Exam 27: Tools of Finance

Suppose that interest rates unexpectedly rise and that FineLine Corporation announces that revenues from last quarter were down but not as much as the public had anticipated they would be down. According to the efficient markets hypothesis, which of the these things make the price of FineLine Corporation Stock fall?

Three years ago Dawn put $1,200 into an account paying 2 percent interest. How much is Dawn's account worth today?

In answering which of the following questions would you find it necessary to calculate a present value?

The price of a bond is equal to the sum of the present values 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 the bond if the interest rate is 5 percent?

A previously well-respected and trusted president of a corporation is accused of fraud. At the same time interest rates unexpectedly fall. Which of the above would tend to make the price of the stock rise?

If more people think a corporation's stock is overvalued than think it is undervalued then there is a

The present value of a future payment to be received in three years is $1,000. If the interest rate is 5%, what is the amount that will be paid in three years?

If the interest rate is 2.49 percent, then what is the present value of $5,000 to be received in 4 years?

On May 25, 1980 three pals graduated from high school, pooled together $3,000 and put the money into an account promising to pay 8% for the next 30 years. On May 25, 2010 they withdrew all the money from the account. To the nearest dollar, how much did they withdraw?

The available evidence indicates that

Suppose that an increased risk of mortgage defaults lowers the expected profitability of banks. Then we would expect to see

Risk aversion helps to explain various things we observe in the economy, including

Write the rule of 70. Suppose that your great-great-grandmother put $50 in a savings account 100 years ago and the account is now worth $1,600. Use the rule of 70 to determine about what interest rate she earned.

What is the present value of a payment of $250 one year from today if the interest rate is 4 percent?

Actively managed mutual funds usually fail to outperform index funds, and this fact provides evidence in favor of the efficient markets hypothesis.

Braden says that $400 saved for one year at 4 percent interest has a smaller future value than $400 saved for two years at 2 percent interest. Lefty says that the present value of $400 to be received one year from today if the interest rate is 4 percent exceeds the present value of $400 to be received two years from today if the interest rate is 2 percent.

Define the efficient markets hypothesis.

If you put $300 into an account paying 2 percent interest, what will be the value of this account in 4 years?

Which, if any, of the present values below are correctly computed?

If a friend tells you that he is certain a stock price will rise based on information he heard on television or saw on the Internet, should you be skeptical? Explain.