Question 1

Albert Einstein once referred to compounding as

Accepted Answer

A)  "an obsession among economists that defies explanation."
B)  "the greatest mathematical discovery of all time."
C)  his own discovery.
D)  John Maynard Keynes's greatest contribution.E) B) and D)
F) A) and B)

Question 2

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 3

Draw graphs showing the following three relationships.
1.The relation between utility and wealth for a risk averse consumer.
2.The relation between standard deviation and the number of stocks in a portfolio.
3.The relation between return and risk.

Accepted Answer

The answer of Draw graphs showing the following three relationships.
1.The...

Question 4

Which,if any,of the present values below are computed correctly?

Accepted Answer

A)  A payment of 100 dinars to be received one year from today,with a 2 percent interest rate,has a present value of 98.81.
B)  A payment of 200 dinars to be received two years from today,with a 3 percent interest rate,has a present value of 188.52.
C)  A payment of 300 dinars to be received three years from today,with a 4 percent interest rate,has a present value of 234.34.
D)  None of the above are correct to the nearest cent.E) B) and C)
F) A) and D)

Question 5

If the interest rate is r percent,then the rule of 70 says that your savings will double about every

Accepted Answer

A)  70/(1 - r) years.
B)  70/(1 + r) years.
C)  70/r years.
D)  70(1 + r) /r years.E) A) and D)
F) C) and D)

Question 6

Adverse selection is illustrated by people who take greater risks after they purchase insurance.

Accepted Answer

A) True 
 B)False

Question 7

Economists disagree as to whether

Accepted Answer

A)  the stock price of a company should reflect the company's expected profitability.
B)  the basic tools of finance reflect valid ideas.
C)  stock prices reflect rational estimates of a company's true worth.
D)  there is any relationship between stock market fluctuations and fluctuations in the economy more broadly.E) A) and B)
F) All of the above

Question 8

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 9

Which of the following changes would decrease the present value of a future payment?

Accepted Answer

A)  a decrease in the size of the payment
B)  an increase in the time until the payment is made
C)  an increase in the interest rate
D)  All of the above are correct.E) All of the above
F) B) and C)

Question 10

If the efficient markets hypothesis is correct,then

Accepted Answer

A)  the number of shares of stock offered for sale exceeds the number of shares of stock that people want to buy.
B)  the stock market is informationally efficient.
C)  stock prices never follow a random walk.
D)  All of the above are correct.E) B) and C)
F) None of the above

Question 11

Which of the following best illustrates moral hazard?

Accepted Answer

A)  After a person obtains life insurance,she takes up skydiving.
B)  A person obtains insurance knowing he is in poor health.
C)  A person holds stock only in very risky corporations.
D)  A person holds stocks from only a few corporations.E) C) and D)
F) A) and B)

Question 12

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

Question 13

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)    0 A600\frac { 0 \mathrm {~A} } { 600 }6000 A​ 
B)    AB600\frac { A B } { 600 }600AB​ 
C)    0B200\frac { 0 B } { 200 }2000B​ 
D)    AB200\frac { A B } { 200 }200AB​E) C) and D)
F) All of the above

Question 14

Historically the return on stocks has been higher than the return on bonds.In part this reflects the higher risk from holding stock.

Accepted Answer

A) True 
 B)False

Question 15

Discounting refers directly to

Accepted Answer

A)  finding the present value of a future sum of money.
B)  finding the future value of a present sum of money.
C)  calculations that ignore the phenomenon of compounding for the sake of ease and simplicity.
D)  decreases in interest rates over time,while compounding refers to increases in interest rates over time.E) All of the above
F) None of the above

Question 16

Three people go to the bank to cash in their accounts.Amy had her money in an account for 25 years at 4 percent interest.Bill had his money in an account for 20 years at 5 percent interest.Celia had her money in an account for 5 years at 20 percent interest.If each of them originally deposited 500 dollars in their accounts,which of them gets the most money when they cash in their accounts?

