Question 1

If a savings account pays 7% interest, then according to the rule of 70 how long will it take for the account balance to double?

Accepted Answer

Approximat

Question 2

Yoyo's Frozen Yogurt, Inc. is thinking of building a new warehouse. They believe that this will give them $50,000 of additional revenue at the end of one year, $60,000 additional revenue at the end of two years, and $70,000 in additional revenue at the end of three years. If the interest rate is 5 percent, Yoyo would be willing to pay

Accepted Answer

A) $140,000, but not $150,000. 
B) $150,000, but not $160,000. 
C) $160,000, but not $170,000. 
D) $170,000, but not $180,000. 
A) $140,000, but not $150,000. 
B) $150,000, but not $160,000. 
C) $160,000, but not $170,000. 
D) $170,000, but not $180,000.

Question 3

Which of the following methods of picking stocks is not consistent with fundamental analysis?

Accepted Answer

A) doing research such as thoroughly reading and analyzing companies' annual reports 
B) choosing mutual funds that are managed by individuals with good reputations 
C) viewing individual stock prices as unpredictable 
D) relying upon the advice of Wall Street analysts 
A) doing research such as thoroughly reading and analyzing companies' annual reports 
B) choosing mutual funds that are managed by individuals with good reputations 
C) viewing individual stock prices as unpredictable 
D) relying upon the advice of Wall Street analysts

Question 4

To diversify, a homeowner with a variable-rate mortgage should choose investments that

Accepted Answer

A) pay higher returns when interest rates rise and lower returns when interest rates fall. 
B) pay lower returns when interest rates rise and higher returns when interest rates fall. 
C) provide a higher return than the market average. 
D) provide a lower return than the market average. 
A) pay higher returns when interest rates rise and lower returns when interest rates fall. 
B) pay lower returns when interest rates rise and higher returns when interest rates fall. 
C) provide a higher return than the market average. 
D) provide a lower return than the market average.

Question 5

The future value of a deposit in a savings account will be smaller

Accepted Answer

A) the longer a person waits to withdraw the funds. 
B) the lower the interest rate is. 
C) the larger the initial deposit is. 
D) All of the above are correct. 
A) the longer a person waits to withdraw the funds. 
B) the lower the interest rate is. 
C) the larger the initial deposit is. 
D) All of the above are correct.

Question 6

If the interest rate is 5 percent, then receiving $1,000 eight years from now is worth more than receiving $700 today.​

Accepted Answer

A) True 
 B)False

Question 7

People who are risk averse dislike bad outcomes more than they like comparable good outcomes.

Accepted Answer

A) True 
 B)False

Question 8

Suppose your uncle offers you $100 today or $150 in 10 years. You would prefer to take the $100 today if the interest rate is

Accepted Answer

A) 3 percent. 
B) 4 percent. 
C) 5 percent. 
D) None of the above is correct. 
A) 3 percent. 
B) 4 percent. 
C) 5 percent. 
D) None of the above is correct.

Question 9

Which of the following is the correct expression for finding the present value of a $500 payment two years from today if the interest rate is 6 percent?

Accepted Answer

A) $500/(1.06)2 
B) $500 - 500(1.06)2 
C) $500/(1.02)6 
D) None of the above is correct. 
A) $500/(1.06)2 
B) $500 - 500(1.06)2 
C) $500/(1.02)6 
D) None of the above is correct.

Question 10

​Suppose you have a choice between receiving a lump-sum payment of $10,000 today or four annual payments of $2,750 (with the first payment one year from today). Of the following, which is the highest annual interest rate at which you would prefer the four annual payments over the lump-sum payment?

Accepted Answer

A) 2% 
B) ​5% 
C) ​7% 
D) ​10% 
A) 2% 
B) ​5% 
C) ​7% 
D) ​10%

Question 11

Suppose that Albert can buy a bond for $1,000 that matures in two years and pays Albert $1,102.5 with certainty. He is indifferent between this bond and one that has some risk but on which the interest rate is 3% higher. How much, to the nearest penny, does the riskier bond pay in two years?

Accepted Answer

A) $1,160.00 
B) $1,166.40 
C) $1,168.65 
D) $1,169.64 
A) $1,160.00 
B) $1,166.40 
C) $1,168.65 
D) $1,169.64

Question 12

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 Einstein 
A) Abraham Lincoln 
B) Thomas Edison 
C) Benjamin Franklin 
D) Albert Einstein

Question 13

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. 
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.

