Question 1

Amanda talks with several different brokers at a social gathering. She hears the following advice from brokers A, B, and C. Which broker, if any, gave her incorrect advice?

Accepted Answer

A)   Broker A: "There are risks in holding stocks, even in a highly diversified portfolio."
B)   Broker B: "Portfolios with smaller standard deviations have lower risk."
C)   Broker C: "Stocks with greater risks offer lower average returns."
D)   They all gave her correct advice.E) B) and C)
F) A) and B)

Question 2

From the standpoint of the economy as a whole, the role of insurance is not to eliminate the risks inherent in life. Then what is its purpose?

Accepted Answer

To spread these risk...

Question 3

Suppose you are deciding whether or not to buy a particular bond for $5,980.17. If you buy the bond and hold it for 5 years, then at that time you will receive a payment of $10,000. You will buy the bond today if the interest rate is

Accepted Answer

A)   no less than 9.48 percent.
B)   no greater than 9.48 percent.
C)   no less than 10.83 percent.
D)   no greater than 10.83 percent.E) All of the above
F) A) and B)

Question 4

A company has an investment project that will cost $2 million today and yield a payoff of $3 million in 5 years. If the interest rate is 7%, should the firm undertake the project? Show evidence to support your answer.

Accepted Answer

With a 7% interest rate, the present val...

Question 5

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) A) and D)
F) A) and C)

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

Question 7

Figure 27-2. The figure shows a utility function for Britney. 
-Refer to Figure 27-2. From the appearance of the utility function, we know that

Accepted Answer

A)   Britney is risk averse.
B)   Britney gains more satisfaction when her wealth increases by X dollars than she loses in satisfaction when her wealth decreases by X dollars.
C)   the property of increasing marginal utility applies to Britney.
D)   All of the above are correct.E) A) and D)
F) None of the above

Question 8

In the 1990s, Fed Chairperson Alan Greenspan questioned whether the stock market

Accepted Answer

A)   boom at that time reflected "irrational exuberance."
B)   decline at that time reflected "irrational funk."
C)   boom at that time reflected "rational exuberance."
D)   decline at that time reflected "rational funk."E) B) and C)
F) A) and B)

Question 9

Lori, who currently owns stock in four companies, has decided to expand her portfolio by purchasing stock in virtually every company that sells stock. In doing so, Lori will

Accepted Answer

A)   increase the risk of her portfolio.
B)   decrease some, but not all, of the risk of her portfolio.
C)   decrease all of the risk of her portfolio.
D)   leave the risk of her portfolio unchanged from its present level.E) C) and D)
F) None of the above

Question 10

At an annual interest rate of 10 percent, about how many years will it take $100 to triple in value?

Accepted Answer

A)   8
B)   10
C)   12
D)   14E) B) and C)
F) A) and B)

Question 11

There are many concerns for risk-averse lenders. Consider the following: 1. Lenders are concerned that borrowers with the greatest risk are the ones most likely to actively pursue loans. 2. Lenders are concerned that real GDP will decline leading to reduced corporate profits. 3. Lenders are concerned that products produced by certain corporations will become obsolete.

Accepted Answer

A)   1 is market risk; 2 is firm-specific risk
B)   2 is market risk; 3 is firm-specific risk
C)   3 is market risk; 1 is firm-specific risk
D)   2 is firm-specific risk; 3 is market riskE) A) and D)
F) A) and C)

Question 12

Other things the same, an increase in the interest rate makes the quantity of loanable funds demanded

Accepted Answer

A)   rise, and investment spending rise.
B)   rise, and investment spending fall.
C)   fall, and investment spending rise.
D)   fall, and investment spending fall.E) B) and C)
F) A) and C)

Question 13

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 14

Fundamental analysis shows that stock in Widgets-R-Us has a present value that is lower 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 C)
F) B) and C)

Question 15

As the interest rate increases, what happens to the present value of a future payment? Explain why changes in the interest rate will lead to changes in the quantity of loanable funds demanded and investment spending.

Accepted Answer

An increase in the interest rate reduces...

Question 16

Bert put $75 into an account and one year later had $100. What interest rate was paid on Bert's deposit?

Accepted Answer

A)   20 percent
B)   25 percent
C)   28 percent
D)   None of the above is correct.E) All of the above
F) A) and C)

Question 17

A person who believes strongly in the use of fundamental analysis to choose a portfolio of stocks

Accepted Answer

A)   has a better chance of outperforming the market if stock prices follow a random walk than if they do not follow a random walk.
B)   almost always chooses to hold index funds in his or her portfolio rather than actively-managed funds.
C)   is spending his or her time wisely if the efficient markets hypothesis is correct.
D)   is interested in the likely ability of a corporation to pay dividends in the future.E) None of the above
F) A) and B)

Question 18

Which famous person referred to compounding as "the greatest mathematical discovery of all time?"

Accepted Answer

A)   Abraham Lincoln
B)   Thomas Edison
C)   Benjamin Franklin
D)   Albert EinsteinE) B) and C)
F) A) and D)

Question 19

According to the rule of 70, if the interest rate is 5 percent, how long will it take for the value of a savings account to double?

