Question 1

Imagine that two years ago you inherited $20,000 and put it into an account paying a fixed 8 percent annual interest rate.How much money do you have in your account now?

Accepted Answer

A)   $22,880.00
B)   $23,200.00
C)   $23,232.00
D)   $23,328.00E) A) and B)
F) A) and C)

Question 2

A firm has three different investment options.Option A will give the firm $10 million at the end of one year,$10 million at the end of two years,and $10 million at the end of three years.Option B will give the firm $15 million at the end of one year,$10 million at the end of two years,and $5 million at the end of three years.Option C will give the firm $30 million at the end of one year,and nothing thereafter.Which of these options has the highest present value?

Accepted Answer

A)   Option A
B)   Option B
C)   Option C
D)   The answer depends on the rate of interest,which is not specified here.E) All of the above
F) B) and C)

Question 3

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

Question 4

The efficient markets hypothesis says that

Accepted Answer

A)   only individual investors can make money in the stock market.
B)   it should be difficult to find stocks whose price differs from their fundamental value.
C)   stock prices do not follow a random walk.
D)   All of the above are correct.E) C) and D)
F) B) and C)

Question 5

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

Question 6

A manufacturing company is thinking about building a new factory.The factory,if built,will yield the company $300 million in 7 years,and it would cost $220 million today to build.The company will decide to build the factory if the interest rate is

Accepted Answer

A)   no less than 4.53 percent.
B)   no greater than 4.53 percent.
C)   no less than 5.81 percent.
D)   no greater than 5.81 percent.E) B) and D)
F) B) and C)

Question 7

Research studies have shown that

Accepted Answer

A)   the correlation between how well a stock does one year and how well it does the next is significantly greater than zero.
B)   managed mutual funds generally outperform indexed mutual funds.
C)   people tend to be overconfident when making investment decisions.
D)   All of the above are correct.E) C) and D)
F) A) and B)

Question 8

Which of the following is correct if the interest rate is 6 percent?

Accepted Answer

A)   $215 to be received a year from today has a present value of over $200;$420 a year from now has a present value over $400.
B)   $215 to be received a year from today has a present value of over $200;$420 a year from now has a present value under $400.
C)   $215 to be received a year from today has a present value of under $200;$420 a year from now has a present value over $400.
D)   $215 to be received a year from today has a present value of under $200;$420 a year from now has a present value under $400.E) A) and D)
F) B) and C)

Question 9

In which of the following instances is the present value of the future payment the largest?

Accepted Answer

A)   You will receive $1,000 in 5 years and the annual interest rate is 5 percent.
B)   You will receive $1,000 in 10 years and the annual interest rate is 3 percent.
C)   You will receive $2,000 in 10 years and the annual interest rate is 10 percent.
D)   You will receive $2,400 in 15 years and the annual interest rate is 8 percent.E) B) and D)
F) A) and C)

Question 10

Samantha deposits $250 into an account and one year later has $270.What interest rate was paid on Samantha's deposit?

Accepted Answer

A)   8 percent
B)   9 percent
C)   10 percent
D)   None of the above is correct.E) None of the above
F) A) and C)

Question 11

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 12

The idea of insurance

Accepted Answer

A)   would not appeal to a risk-averse person.
B)   is,other things the same,to reduce the probability of a fire,accident,or death.
C)   is to share risk.
D)   is to provide a sure thing,not a gamble.E) B) and D)
F) A) and D)

Question 13

The price of a bond is equal to the sum of the present value of its future payments.Suppose a certain bond pays $50 one year from today,and $1,050 two years from today.What is the price of this bond if the interest rate is 5 percent?

Accepted Answer

A)   $1,000
B)   $1,050
C)   $1,100
D)   None of the above is correct.E) A) and B)
F) All of the above

Question 14

You have been promised a payment of $400 in the future.In which case is the present value of this payment highest?

Accepted Answer

A)   You receive the payment 4 years from now and the interest rate is 4 percent.
B)   You receive the payment 4 years from now and the interest rate is 5 percent.
C)   You receive the payment 5 years from now and the interest rate is 4 percent.
D)   You receive the payment 5 years from now and the interest rate is 5 percent.E) All of the above
F) None of the above

Question 15

Natasha promises to pay Jennifer $1,000 in two years.If the interest rate is 6 percent,how much is this future payment worth today?

Accepted Answer

A)   $883.60
B)   $887.97
C)   $890.00
D)   None of the above are correct to the nearest cent.E) C) and D)
F) None of the above

Question 16

According to the efficient markets hypothesis,better-than-expected news about a corporation will

Accepted Answer

A)   have no effect on it's stock price.
B)   raise the price of the stock.
C)   lower the price of the stock.
D)   change the price of the stock in a random direction.E) None of the above
F) A) and C)

Question 17

In the 1990s,several stocks had very,very high price to earnings ratios.These stocks appeared overvalued to many observers.What might the people who bought them have been thinking?

Accepted Answer

There are several possibilities.The firs...

Question 18

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 19

What is the present value of a payment of $150 one year from today if the interest rate is 6 percent?

Accepted Answer

A)   $141.11
B)   $141.36
C)   $141.75
D)   None of the above are correct to the nearest cent.E) A) and B)
F) A) and C)

Question 20

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

Exam 27: The Basic Tools of Finance

Samantha deposits $250 into an account and one year later has $270.What interest rate was paid on Samantha's deposit?

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

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

Correct Answer
verified

The price of a bond is equal to the sum of the present value of its future payments.Suppose a certain bond pays $50 one year from today,and $1,050 two years from today.What is the price of this bond if the interest rate is 5 percent?

Correct Answer
verified

Imagine that two years ago you inherited $20,000 and put it into an account paying a fixed 8 percent annual interest rate.How much money do you have in your account now?

Correct Answer
verified

According to the efficient markets hypothesis,better-than-expected news about a corporation will

Correct Answer
verified

Natasha promises to pay Jennifer $1,000 in two years.If the interest rate is 6 percent,how much is this future payment worth today?

Correct Answer
verified

In which of the following instances is the present value of the future payment the largest?

Correct Answer
verified

Which of the following is correct if the interest rate is 6 percent?

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

A manufacturing company is thinking about building a new factory.The factory,if built,will yield the company $300 million in 7 years,and it would cost $220 million today to build.The company will decide to build the factory if the interest rate is

Correct Answer
verified

The efficient markets hypothesis says that

Correct Answer
verified

In the 1990s,several stocks had very,very high price to earnings ratios.These stocks appeared overvalued to many observers.What might the people who bought them have been thinking?

Correct Answer
verified
There are several possibilities.The firs...
View Answer

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

You have been promised a payment of $400 in the future.In which case is the present value of this payment highest?

Correct Answer
verified

The idea of insurance

Correct Answer
verified

What is the present value of a payment of $150 one year from today if the interest rate is 6 percent?

Correct Answer
verified

Research studies have shown that

Correct Answer
verified

Correct Answer
verified

Exam 27: The Basic Tools of Finance

Samantha deposits $250 into an account and one year later has $270.What interest rate was paid on Samantha's deposit?

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

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

Correct AnswerverifiedShow Answer

The price of a bond is equal to the sum of the present value of its future payments.Suppose a certain bond pays $50 one year from today,and $1,050 two years from today.What is the price of this bond if the interest rate is 5 percent?

Correct AnswerverifiedShow Answer

Imagine that two years ago you inherited $20,000 and put it into an account paying a fixed 8 percent annual interest rate.How much money do you have in your account now?

Correct AnswerverifiedShow Answer

According to the efficient markets hypothesis,better-than-expected news about a corporation will

Correct AnswerverifiedShow Answer

Natasha promises to pay Jennifer $1,000 in two years.If the interest rate is 6 percent,how much is this future payment worth today?

Correct AnswerverifiedShow Answer

In which of the following instances is the present value of the future payment the largest?

Correct AnswerverifiedShow Answer

Which of the following is correct if the interest rate is 6 percent?

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

A manufacturing company is thinking about building a new factory.The factory,if built,will yield the company $300 million in 7 years,and it would cost $220 million today to build.The company will decide to build the factory if the interest rate is

Correct AnswerverifiedShow Answer

The efficient markets hypothesis says that

Correct AnswerverifiedShow Answer

In the 1990s,several stocks had very,very high price to earnings ratios.These stocks appeared overvalued to many observers.What might the people who bought them have been thinking?

Correct AnswerverifiedThere are several possibilities.The firs...View AnswerShow Answer

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

You have been promised a payment of $400 in the future.In which case is the present value of this payment highest?

Correct AnswerverifiedShow Answer

The idea of insurance

Correct AnswerverifiedShow Answer

What is the present value of a payment of $150 one year from today if the interest rate is 6 percent?

Correct AnswerverifiedShow Answer

Research studies have shown that

Correct AnswerverifiedShow Answer

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
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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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There are several possibilities.The firs...
View 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
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Correct Answer
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Correct Answer
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