Question 1

According to the efficient markets hypothesis,stocks follow a random walk so that stocks that increase in price one year are more likely to increase than decrease in the next year.

Accepted Answer

A) True 
 B)False

Question 2

The risk of a portfolio

Accepted Answer

A)   increases as the number of stocks in the portfolio increases.
B)   is usually measured using a statistic called the standard diversification.
C)   is positively related to the average return of the portfolio.
D)   bears no relationship to the average return of the portfolio.E) A) and B)
F) A) and C)

Question 3

Figure 14-3.The figure shows a utility function for Rob. 
-Refer to Figure 14-3.If most people's utility functions look like Rob's utility function,then it is easy to explain why

Accepted Answer

A)   people buy various types of insurance.
B)   we observe a trade-off between risk and return.
C)   most people prefer to hold diversified portfolios of assets to undiversified portfolios of assets.
D)   None of the above are correct.E) A) and B)
F) A) and C)

Question 4

If the interest rate is 4%,in which of the following cases is the future value the largest?

Accepted Answer

A)   An initial value of $1,000 deposited for 5 years.
B)   An initial value of $950 deposited for 6 years.
C)   An initial value of $900 deposited for 7 years.
D)   An initial value of $850 deposited for 8 years.E) B) and D)
F) None of the above

Question 5

Of the following interest rates,which is the highest one at which you would prefer to have $170 ten years from today instead of $100 today?

Accepted Answer

A)   3 percent
B)   5 percent
C)   7 percent
D)   9 percentE) B) and C)
F) All of the above

Question 6

Fundamental analysis shows that stock in Garske Software 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 B)
F) B) and C)

Question 7

At an annual interest rate of 20 percent,about how many years will it take $100 to triple in value?

Accepted Answer

A)   5
B)   6
C)   8
D)   9E) B) and C)
F) A) and D)

Question 8

As the number of stocks in a portfolio rises,

Accepted Answer

A)   both firm-specific risks and market risk fall.
B)   firm-specific risks fall;market risk does not.
C)   market risk falls;firm-specific risks do not.
D)   neither firm-specific risks nor market risk falls.E) A) and B)
F) All of the above

Question 9

Which of the following is correct concerning stock market irrationality?

Accepted Answer

A)   Bubbles could arise,in part,because the price that people pay for stock depends on what they think someone else will pay for it in the future.
B)   Economists almost all agree that the evidence for stock market irrationality is convincing and the departures from rational pricing are important.
C)   Some evidence for the existence of market irrationality is that informed and presumably rational managers of mutual funds generally beat the market.
D)   All of the above are correct.E) A) and B)
F) C) and D)

Question 10

Write the formula for finding the future value of $1,000 today in 10 years if the interest rate is 4 percent.

Accepted Answer

The answer of Write the formula for finding the future...

Question 11

The word "efficient" in the term "efficient markets hypothesis" refers to the idea that

Accepted Answer

A)   fundamental analysis is an efficient way to go about choosing which stocks to buy or sell.
B)   stock prices move upward and downward "efficiently," rather than following a "random walk."
C)   the stock market is "informationally efficient."
D)   All of the above are correct.E) B) and C)
F) None of the above

Question 12

A person's subjective measure of well-being or satisfaction is called aversion.

Accepted Answer

A) True 
 B)False

Question 13

Three years ago Heidi put $1,200 into an account paying 2 percent interest.How much is the account worth today?

Accepted Answer

A)   $1,225.38
B)   $1,248.48
C)   $1,264.72
D)   $1,273.45E) A) and D)
F) B) and C)

Question 14

Tonya put $250 into an account three years ago.The first year he earned 6 percent interest,the second year 7 percent,and the third year 8 percent.About how about much does Tonya have in her account now?

Accepted Answer

A)   $302.50
B)   $306.23
C)   $308.67
D)   $309.39E) A) and C)
F) None of the above

Question 15

A car salesperson gives you four alternative ways to pay for your car.The first is to pay $18,000 today.The second is to pay $19,000 one year from today.The third is to pay $20,300 two years from today.The fourth is to pay $21,500 three years from today.If the interest rate is 6 percent,which payment option has the lowest present value and which has the highest?

Accepted Answer

A)   The first is lowest;the second is highest.
B)   The second is lowest;the third is highest.
C)   The third is lowest;the fourth is highest.
D)   The fourth is lowest;the first is highest.E) C) and D)
F) B) and C)

Question 16

When he was 18,Hussam put $100 into an account at an interest rate of 8 percent.He now has $158.69 in this account.For how many years did Hussam leave this money in his account?

Accepted Answer

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

Question 17

Greg's Tasty Ice Cream is considering building a new ice cream factory that costs $8.3 million.The company accountants believe that,not accounting for interest costs,building the factory will increase profits by $5 million the first year,$4 million the second year and have no value thereafter.Greg's Tasty Ice Cream should build the factory if the interest rate is

Accepted Answer

A)   3% but not if it is 4%.
B)   4% but not if it is 5%.
C)   5% but not if it is 6%.
D)   6% but not if it is 7%.E) C) and D)
F) A) and D)

Question 18

Diversification cannot reduce market risk.