Accepted Answer

A)   about 3.5 years
B)   about 6.3 years
C)   about 12 years
D)   about 14 yearsE) A) and B)
F) A) and C)

Question 20

Figure 27-5. The figure shows a utility function for Dexter. 
-Refer to Figure 27-5. From the appearance of the graph, we know that

Accepted Answer

A)   Dexter's level of satisfaction increases by more when his wealth increases from $1,001 to $1,002 than it does when his wealth increases from $1,000 to $1,001.
B)   Dexter's level of satisfaction increases by less when his wealth increases from $1,001 to $1,002 than it does when his wealth increases from $1,000 to $1,001.
C)   Dexter's level of satisfaction increases by the same amount when his wealth increases from $1,001 to $1,002 as it does when his wealth increases from $1,000 to $1,001.
D)   None of the above answers can be inferred from the appearance of the utility function.E) A) and B)
F) A) and C)

Exam 27: The Basic Tools of Finance

Lori, who currently owns stock in four companies, has decided to expand her portfolio by purchasing stock in virtually every company that sells stock. In doing so, Lori will

Correct Answer
verified

Correct Answer
verified

Figure 27-2. The figure shows a utility function for Britney. -Refer to Figure 27-2. From the appearance of the utility function, we know that

Correct Answer
verified

Bert put $75 into an account and one year later had $100. What interest rate was paid on Bert's deposit?

Correct Answer
verified

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

Suppose you are deciding whether or not to buy a particular bond for $5,980.17. If you buy the bond and hold it for 5 years, then at that time you will receive a payment of $10,000. You will buy the bond today if the interest rate is

Correct Answer
verified

In the 1990s, Fed Chairperson Alan Greenspan questioned whether the stock market

Correct Answer
verified

According to the rule of 70, if the interest rate is 5 percent, how long will it take for the value of a savings account to double?

Correct Answer
verified

A person who believes strongly in the use of fundamental analysis to choose a portfolio of stocks

Correct Answer
verified

Which famous person referred to compounding as "the greatest mathematical discovery of all time?"

Correct Answer
verified

As the interest rate increases, what happens to the present value of a future payment? Explain why changes in the interest rate will lead to changes in the quantity of loanable funds demanded and investment spending.

Correct Answer
verified
An increase in the interest rate reduces...
View Answer

Figure 27-5. The figure shows a utility function for Dexter. -Refer to Figure 27-5. From the appearance of the graph, we know that

Correct Answer
verified

As the number of stocks in a portfolio rises,

Correct Answer
verified

From the standpoint of the economy as a whole, the role of insurance is not to eliminate the risks inherent in life. Then what is its purpose?

Correct Answer
verified
To spread these risk...
View Answer

A company has an investment project that will cost $2 million today and yield a payoff of $3 million in 5 years. If the interest rate is 7%, should the firm undertake the project? Show evidence to support your answer.

Correct Answer
verified
With a 7% interest rate, the present val...
View Answer

At an annual interest rate of 10 percent, about how many years will it take $100 to triple in value?

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

Fundamental analysis shows that stock in Widgets-R-Us has a present value that is lower than its price.

Correct Answer
verified

Amanda talks with several different brokers at a social gathering. She hears the following advice from brokers A, B, and C. Which broker, if any, gave her incorrect advice?

Correct Answer
verified

Other things the same, an increase in the interest rate makes the quantity of loanable funds demanded

Correct Answer
verified

Exam 27: The Basic Tools of Finance

Lori, who currently owns stock in four companies, has decided to expand her portfolio by purchasing stock in virtually every company that sells stock. In doing so, Lori will

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Figure 27-2. The figure shows a utility function for Britney. -Refer to Figure 27-2. From the appearance of the utility function, we know that

Correct AnswerverifiedShow Answer

Bert put $75 into an account and one year later had $100. What interest rate was paid on Bert's deposit?

Correct AnswerverifiedShow 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

Suppose you are deciding whether or not to buy a particular bond for $5,980.17. If you buy the bond and hold it for 5 years, then at that time you will receive a payment of $10,000. You will buy the bond today if the interest rate is

Correct AnswerverifiedShow Answer

In the 1990s, Fed Chairperson Alan Greenspan questioned whether the stock market

Correct AnswerverifiedShow Answer

According to the rule of 70, if the interest rate is 5 percent, how long will it take for the value of a savings account to double?

Correct AnswerverifiedShow Answer

A person who believes strongly in the use of fundamental analysis to choose a portfolio of stocks

Correct AnswerverifiedShow Answer

Which famous person referred to compounding as "the greatest mathematical discovery of all time?"

Correct AnswerverifiedShow Answer

As the interest rate increases, what happens to the present value of a future payment? Explain why changes in the interest rate will lead to changes in the quantity of loanable funds demanded and investment spending.

Correct AnswerverifiedAn increase in the interest rate reduces...View AnswerShow Answer

Figure 27-5. The figure shows a utility function for Dexter. -Refer to Figure 27-5. From the appearance of the graph, we know that

Correct AnswerverifiedShow Answer

As the number of stocks in a portfolio rises,

Correct AnswerverifiedShow Answer

From the standpoint of the economy as a whole, the role of insurance is not to eliminate the risks inherent in life. Then what is its purpose?

Correct AnswerverifiedTo spread these risk...View AnswerShow Answer

A company has an investment project that will cost $2 million today and yield a payoff of $3 million in 5 years. If the interest rate is 7%, should the firm undertake the project? Show evidence to support your answer.

Correct AnswerverifiedWith a 7% interest rate, the present val...View AnswerShow Answer

At an annual interest rate of 10 percent, about how many years will it take $100 to triple in value?

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

Fundamental analysis shows that stock in Widgets-R-Us has a present value that is lower than its price.

Correct AnswerverifiedShow Answer

Amanda talks with several different brokers at a social gathering. She hears the following advice from brokers A, B, and C. Which broker, if any, gave her incorrect advice?

Correct AnswerverifiedShow Answer

Other things the same, an increase in the interest rate makes the quantity of loanable funds demanded

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
An increase in the interest rate reduces...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
To spread these risk...
View Answer

Correct Answer
verified
With a 7% interest rate, the present val...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified