Exam 27: Tools of Finance

An automobile manufacturer unexpectedly announces that it has hired a new chief executive officer. It is widely believed that the presence of this individual will raise the profitability of the corporation. At the same time interest rates unexpectedly rise. Which of the above would tend to make the price of the stock rise?

If a person is risk averse, then she has

Clint puts $200 into an account when the interest rate is 8 percent. Later he checks his balance and finds that he has a balance of about $272.10. How many years did Clint wait to check his balance?

Until recently, shares of stock accounted for 40 percent of Jimmy's savings. A few days ago, Jimmy sold some bonds and bought some additional shares of stock. Now shares of stock account for 70 percent of Jimmy's savings. How did this change affect Jimmy's expected retun on his savings? How did it affect the risks he faces?

At which interest rate is the present value of $80.25 one year from today equal to $75 today?

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 lowest present value today?

Consider the following two situations. Irene accepts a job where she will be driving in dangerous traffic, so she seeks auto insurance. After Victor buys health insurance, he visits the gym less frequently. Which of these person's actions illustrates moral hazard?

Of the following interest rates, which is the highest one at which the present value of $200 ten years from today is greater than $150?

Markovich Corporation is considering building a new plant. It will cost $1 million today to build it and it will generate revenues of $1.121 million three years from today. Of the interest rates below, which is the highest interest rate at which Markovich still would be willing to build the plant?

David recently received an inheritance, and he is planning to invest the inheritance in one of four stock portfolios. Which of these portfolios would you expect to have the highest risk?​

A measure of the volatility of a variable is its

Phillip is a mortgage broker, who is paid by commission. When interest rates decline, he does a lot of business and earns a lot of money, as more people buy houses or refinance their mortgages. But when interest rates rise, business falls substantially. To diversify, Phillip should choose investments that

From the standpoint of the economy as a whole, the role of insurance is not to eliminate the risks inherent in life. Then what is its purpose?

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

If you are faced with the choice of receiving $500 today or $800 6 years from today, you will be indifferent between the two possibilities if the interest rate is 8.148 percent.

Suppose the interest rate is 5% and that you are to receive three annual payments of $10,000, with the first payment one year from now, the second payment two years from now, and the third payment three years from now. What is the present value of this stream of payments?

If the interest rate is 6 percent, then the present value of $5,000 received ten years from today is $2,583.34.​

Lori, who currently owns stock in four companies, has decided to expand her portfolio by purchasing stock in virtually every company that sells stock. In doing so, Lori will

James offers you $1,000 today or $X in 7 years. If the interest rate is 4.5 percent, then you would prefer to take the $1,000 today if and only if

Which of the following is correct concerning diversification?