Question 14

Suppose you are deciding whether to buy a particular bond. If you buy the bond and hold it for 4 years, then at that time you will receive a payment of $10,000. If the interest rate is 6 percent, you will buy the bond if its price today is no greater than

Accepted Answer

A) $8,225.06. 
B) $7,920.94. 
C) $7,672.58. 
D) $6,998.98. 
A) $8,225.06. 
B) $7,920.94. 
C) $7,672.58. 
D) $6,998.98.

Question 15

Abby buys health insurance because she knows that she has health risks that wouldn't be obvious to an insurance company. Brad buys home owners insurance and then is less careful to make sure he's put out his cigarettes. The example with Abby

Accepted Answer

A) and the example with Brad illustrate adverse selection. 
B) and the example with Brad illustrate moral hazard. 
C) illustrates adverse selection; the example with Brad illustrates moral hazard. 
D) illustrates moral hazard; the example with Brad illustrates adverse selection. 
A) and the example with Brad illustrate adverse selection. 
B) and the example with Brad illustrate moral hazard. 
C) illustrates adverse selection; the example with Brad illustrates moral hazard. 
D) illustrates moral hazard; the example with Brad illustrates adverse selection.

Question 16

Suppose you put $500 into a bank account today. Interest is paid annually and the annual interest rate is 8 percent. The future value of the $500 after 2 years is

Accepted Answer

A) $428.67. 
B) $470.00. 
C) $580.00. 
D) $583.20. 
A) $428.67. 
B) $470.00. 
C) $580.00. 
D) $583.20.

Question 17

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. 
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.

Question 18

A risk-averse person has

Accepted Answer

A) utility and marginal utility curves that slope upward. 
B) utility and marginal utility curves that slope downward. 
C) a utility curve that slopes down and a marginal utility curve that slopes upward. 
D) a utility curve that slopes upward and a marginal utility curve that slopes downward. 
A) utility and marginal utility curves that slope upward. 
B) utility and marginal utility curves that slope downward. 
C) a utility curve that slopes down and a marginal utility curve that slopes upward. 
D) a utility curve that slopes upward and a marginal utility curve that slopes downward.

Question 19

Scenario 27-2
Suppose Dave has a utility function   where W is his wealth in millions of dollars and U is the utility he obtains.
-Refer to Scenario 27-2. Suppose Dave is faced with a choice between two options. With option A Dave receives a guaranteed $2 million. With option B Dave faces a lottery that pays $10 million with probability P and pays $0 with probability (1-P). Given Dave's utility function, how high does P need to be before he will prefer option B over option A?

Accepted Answer

Dave will prefer option B if t

Question 20

By holding insurance a person

Accepted Answer

A) reduces the risk of a bad outcome, such as their house burning down. 
B) shares risk and so reduces the burden of risk. 
C) Both A and B are correct. 
D) Neither A nor B are correct. 
A) reduces the risk of a bad outcome, such as their house burning down. 
B) shares risk and so reduces the burden of risk. 
C) Both A and B are correct. 
D) Neither A nor B are correct.

Exam 27: Tools of Finance

If a savings account pays 7% interest, then according to the rule of 70 how long will it take for the account balance to double?

Which of the following methods of picking stocks is not consistent with fundamental analysis?

To diversify, a homeowner with a variable-rate mortgage should choose investments that

The future value of a deposit in a savings account will be smaller

If the interest rate is 5 percent, then receiving $1,000 eight years from now is worth more than receiving $700 today.​

People who are risk averse dislike bad outcomes more than they like comparable good outcomes.

Suppose your uncle offers you $100 today or $150 in 10 years. You would prefer to take the $100 today if the interest rate is

Which of the following is the correct expression for finding the present value of a $500 payment two years from today if the interest rate is 6 percent?

Suppose that Albert can buy a bond for $1,000 that matures in two years and pays Albert $1,102.5 with certainty. He is indifferent between this bond and one that has some risk but on which the interest rate is 3% higher. How much, to the nearest penny, does the riskier bond pay in two years?

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

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

Suppose you are deciding whether to buy a particular bond. If you buy the bond and hold it for 4 years, then at that time you will receive a payment of $10,000. If the interest rate is 6 percent, you will buy the bond if its price today is no greater than

Abby buys health insurance because she knows that she has health risks that wouldn't be obvious to an insurance company. Brad buys home owners insurance and then is less careful to make sure he's put out his cigarettes. The example with Abby

Suppose you put $500 into a bank account today. Interest is paid annually and the annual interest rate is 8 percent. The future value of the $500 after 2 years is

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

A risk-averse person has

By holding insurance a person

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

If the interest rate is 5 percent, then receiving $1,000 eight years from now is worth more than receiving $700 today.