Question 1

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

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

Question 2

According to the efficient market hypothesis, which of the following statements is not correct?

Accepted Answer

A) Stock market prices tend to rise today if they rose yesterday. 
B) As judged by the typical person in the market, all stocks are fairly valued all the time. 
C) At the market price, the number of shares being offered for sale matches the number of shares people want to buy. 
D) All of the above statements are incorrect. 
A) Stock market prices tend to rise today if they rose yesterday. 
B) As judged by the typical person in the market, all stocks are fairly valued all the time. 
C) At the market price, the number of shares being offered for sale matches the number of shares people want to buy. 
D) All of the above statements are incorrect.

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

What is the present value of a payment of $100 to be made one year from today?

Accepted Answer

A) $100*(1 + r) 
B) $100/(1 + r) 
C) $100 - $100   r 
D) $100 - (1 + r)/$100 
A) $100*(1 + r) 
B) $100/(1 + r) 
C) $100 - $100   r 
D) $100 - (1 + r)/$100

Question 5

Diversification of a portfolio

Accepted Answer

A) can eliminate market risk, but it cannot eliminate firm-specific risk. 
B) can eliminate firm-specific risk, but it cannot eliminate market risk. 
C) increases the portfolio's standard deviation. 
D) is not necessary for a person who is risk averse. 
A) can eliminate market risk, but it cannot eliminate firm-specific risk. 
B) can eliminate firm-specific risk, but it cannot eliminate market risk. 
C) increases the portfolio's standard deviation. 
D) is not necessary for a person who is risk averse.

Question 6

If you believe the stock market is informationally efficient, then it is a waste of time to engage in fundamental analysis.

Accepted Answer

A) True 
 B)False

Question 7

Other things the same, when the interest rate rises, the present value of future revenues from investment projects

Accepted Answer

A) rises, so investment spending rises. 
B) falls, so investment spending rises. 
C) rises, so investment spending falls. 
D) falls, so investment spending falls. 
A) rises, so investment spending rises. 
B) falls, so investment spending rises. 
C) rises, so investment spending falls. 
D) falls, so investment spending falls.

Question 8

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

Accepted Answer

A) 5 
B) 7 
C) 9 
D) 11 
A) 5 
B) 7 
C) 9 
D) 11

Question 9

You have a contract with someone who has agreed to pay you $20,000 in four years. She offers to pay you now instead. For which of the following interest rates and payments would you take the money today?.

Accepted Answer

A) 8 percent, $15,000 
B) 7 percent, $16,000 
C) 6 percent, $17,000 
D) All of the above are correct. 
A) 8 percent, $15,000 
B) 7 percent, $16,000 
C) 6 percent, $17,000 
D) All of the above are correct.

Question 10

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. 
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.

Question 11

Writing in the Wall Street Journal in 2009, economist Jeremy Siegel argued that, in the years leading up to the financial crisis of 2008-2009,

Accepted Answer

A) financial firms acted in too risky a fashion. 
B) the Federal Reserves's efforts to rein in the risky behavior of certain financial firms were inadequate. 
C) falling house prices "crashed the banks and the economy." 
D) All of the above are correct. 
A) financial firms acted in too risky a fashion. 
B) the Federal Reserves's efforts to rein in the risky behavior of certain financial firms were inadequate. 
C) falling house prices "crashed the banks and the economy." 
D) All of the above are correct.

Question 12

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 fir

Question 13

Risk-averse persons will take no risks.

Accepted Answer

A) True 
 B)False

Question 14

Two years ago Lenny put some money into an account. He earned 6 percent interest on this account and now he has about $1,000. About how much did Lenny deposit into his account two years ago?

Accepted Answer

A) about $860 
B) about $870 
C) about $880 
D) about $890 
A) about $860 
B) about $870 
C) about $880 
D) about $890

Question 15

After much anticipation a company releases a new smartphone. The smartphone doesn't work as well as expected and lacks many of the features buyers had been expecting. The unexpectedly negative reaction to the smartphone would

Accepted Answer

A) raise the present value and the price of the corporation's stock. 
B) raise the present value and reduce the price of the corporation's stock. 
C) reduce the present value and the price of the corporation's stock. 
D) reduce the present value and raise the price of the corporation's stock. 
A) raise the present value and the price of the corporation's stock. 
B) raise the present value and reduce the price of the corporation's stock. 
C) reduce the present value and the price of the corporation's stock. 
D) reduce the present value and raise the price of the corporation's stock.

Question 16

If your research leads you to believe that the present value of a stock's dividend stream and future price is less than its price then you believe the stock is

Accepted Answer

A) overvalued so you should consider buying it. 
B) overvalued so you should not consider buying it. 
C) undervalued so you should consider buying it. 
D) undervalued so you should not consider buying it. 
A) overvalued so you should consider buying it. 
B) overvalued so you should not consider buying it. 
C) undervalued so you should consider buying it. 
D) undervalued so you should not consider buying it.

Question 17

Jack's Lock and Key is considering remodeling. It estimates that the remodeling will cost $6,000 and that as a result revenues will rise by $3,000 the first year, $2,500 the second year, $1,500 the third year and have no effect after then. If the interest rate is 5%, should Jack's remodel? Defend your answer by showing your work.

Accepted Answer

Jack's should remodel. The pre

Question 18

Shawn determines that if Lexall Corporation has high revenues, then Waters Corporation will have low revenues, and that if Lexall Corporation has low revenues, then Waters Corporation will have high revenues. Shawn buys stock in both corporations.

Accepted Answer

A) He has reduced firm-specific risk but not market risk. 
B) He has reduced market risk, but not firm-specific risk. 
C) He had reduce both firm-specific risk and market risk. 
D) He has reduced neither firm-specific risk nor market risk. 
A) He has reduced firm-specific risk but not market risk. 
B) He has reduced market risk, but not firm-specific risk. 
C) He had reduce both firm-specific risk and market risk. 
D) He has reduced neither firm-specific risk nor market risk.

Question 19

Hector puts $150 into an account when the interest rate is 4 percent. Later he checks his balance and finds he has about $168.73. How long did Hector wait to check his balance?

Accepted Answer

A) 3 years 
B) 3.5 years 
C) 4 years 
D) 4.5 years 
A) 3 years 
B) 3.5 years 
C) 4 years 
D) 4.5 years

Question 20

If a savings account pays 3.5% interest, then according to the rule of 70 how long will it take for the account balance to double?

Accepted Answer

Approximat

Exam 27: Tools of Finance

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

According to the efficient market hypothesis, which of the following statements is not correct?

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

What is the present value of a payment of $100 to be made one year from today?

Diversification of a portfolio

If you believe the stock market is informationally efficient, then it is a waste of time to engage in fundamental analysis.

Other things the same, when the interest rate rises, the present value of future revenues from investment projects

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

You have a contract with someone who has agreed to pay you $20,000 in four years. She offers to pay you now instead. For which of the following interest rates and payments would you take the money today?.

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

Writing in the Wall Street Journal in 2009, economist Jeremy Siegel argued that, in the years leading up to the financial crisis of 2008-2009,

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?

Risk-averse persons will take no risks.

Two years ago Lenny put some money into an account. He earned 6 percent interest on this account and now he has about $1,000. About how much did Lenny deposit into his account two years ago?

After much anticipation a company releases a new smartphone. The smartphone doesn't work as well as expected and lacks many of the features buyers had been expecting. The unexpectedly negative reaction to the smartphone would

If your research leads you to believe that the present value of a stock's dividend stream and future price is less than its price then you believe the stock is

Shawn determines that if Lexall Corporation has high revenues, then Waters Corporation will have low revenues, and that if Lexall Corporation has low revenues, then Waters Corporation will have high revenues. Shawn buys stock in both corporations.

Hector puts $150 into an account when the interest rate is 4 percent. Later he checks his balance and finds he has about $168.73. How long did Hector wait to check his balance?

If a savings account pays 3.5% interest, then according to the rule of 70 how long will it take for the account balance to double?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Applications: the Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers in Microeconomics

Measuring a Nation S Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

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