Question 1

If unexpected news raised people's expectations of a corporation's future dividends and price, then before the price changes this corporation's stock would be

Accepted Answer

A)  overvalued, so its price would rise.
B)  overvalued, so its price would fall.
C)  undervalued, so its price would rise.
D)  undervalued, so its price would fall.E) B) and C)
F) None of the above

Question 2

Suppose you put $10,000 into a bank account today that pays interest annually at an annual rate of 0.5%. What is the future value of the $10,000 after 10 years?​

Accepted Answer

A)  ​$10,050.00
B)  ​$10,511.40
C)  ​$10,573.26
D)  ​$16,288.95E) A) and B)
F) B) and D)

Question 3

According to the efficient markets hypothesis, what changes the price of a share of a corporation's stock? Make up an example.

Accepted Answer

Only news that changes the pub...

Question 4

According to the rule of 70, if a person's saving doubles in 10 years, what interest rate were they earning?

Accepted Answer

A)  3.5
B)  7
C)  14
D)  None of the above is correct.E) All of the above
F) B) and C)

Question 5

Suppose the interest rate is 7 percent. Consider four payment options:
Option A: $500 today.
Option B: $550 one year from today.
Option C: $575 two years from today.
Option D: $600 three years from today.
Which of the payments has the highest present value today?

Accepted Answer

A)  Option A
B)  Option B
C)  Option C
D)  Option DE) A) and D)
F) B) and D)

Question 6

Suppose you purchase a savings bond today for $25. In seven years you may cash in the savings bond for $50. What is the approximate interest rate paid by the savings bond?

Accepted Answer

A)  5%
B)  10%
C)  15%
D)  20%E) A) and B)
F) C) and D)

Question 7

You are considering buying a share of stock in XYZ Corporation. At the end of years 1, 2, and 3 the stock will pay you a dividend of $15. In addition, at the end of the third year you expect to sell the share of stock for $100. If the interest rate is 3%, how much is the share of XYZ stock worth to you today?

Accepted Answer

A)  $123.14
B)  $133.94
C)  $137.96
D)  $145.00E) C) and D)
F) B) and D)

Question 8

Fundamental analysis shows that stock in Cedar Valley Furniture Corporation has a price that exceeds its present value.

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

Question 9

In effect, an annuity provides insurance

Accepted Answer

A)  against the risk of dying and leaving one's family without a regular income.
B)  against the risk of living too long.
C)  to people who are not risk-averse.
D)  to people whose utility functions do not display the usual properties.E) All of the above
F) A) and B)

Question 10

Suppose your bank account pays a 4% interest rate. You are considering purchasing a share of stock in ABC Corporation for $500. The stock will pay you a $10 dividend at the end of years 1, 2, and 3. You expect to be able to sell the stock at the end of year 3 for $550. Is ABC a good investment? Provide evidence to support your answer.

Accepted Answer

The present value of the inves...

Question 11

A bond promises to pay $500 in one year and $10,500 in two years. What is the correct way to find the present value of this bond?

Accepted Answer

A)  $500(1 + r)  + $10,500/(1 + r) 2
B)  $500/(1 + r)  + $10,500/(1 + r) 2
C)  $11,000/(1 + r) 2
D)  $500(1 + r)  + $10,500(1 + r) 2E) None of the above
F) A) and B)

Question 12

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 B)
F) A) and C)

Question 13

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

Question 14

Kyle puts a greater proportion of his portfolio into government bonds. Kyle's action

Accepted Answer

A)  increases both risk and the average rate of return.
B)  decreases both risk and the average rate of return.
C)  increases risk, but decreases the average rate of return.
D)  decreases risk, but increases the average rate of return.E) All of the above
F) None of the above

Question 15

Which of the following make(s)  insurance premiums higher than otherwise?

Accepted Answer

A)  adverse selection and moral hazard
B)  adverse selection, but not moral hazard
C)  moral hazard, but not adverse selection
D)  neither adverse selection nor moral hazardE) All of the above
F) A) and B)

Question 16

Jorge deposited $1,000 into an account three years ago. The first two years he earned 5 percent interest; the third year he earned 6 percent interest. How much money does Jorge have in his account today?

Accepted Answer

A)  $1,157.90
B)  $1,168.65
C)  $1,176.00
D)  None of the above are correct to the nearest cent.E) A) and B)
F) A) and C)

Question 17

If you deposit $900 into an account for two years and the interest rate is 4%, how much do you have at the end of the two years?

Accepted Answer

A)  $972.00
B)  $973.44
C)  $974.19
D)  None of the above is correct.E) B) and C)
F) None of the above

Question 18

What is meant by an asset bubble?

Accepted Answer

The price of an asse...

Question 19

Cleo promises to pay Jacques $1,000 two years from today. If the interest rate is 4 percent, then how much is this future payment worth today?

Accepted Answer

A)  $924.56
B)  $931.44
C)  $937.87
D)  None of the above are correct to the nearest cent.E) All of the above
F) A) and D)

Question 20

Figure 27-1. The figure shows a utility function. 
-Refer to Figure 27-1. Let 0A represent the distance between the origin and point A; let AB represent the distance between point A and point B; etc. Which of the following ratios best represents the marginal utility per dollar when wealth increases from $400 to $600?