Accepted Answer

A)  Amy
B)  Bill
C)  Celia
D)  They each get the same amount.E) A) and C)
F) B) and C)

Question 17

Sometimes On Time (SOT) Airlines is considering buying a new jet.SOT would be more likely to buy a new jet if there were either

Accepted Answer

A)  a decrease in the price of a new jet or a decrease in the interest rate.
B)  a decrease in the price of a new jet or an increase in the interest rate.
C)  an increase in the price of a new jet or a decrease in the interest rate.
D)  an increase in the price of a new jet or an increase in the interest rate.E) A) and B)
F) A) and C)

Question 18

According to the rule of 70,if you earn an interest rate of 3.5 percent,your savings will double about every 20 years.

Accepted Answer

A) True 
 B)False

Question 19

Diversification cannot reduce market risk.

Accepted Answer

A) True 
 B)False

Question 20

A company that produces computer peripherals is considering buying some new equipment that it expects will increase future profits.If the interest rate rises,the present value of these future earnings

Accepted Answer

A)  rises.The company is more likely to buy the equipment.
B)  rises.The company is less likely to buy the equipment.
C)  falls.The company is more likely to buy the equipment.
D)  falls.The company is less likely to buy the equipment.E) A) and D)
F) A) and C)

Exam 27: The Basic Tools of Finance

If the interest rate is r percent,then the rule of 70 says that your savings will double about every

Correct Answer
verified

According to the rule of 70,if you earn an interest rate of 3.5 percent,your savings will double about every 20 years.

Correct Answer
verified

Which,if any,of the present values below are computed correctly?

Correct Answer
verified

Diversification cannot reduce market risk.

Correct Answer
verified

If the efficient markets hypothesis is correct,then

Correct Answer
verified

Discounting refers directly to

Correct Answer
verified

Adverse selection is illustrated by people who take greater risks after they purchase insurance.

Correct Answer
verified

Correct Answer
verified

Historically the return on stocks has been higher than the return on bonds.In part this reflects the higher risk from holding stock.

Correct Answer
verified

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

Correct Answer
verified

Sometimes On Time (SOT) Airlines is considering buying a new jet.SOT would be more likely to buy a new jet if there were either

Correct Answer
verified

A company that produces computer peripherals is considering buying some new equipment that it expects will increase future profits.If the interest rate rises,the present value of these future earnings

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

Which of the following changes would decrease the present value of a future payment?

Correct Answer
verified

Which of the following best illustrates moral hazard?

Correct Answer
verified

Draw graphs showing the following three relationships. 1.The relation between utility and wealth for a risk averse consumer. 2.The relation between standard deviation and the number of stocks in a portfolio. 3.The relation between return and risk.

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

Correct Answer
verified

Albert Einstein once referred to compounding as

Correct Answer
verified

Economists disagree as to whether

Correct Answer
verified

Exam 27: The Basic Tools of Finance

If the interest rate is r percent,then the rule of 70 says that your savings will double about every

Correct AnswerverifiedShow Answer

According to the rule of 70,if you earn an interest rate of 3.5 percent,your savings will double about every 20 years.

Correct AnswerverifiedShow Answer

Which,if any,of the present values below are computed correctly?

Correct AnswerverifiedShow Answer

Diversification cannot reduce market risk.

Correct AnswerverifiedShow Answer

If the efficient markets hypothesis is correct,then

Correct AnswerverifiedShow Answer

Discounting refers directly to

Correct AnswerverifiedShow Answer

Adverse selection is illustrated by people who take greater risks after they purchase insurance.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Historically the return on stocks has been higher than the return on bonds.In part this reflects the higher risk from holding stock.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Sometimes On Time (SOT) Airlines is considering buying a new jet.SOT would be more likely to buy a new jet if there were either

Correct AnswerverifiedShow Answer

A company that produces computer peripherals is considering buying some new equipment that it expects will increase future profits.If the interest rate rises,the present value of these future earnings

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

Which of the following changes would decrease the present value of a future payment?

Correct AnswerverifiedShow Answer

Which of the following best illustrates moral hazard?

Correct AnswerverifiedShow Answer

Draw graphs showing the following three relationships. 1.The relation between utility and wealth for a risk averse consumer. 2.The relation between standard deviation and the number of stocks in a portfolio. 3.The relation between return and risk.

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

Correct AnswerverifiedShow Answer

Albert Einstein once referred to compounding as

Correct AnswerverifiedShow Answer

Economists disagree as to whether

Correct AnswerverifiedShow Answer

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