Exam 27: Tools of Finance

Scenario 27-1 Lisa has a utility function where W is Lisa's wealth in millions of dollars and U is the utility she obtains. -Refer to Scenario 27-1. Use the following diagram to graph Lisa's utility function for .

Available evidence indicates that stock prices, even if not exactly a random walk, are very close to a random walk.

Which of the following is correct?

If Cara's utility falls more by losing $600 than it rises by gaining $600, she has

According to the Rule of 70, it takes 70 years for a sum of money to double in value when the interest rate is 5 percent.​

According to the efficient markets hypothesis, at any moment in time, the market price is the best estimate of the company's value based on publicly available information.

The sooner a payment is received and the higher the interest rate, the greater the present value of a future payment.

Veronica deposited $1,000 into an account two years ago. The first year she earned 7 percent interest; the second year she earned 5 percent. How much money does Veronica have in her account today?

Figure 27-3 The following figure shows the utility function for Paul. -Refer to Figure 27-3. Suppose the vertical distance between the points (0, A) and (0, B) is 10. If his wealth increased from $700 to $900, then

Of the following interest rates, which is the highest one at which you would prefer to have $170 ten years from today instead of $100 today?

Figure 27-5. The figure shows a utility function for Dexter. -Refer to Figure 27-5. From the appearance of the utility function, we know that

During a financial crisis the possibility of bank failures rises. An increase in the likelihood of a bank failing shifts demand for its stock

Some people claim that stocks follow a random walk. What does this mean?

Marcia has four savings accounts. Which account has the largest balance?

If stock prices follow a random walk, it means

Figure 27-1. The figure shows a utility function. -Refer to Figure 27-1. What is measured along the vertical axis?

Melissa offers you $1,000 today or $1,500 in 5 years. You would prefer to take the $1,500 in 5 years if the interest rate is

The nation of Zambonia experiences the same rate of population growth every year. If the population of Zambonia doubles every 35 years, then what is the approximate annual rate of population growth?

David increases the number of companies in which he holds stocks.

You are better off choosing $100 today rather than $200 in 9 years if the interest rate is