepted Answer

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

Question 20

According to the efficient market hypothesis,which of the following statements is not correct?

Accepted Answer

A)   Stock market prices tend to rise today if they rose yesterday.
B)   As judged by the typical person in the market,all stocks are fairly valued all the time.
C)   At the market price,the number of shares being offered for sale matches the number of shares people want to buy.
D)   All of the above statements are incorrect.E) A) and C)
F) None of the above

Exam 27: The Basic Tools of Finance

What is the present value of a payment of $2,000 to be received two years from today if the interest rate is 5%?

Correct Answer
verified

Correct Answer
verified

Risk aversion simply means that people dislike bad things to happen.

Correct Answer
verified

Which of the following is not consistent with the efficient market hypothesis?

Correct Answer
verified

What's the difference between firm-specific risk and market risk? Will diversification eliminate one or both? Explain.

Correct Answer
verified
Market risk refers to economywide risk c...
View Answer

The concept of present value helps explain why

Correct Answer
verified

At which interest rate is the present value of $95.40 one year from today equal to $90 today?

Correct Answer
verified

According to the efficient market hypothesis,which of the following statements is not correct?

Correct Answer
verified

Some people claim that stocks follow a random walk.What does this mean?

Correct Answer
verified

Figure 27-2.On the graph,x represents risk and y represents return. -Refer to Figure 27-2.Point A represents a situation in which

Correct Answer
verified

Marcia has four savings accounts.Which account has the largest balance?

Correct Answer
verified

Your accountant tells you that if you can continue to earn the current interest rate on your balance of $500 for ten years,you will have about $983.58.If your accountant is correct,what is the current rate of interest?

Correct Answer
verified

Other things the same,as the stocks of a greater number of corporations are held in a portfolio,

Correct Answer
verified

Given that Isabella is a risk-averse person,she might accept a bet with a 50 percent chance of losing $100 today if she had a 50 percent

Correct Answer
verified

On the Internet you find the following offers for opening an online account.Which of them is the best offer if you have $2,000 to save for two years?

Correct Answer
verified

Imagine that someone offers you $1,000 today or $1,500 in 5 years.You would prefer to take the $1,500 in 5 years if the interest rate is

Correct Answer
verified

When he was 18,Gerald put $100 into an account at an interest rate of 8 percent.He now has $171.38 in this account.For how many years did Gerald leave this money in his account?

Correct Answer
verified

Mixster Concrete Company is considering buying a new cement truck.The owners and their accountants decide that this is the profitable thing to do.Before they can buy the truck,the interest rate and price of trucks change.In which case do these changes both make them less likely to buy the truck?

Correct Answer
verified

Two years ago Brian put some money into an account.He earned 6 percent interest on this account and now has about $1,000.About how much did he deposit into his account two years ago?

Correct Answer
verified

Your parents put $500 into an account paying 7 percent interest for you when you were ten.Ten years later they tell you that you can take the money out of the account.What is the balance to the nearest cent?

Correct Answer
verified

Exam 27: The Basic Tools of Finance

What is the present value of a payment of $2,000 to be received two years from today if the interest rate is 5%?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Risk aversion simply means that people dislike bad things to happen.

Correct AnswerverifiedShow Answer

Which of the following is not consistent with the efficient market hypothesis?

Correct AnswerverifiedShow Answer

What's the difference between firm-specific risk and market risk? Will diversification eliminate one or both? Explain.

Correct AnswerverifiedMarket risk refers to economywide risk c...View AnswerShow Answer

The concept of present value helps explain why

Correct AnswerverifiedShow Answer

At which interest rate is the present value of $95.40 one year from today equal to $90 today?

Correct AnswerverifiedShow Answer

According to the efficient market hypothesis,which of the following statements is not correct?

Correct AnswerverifiedShow Answer

Some people claim that stocks follow a random walk.What does this mean?

Correct AnswerverifiedShow Answer

Figure 27-2.On the graph,x represents risk and y represents return. -Refer to Figure 27-2.Point A represents a situation in which

Correct AnswerverifiedShow Answer

Marcia has four savings accounts.Which account has the largest balance?

Correct AnswerverifiedShow Answer

Your accountant tells you that if you can continue to earn the current interest rate on your balance of $500 for ten years,you will have about $983.58.If your accountant is correct,what is the current rate of interest?

Correct AnswerverifiedShow Answer

Other things the same,as the stocks of a greater number of corporations are held in a portfolio,

Correct AnswerverifiedShow Answer

Given that Isabella is a risk-averse person,she might accept a bet with a 50 percent chance of losing $100 today if she had a 50 percent

Correct AnswerverifiedShow Answer

On the Internet you find the following offers for opening an online account.Which of them is the best offer if you have $2,000 to save for two years?

Correct AnswerverifiedShow Answer

Imagine that someone offers you $1,000 today or $1,500 in 5 years.You would prefer to take the $1,500 in 5 years if the interest rate is

Correct AnswerverifiedShow Answer

When he was 18,Gerald put $100 into an account at an interest rate of 8 percent.He now has $171.38 in this account.For how many years did Gerald leave this money in his account?

Correct AnswerverifiedShow Answer

Mixster Concrete Company is considering buying a new cement truck.The owners and their accountants decide that this is the profitable thing to do.Before they can buy the truck,the interest rate and price of trucks change.In which case do these changes both make them less likely to buy the truck?

Correct AnswerverifiedShow Answer

Two years ago Brian put some money into an account.He earned 6 percent interest on this account and now has about $1,000.About how much did he deposit into his account two years ago?

Correct AnswerverifiedShow Answer

Your parents put $500 into an account paying 7 percent interest for you when you were ten.Ten years later they tell you that you can take the money out of the account.What is the balance to the nearest cent?

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
verified
Market risk refers to economywide risk c...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
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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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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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