Question 1

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. 
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.

Question 2

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) $145.00 
A) $123.14 
B) $133.94 
C) $137.96 
D) $145.00

Question 3

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

Question 4

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

Question 5

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

Question 6

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

Question 7

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. 
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.

Question 8

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 9

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 D 
A) Option A 
B) Option B 
C) Option C 
D) Option D

Question 10

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% 
A) 5% 
B) 10% 
C) 15% 
D) 20%

Question 11

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)    
A)    
B)    
C)    
D)

Question 12

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. 
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.

Question 13

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. 
A) $371.75 
B) $386.25 
C) $393.33 
D) None of the above are correct to the nearest cent.

Question 14

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. 
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.

Question 15

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 16

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)2 
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)2

Question 17

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. 
A) 3.5 
B) 7 
C) 14 
D) None of the above is correct.

Question 18

What is meant by an asset bubble?

Accepted Answer

The price of an asse

Question 19

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. 
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.

Question 20

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 hazard 
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 hazard

Exam 27: Tools of Finance

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

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?

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?

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?​

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?

In effect, an annuity provides insurance

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

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?

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?

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

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

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

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?

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

What is meant by an asset bubble?

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

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

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

Filters

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?