Question 1

The ________ is referred to as future value.

Accepted Answer

A)  product of interest payments and principal 
B)  ratio of interest payments to principal 
C)  ratio of principal to interest payments 
D)  sum of interest payments and principal 
A)  product of interest payments and principal 
B)  ratio of interest payments to principal 
C)  ratio of principal to interest payments 
D)  sum of interest payments and principal

Question 2

Scenario: Consider the following two options. You can either invest $30,000 in a bank that offers you an interest rate of 6 percent compounded annually for 30 years, or you can lend $30,000 to your friend for 30 years at an interest rate of 10 percent compounded annually.
-Refer to the scenario above.If you lend $30,000 to your friend for 30 years,you will receive ________ when she repays the amount after 30 years.

Accepted Answer

A)  $552,604.62 
B)  $523,482.07 
C)  $1,521,725.58 
D)  $3,620,025.01 
A)  $552,604.62 
B)  $523,482.07 
C)  $1,521,725.58 
D)  $3,620,025.01

Question 3

Scenario: Jenny deposits $3,000 in a bank for a period of 1 year at an annual rate of interest of 10 percent.
-Refer to the scenario above.After a year,the bank will pay interest of ________.

Accepted Answer

A)  $10 
B)  $300 
C)  $3,000 
D)  $3,300 
A)  $10 
B)  $300 
C)  $3,000 
D)  $3,300

Question 4

Scenario: Three investment options are available in a market. All three options provide the same expected rate of return but have different levels of risk associated with them. Investing in Option A is the riskiest, while investing in Option C is the safest. Option B has a moderate level of risk associated with it.
-Refer to the scenario above.Which investment option will a risk-averse individual choose?

Accepted Answer

A)  He will choose to invest in Option A. 
B)  He will choose to invest in Option B. 
C)  He will choose to invest in Option C. 
D)  He will be indifferent to investing in any of the three options. 
A)  He will choose to invest in Option A. 
B)  He will choose to invest in Option B. 
C)  He will choose to invest in Option C. 
D)  He will be indifferent to investing in any of the three options.

Question 5

The time value of money is also referred to as ________.

Accepted Answer

A)  a loan 
B)  interest 
C)  a collateral 
D)  principal 
A)  a loan 
B)  interest 
C)  a collateral 
D)  principal

Question 6

Scenario: The rules of a roulette game with pockets numbered from 1 to 100 are such that if the ball ends in a pocket with an even number, the player wins $300. However, if the ball ends in a pocket with an odd number, he loses $200.
-Refer to the scenario above.What is the probability of losing?

Accepted Answer

A)  20 percent 
B)  50 percent 
C)  75 percent 
D)  100 percent 
A)  20 percent 
B)  50 percent 
C)  75 percent 
D)  100 percent

Question 7

Scenario: Suppose you deposit $520 in a bank for a period of 1 year. The interest rate offered by the bank is 10 percent per year.
-Refer to the scenario above.The interest that you will earn after a year is equal to ________.

Accepted Answer

A)  $10 
B)  $30 
C)  $32.24 
D)  $52 
A)  $10 
B)  $30 
C)  $32.24 
D)  $52

Question 8

To an economist,risky options ________.

Accepted Answer

A)  are always bad options 
B)  are always good options 
C)  have costs and benefits that are fixed in advance 
D)  do not have costs and benefits that are fixed in advance 
A)  are always bad options 
B)  are always good options 
C)  have costs and benefits that are fixed in advance 
D)  do not have costs and benefits that are fixed in advance

Question 9

Ryan deposits $900 in a bank at an annual interest rate of 9 percent.The total amount in Ryan's account after one year will be ________.

Accepted Answer

A)  $963 
B)  $975 
C)  $981 
D)  $999 
A)  $963 
B)  $975 
C)  $981 
D)  $999

Question 10

Scenario: An investor is considering three different investment options. Investing in Option A pays him $4,000 after 6 years, investing in Option B pays him $7,600 after 7 years, and investing in Option C pays him $9,000 after 8 years. If he deposits the amount with a bank, he would receive an annual interest rate of 9 percent.
-Refer to the scenario above.What is the present value of Option A?