Accepted Answer

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

Exam 27: Tools of Finance

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

Correct Answer
verified

A bond promises to pay $500 in one year and $10,500 in two years. What is the correct way to find the present value of this bond?

Correct Answer
verified

Jorge deposited $1,000 into an account three years ago. The first two years he earned 5 percent interest; the third year he earned 6 percent interest. How much money does Jorge have in his account today?

Correct Answer
verified

If you deposit $900 into an account for two years and the interest rate is 4%, how much do you have at the end of the two years?

Correct Answer
verified

According to the efficient markets hypothesis, what changes the price of a share of a corporation's stock? Make up an example.

Correct Answer
verified
Only news that changes the pub...
View Answer

According to the rule of 70, if a person's saving doubles in 10 years, what interest rate were they earning?

Correct Answer
verified

What is meant by an asset bubble?

Correct Answer
verified
The price of an asse...
View Answer

Which of the following make(s) insurance premiums higher than otherwise?

Correct Answer
verified

Correct Answer
verified
The present value of the inves...
View Answer

Suppose you purchase a savings bond today for $25. In seven years you may cash in the savings bond for $50. What is the approximate interest rate paid by the savings bond?

Correct Answer
verified

Correct Answer
verified

Suppose the interest rate is 7 percent. Consider four payment options: Option A: $500 today. Option B: $550 one year from today. Option C: $575 two years from today. Option D: $600 three years from today. Which of the payments has the highest present value today?

Correct Answer
verified

Kyle puts a greater proportion of his portfolio into government bonds. Kyle's action

Correct Answer
verified

Cleo promises to pay Jacques $1,000 two years from today. If the interest rate is 4 percent, then how much is this future payment worth today?

Correct Answer
verified

If unexpected news raised people's expectations of a corporation's future dividends and price, then before the price changes this corporation's stock would be

Correct Answer
verified

In effect, an annuity provides insurance

Correct Answer
verified

Suppose you put $10,000 into a bank account today that pays interest annually at an annual rate of 0.5%. What is the future value of the $10,000 after 10 years?

Correct Answer
verified

Fundamental analysis shows that stock in Cedar Valley Furniture Corporation has a price that exceeds its present value.

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

Exam 27: Tools of Finance

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

Correct AnswerverifiedShow Answer

A bond promises to pay $500 in one year and $10,500 in two years. What is the correct way to find the present value of this bond?

Correct AnswerverifiedShow Answer

Jorge deposited $1,000 into an account three years ago. The first two years he earned 5 percent interest; the third year he earned 6 percent interest. How much money does Jorge have in his account today?

Correct AnswerverifiedShow Answer

If you deposit $900 into an account for two years and the interest rate is 4%, how much do you have at the end of the two years?

Correct AnswerverifiedShow Answer

According to the efficient markets hypothesis, what changes the price of a share of a corporation's stock? Make up an example.

Correct AnswerverifiedOnly news that changes the pub...View AnswerShow Answer

According to the rule of 70, if a person's saving doubles in 10 years, what interest rate were they earning?

Correct AnswerverifiedShow Answer

What is meant by an asset bubble?

Correct AnswerverifiedThe price of an asse...View AnswerShow Answer

Which of the following make(s) insurance premiums higher than otherwise?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe present value of the inves...View AnswerShow Answer

Suppose you purchase a savings bond today for $25. In seven years you may cash in the savings bond for $50. What is the approximate interest rate paid by the savings bond?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Suppose the interest rate is 7 percent. Consider four payment options: Option A: $500 today. Option B: $550 one year from today. Option C: $575 two years from today. Option D: $600 three years from today. Which of the payments has the highest present value today?

Correct AnswerverifiedShow Answer

Kyle puts a greater proportion of his portfolio into government bonds. Kyle's action

Correct AnswerverifiedShow Answer

Cleo promises to pay Jacques $1,000 two years from today. If the interest rate is 4 percent, then how much is this future payment worth today?

Correct AnswerverifiedShow Answer

If unexpected news raised people's expectations of a corporation's future dividends and price, then before the price changes this corporation's stock would be

Correct AnswerverifiedShow Answer

In effect, an annuity provides insurance

Correct AnswerverifiedShow Answer

Suppose you put $10,000 into a bank account today that pays interest annually at an annual rate of 0.5%. What is the future value of the $10,000 after 10 years?​

Correct AnswerverifiedShow Answer

Fundamental analysis shows that stock in Cedar Valley Furniture Corporation has a price that exceeds its present value.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Only news that changes the pub...
View Answer

Correct Answer
verified

Correct Answer
verified
The price of an asse...
View Answer

Correct Answer
verified

Correct Answer
verified
The present value of the inves...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Suppose you put $10,000 into a bank account today that pays interest annually at an annual rate of 0.5%. What is the future value of the $10,000 after 10 years?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified