Question 1

Which of the following is the correct way to compute the future value of $100 put into an account that earns 4 percent interest for 10 years?

Accepted Answer

A) $100(1 + .0410) 
B) $100(1 + .04   10) 
C) $100 × 10   (1 + .04) 
D) $100(1 + .04)10 
A) $100(1 + .0410) 
B) $100(1 + .04   10) 
C) $100 × 10   (1 + .04) 
D) $100(1 + .04)10

Question 2

At an annual interest rate of 14 percent, about how many years will it take $100 to double in value?

Accepted Answer

A) 3 
B) 4 
C) 5 
D) 7 
A) 3 
B) 4 
C) 5 
D) 7

Question 3

Thompson Corporation is considering the purchase of a new piece of machinery. Thompson expects the new machinery to increase its revenues by $70,000 at the end of year 1, $60,000 at the end of year 2, and $50,000 at the end of year 3 at which point the machinery will have exhausted its useful life. If the interest rate is 4%, what is the most Thompson should be willing to pay today for this piece of machinery?

Accepted Answer

The present value of the futur

Question 4

​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 lowest annual interest rate at which you would prefer the lump-sum payment over the four annual payments?

Accepted Answer

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

Question 5

Which of the following has a present value of $100?

Accepted Answer

A) $109.12 in two years when the interest rate is 4 percent 
B) $113.98 in two years when the interest rate is 6 percent 
C) $116.64 in two years when the interest rate is 8 percent 
D) $123.17 in two years when the interest rate is 10 percent 
A) $109.12 in two years when the interest rate is 4 percent 
B) $113.98 in two years when the interest rate is 6 percent 
C) $116.64 in two years when the interest rate is 8 percent 
D) $123.17 in two years when the interest rate is 10 percent

Question 6

Suppose you put $500 into a bank account today. Interest is paid annually and the annual interest rate is 5.5 percent. The future value of the $500 is

Accepted Answer

A) $637.50 after 5 years and $822.09 after 10 years. 
B) $637.50 after 5 years and $775.00 after 10 years. 
C) $653.48 after 5 years and $854.07 after 10 years. 
D) $688.36 after 5 years and $915.56 after 10 years. 
A) $637.50 after 5 years and $822.09 after 10 years. 
B) $637.50 after 5 years and $775.00 after 10 years. 
C) $653.48 after 5 years and $854.07 after 10 years. 
D) $688.36 after 5 years and $915.56 after 10 years.

Question 7

Twenty years ago, Dr. Montgomery borrowed money from her parents to pay her tuition at graduate school. Now she wants to pay them back. She gives them double what they gave her. According to the rule of 70, what interest rate would have given her parents the same amount of money if they had put it in the bank rather than lending it to their daughter?

Accepted Answer

A) 3.5 percent 
B) 4.5 percent 
C) 5 percent 
D) 7 percent 
A) 3.5 percent 
B) 4.5 percent 
C) 5 percent 
D) 7 percent

Question 8

What is the present value of a payment of $2,000 to be received two years from today if the interest rate is 5%?

Accepted Answer

A) $2205 
B) $2200 
C) $1818.18 
D) $1814.06 
A) $2205 
B) $2200 
C) $1818.18 
D) $1814.06

Question 9

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. 
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 10

If the interest rate is 5 percent, then what is the present value of $2,000 to be received in three years?

Accepted Answer

The presen

Question 11

At which interest rate is the present value of $360 three years from today equal to about $310 today?

Accepted Answer

A) 4.7 percent 
B) 5.1 percent 
C) 5.5 percent 
D) 5.9 percent 
A) 4.7 percent 
B) 5.1 percent 
C) 5.5 percent 
D) 5.9 percent

Question 12

Fundamental analysis is

Accepted Answer

A) the study of the relation between risk and return of stock portfolios. 
B) the determination of the allocation of savings between stocks and bonds based on a person's degree of risk aversion. 
C) the study of a company's accounting statements and future prospects to determine its value. 
D) a method used to determine how adding stocks to a portfolio will change the risk of the portfolio. 
A) the study of the relation between risk and return of stock portfolios. 
B) the determination of the allocation of savings between stocks and bonds based on a person's degree of risk aversion. 
C) the study of a company's accounting statements and future prospects to determine its value. 
D) a method used to determine how adding stocks to a portfolio will change the risk of the portfolio.

Question 13

A company has an investment project that will cost $2 million today and yield a payoff of $3 million in 5 years. What interest rate represents the cutoff between profitability and nonprofitability for this project?

Accepted Answer

The present value of the futur

Question 14

A judge requires Harry to make a payment to Sally. The judge says that Harry can pay her either $10,000 today or $12,000 two years from today. Of the following interest rates, which is the highest one at which Harry would be better off paying the money today?

Accepted Answer

A) 4 percent 
B) 6 percent 
C) 9 percent 
D) 11 percent 
A) 4 percent 
B) 6 percent 
C) 9 percent 
D) 11 percent

Question 15

David's Utility Function   If David's current wealth is $61,000, then

Accepted Answer

A) his gain in utility from gaining $1,000 is less than his loss in utility from losing $1,000. David is risk averse. 
B) his gain in utility from gaining $1,000 is less than his loss in utility from losing $1,000. David is not risk averse. 
C) his gain in utility from gaining $1,000 is greater than his loss in utility from losing $1,000. David is risk averse. 
D) his gain in utility from gaining $1,000 is greater than his loss in utility from losing $1,000. David is not risk averse. 
A) his gain in utility from gaining $1,000 is less than his loss in utility from losing $1,000. David is risk averse. 
B) his gain in utility from gaining $1,000 is less than his loss in utility from losing $1,000. David is not risk averse. 
C) his gain in utility from gaining $1,000 is greater than his loss in utility from losing $1,000. David is risk averse. 
D) his gain in utility from gaining $1,000 is greater than his loss in utility from losing $1,000. David is not risk averse.

Question 16

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

Question 17

Which of the following is the correct way to compute the future value of $X that earns r percent interest for N years?

Accepted Answer

A) $X(1 + rN)N 
B) $X(1 + r)N 
C) $X(1 + rN) 
D) $X(1 + r/N)N 
A) $X(1 + rN)N 
B) $X(1 + r)N 
C) $X(1 + rN) 
D) $X(1 + r/N)N

Question 18

In the 15 years ending February 2016, most active portfolio managers failed to beat the market.

Accepted Answer

A) True 
 B)False

Question 19

Lucretia puts $400 into an account when the interest rate is 10 percent. Later she checks her balance and finds it's worth about $708.62. How many years did she wait to check her balance?

Accepted Answer

A) 5 years 
B) 6 years 
C) 7 years 
D) 8 years 
A) 5 years 
B) 6 years 
C) 7 years 
D) 8 years

Question 20

You are expecting to receive $750 at some time in the future. Which of the following would unambiguously decrease the present value of this future payment?

Accepted Answer

A) Interest rates rise and you get the payment sooner. 
B) Interest rates rise and you have to wait longer for the payment. 
C) Interest rates fall and you get the payment sooner. 
D) Interest rates fall and you have to wait longer to get the payment. 
A) Interest rates rise and you get the payment sooner. 
B) Interest rates rise and you have to wait longer for the payment. 
C) Interest rates fall and you get the payment sooner. 
D) Interest rates fall and you have to wait longer to get the payment.

Exam 27: Tools of Finance

Which of the following is the correct way to compute the future value of $100 put into an account that earns 4 percent interest for 10 years?

At an annual interest rate of 14 percent, about how many years will it take $100 to double in value?

​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 lowest annual interest rate at which you would prefer the lump-sum payment over the four annual payments?

Which of the following has a present value of $100?

Suppose you put $500 into a bank account today. Interest is paid annually and the annual interest rate is 5.5 percent. The future value of the $500 is

What is the present value of a payment of $2,000 to be received two years from today if the interest rate is 5%?

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

If the interest rate is 5 percent, then what is the present value of $2,000 to be received in three years?

At which interest rate is the present value of $360 three years from today equal to about $310 today?

Fundamental analysis is

A company has an investment project that will cost $2 million today and yield a payoff of $3 million in 5 years. What interest rate represents the cutoff between profitability and nonprofitability for this project?

A judge requires Harry to make a payment to Sally. The judge says that Harry can pay her either $10,000 today or $12,000 two years from today. Of the following interest rates, which is the highest one at which Harry would be better off paying the money today?

David's Utility Function If David's current wealth is $61,000, then

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?

Which of the following is the correct way to compute the future value of $X that earns r percent interest for N years?

In the 15 years ending February 2016, most active portfolio managers failed to beat the market.

Lucretia puts $400 into an account when the interest rate is 10 percent. Later she checks her balance and finds it's worth about $708.62. How many years did she wait to check her balance?

You are expecting to receive $750 at some time in the future. Which of the following would unambiguously decrease the present value of this future payment?

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 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 lowest annual interest rate at which you would prefer the lump-sum payment over the four annual payments?