Accepted Answer

A) True 
 B)False

Question 19

You could borrow $1,000 today from Bank A and repay the loan,with interest,by paying Bank A $1,060 one year from today.Or,you could borrow $1,500 today from Bank B and repay the loan,with interest,by paying Bank B $1,600 one year from today.Which of the following statements is correct?

Accepted Answer

A)   The interest rate on the loan from Bank A is higher than the interest rate on the loan from Bank B.
B)   The interest rate on the loan from Bank A is lower than the interest rate on the loan from Bank B.
C)   The interest rates on the two loans are the same.
D)   There is not enough information to determine which loan has the higher interest rate.E) B) and D)
F) A) and B)

Question 20

Risk-averse individuals like good things more than they dislike comparable bad things.

Accepted Answer

A) True 
 B)False

Exam 27: The Basic Tools of Finance

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

Correct Answer
verified

When he was 18,Hussam put $100 into an account at an interest rate of 8 percent.He now has $158.69 in this account.For how many years did Hussam leave this money in his account?

Correct Answer
verified

At an annual interest rate of 20 percent,about how many years will it take $100 to triple in value?

Correct Answer
verified

Risk-averse individuals like good things more than they dislike comparable bad things.

Correct Answer
verified

According to the efficient markets hypothesis,stocks follow a random walk so that stocks that increase in price one year are more likely to increase than decrease in the next year.

Correct Answer
verified

Which of the following is correct concerning stock market irrationality?

Correct Answer
verified

As the number of stocks in a portfolio rises,

Correct Answer
verified

Correct Answer
verified

Write the formula for finding the future value of $1,000 today in 10 years if the interest rate is 4 percent.

Correct Answer
verified

The risk of a portfolio

Correct Answer
verified

Tonya put $250 into an account three years ago.The first year he earned 6 percent interest,the second year 7 percent,and the third year 8 percent.About how about much does Tonya have in her account now?

Correct Answer
verified

Correct Answer
verified

You could borrow $1,000 today from Bank A and repay the loan,with interest,by paying Bank A $1,060 one year from today.Or,you could borrow $1,500 today from Bank B and repay the loan,with interest,by paying Bank B $1,600 one year from today.Which of the following statements is correct?

Correct Answer
verified

Figure 14-3.The figure shows a utility function for Rob. -Refer to Figure 14-3.If most people's utility functions look like Rob's utility function,then it is easy to explain why

Correct Answer
verified

A person's subjective measure of well-being or satisfaction is called aversion.

Correct Answer
verified

If the interest rate is 4%,in which of the following cases is the future value the largest?

Correct Answer
verified

Three years ago Heidi put $1,200 into an account paying 2 percent interest.How much is the account worth today?

Correct Answer
verified

The word "efficient" in the term "efficient markets hypothesis" refers to the idea that

Correct Answer
verified

Diversification cannot reduce market risk.

Correct Answer
verified

Of the following interest rates,which is the highest one at which you would prefer to have $170 ten years from today instead of $100 today?

Correct Answer
verified

Exam 27: The Basic Tools of Finance

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

Correct AnswerverifiedShow Answer

When he was 18,Hussam put $100 into an account at an interest rate of 8 percent.He now has $158.69 in this account.For how many years did Hussam leave this money in his account?

Correct AnswerverifiedShow Answer

At an annual interest rate of 20 percent,about how many years will it take $100 to triple in value?

Correct AnswerverifiedShow Answer

Risk-averse individuals like good things more than they dislike comparable bad things.

Correct AnswerverifiedShow Answer

According to the efficient markets hypothesis,stocks follow a random walk so that stocks that increase in price one year are more likely to increase than decrease in the next year.

Correct AnswerverifiedShow Answer

Which of the following is correct concerning stock market irrationality?

Correct AnswerverifiedShow Answer

As the number of stocks in a portfolio rises,

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Write the formula for finding the future value of $1,000 today in 10 years if the interest rate is 4 percent.

Correct AnswerverifiedShow Answer

The risk of a portfolio

Correct AnswerverifiedShow Answer

Tonya put $250 into an account three years ago.The first year he earned 6 percent interest,the second year 7 percent,and the third year 8 percent.About how about much does Tonya have in her account now?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

You could borrow $1,000 today from Bank A and repay the loan,with interest,by paying Bank A $1,060 one year from today.Or,you could borrow $1,500 today from Bank B and repay the loan,with interest,by paying Bank B $1,600 one year from today.Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Figure 14-3.The figure shows a utility function for Rob. -Refer to Figure 14-3.If most people's utility functions look like Rob's utility function,then it is easy to explain why

Correct AnswerverifiedShow Answer

A person's subjective measure of well-being or satisfaction is called aversion.

Correct AnswerverifiedShow Answer

If the interest rate is 4%,in which of the following cases is the future value the largest?

Correct AnswerverifiedShow Answer

Three years ago Heidi put $1,200 into an account paying 2 percent interest.How much is the account worth today?

Correct AnswerverifiedShow Answer

The word "efficient" in the term "efficient markets hypothesis" refers to the idea that

Correct AnswerverifiedShow Answer

Diversification cannot reduce market risk.

Correct AnswerverifiedShow Answer

Of the following interest rates,which is the highest one at which you would prefer to have $170 ten years from today instead of $100 today?

Correct AnswerverifiedShow Answer

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