Accepted Answer

A)  $2,464.11 
B)  $2,385.07 
C)  $2,463.66 
D)  $4,898.46 
A)  $2,464.11 
B)  $2,385.07 
C)  $2,463.66 
D)  $4,898.46

Question 11

Scenario: A bag contains ten green balls, five blue balls, and fifteen yellow balls. If an individual picks a green ball from the bag, she wins $200. If she picks either a blue ball or a yellow ball, she loses $300.
-Refer to the scenario above.What is the probability of losing?

Accepted Answer

A)  16.66 percent 
B)  30 percent 
C)  50 percent 
D)  66.67 percent 
A)  16.66 percent 
B)  30 percent 
C)  50 percent 
D)  66.67 percent

Question 12

Which of the following is most likely to increase an individual's current spending?

Accepted Answer

A)  Paying back a loan today 
B)  Borrowing money today 
C)  Depositing money today 
D)  Withdrawing money in the future 
A)  Paying back a loan today 
B)  Borrowing money today 
C)  Depositing money today 
D)  Withdrawing money in the future

Question 13

Scenario: Tom has two investment options. He can either invest $3,000 in a friend's project or he can deposit the same amount in a bank that offers him an annual rate of interest of 6 percent. If he invests in his friend's project, he will receive $3,400 after 5 years.
-Refer to the scenario above.What is the net present value of his friend's project?

Accepted Answer

A)  −$459.32 
B)  −$666.21 
C)  $534.66 
D)  $616.21 
A)  −$459.32 
B)  −$666.21 
C)  $534.66 
D)  $616.21

Question 14

In economics,risk is said to exist when the ________.

Accepted Answer

A)  outcome of an activity is not known with certainty 
B)  cost of producing a good exceeds its market price 
C)  net present value of an outcome is positive 
D)  the probability of an outcome is 1 
A)  outcome of an activity is not known with certainty 
B)  cost of producing a good exceeds its market price 
C)  net present value of an outcome is positive 
D)  the probability of an outcome is 1

Question 15

Scenario: Suppose you deposit $520 in a bank for a period of 1 year. The interest rate offered by the bank is 10 percent per year.
-Refer to the scenario above.Suppose the interest rate is 5 percent.In this case,you will have ________ in your account after 1 year.

Accepted Answer

A)  $533 
B)  $546 
C)  $550 
D)  $580 
A)  $533 
B)  $546 
C)  $550 
D)  $580

Question 16

Scenario: A bag contains ten green balls, five blue balls, and fifteen yellow balls. If an individual picks a green ball from the bag, she wins $200. If she picks either a blue ball or a yellow ball, she loses $300.
-Refer to the scenario above.What is the expected value of the game?

Accepted Answer

A)  ‒$15.64 
B)  $27 
C)  ‒$33.33 
D)  $35.75 
A)  ‒$15.64 
B)  $27 
C)  ‒$33.33 
D)  $35.75

Question 17

Scenario: Three investment options are available in a market. All three options provide the same expected rate of return but have different levels of risk associated with them. Investing in Option A is the riskiest, while investing in Option C is the safest. Option B has a moderate level of risk associated with it.
-Refer to the scenario above.Which investment option will a risk-seeking individual choose?

Accepted Answer

A)  She will choose to invest in Option A. 
B)  She will choose to invest in Option B. 
C)  She will choose to invest in Option C. 
D)  She will be indifferent to investing in any of the three options. 
A)  She will choose to invest in Option A. 
B)  She will choose to invest in Option B. 
C)  She will choose to invest in Option C. 
D)  She will be indifferent to investing in any of the three options.

Question 18

The discounted value of a future payment is also referred to as ________ value.

Accepted Answer

A)  implicit 
B)  explicit 
C)  present 
D)  temporal 
A)  implicit 
B)  explicit 
C)  present 
D)  temporal

Question 19

Scenario: Wendy and John each deposit $2,000 in a bank account at different rates of interest. Wendy receives interest on her deposit at an annual rate of 6 percent, while John receives interest at an annual rate of 9 percent.
-Refer to the scenario above.What will be the difference between the future values of John's deposit and Wendy's deposit after 3 years?

Accepted Answer

A)  $56.04 
B)  $112.26 
C)  $208.03 
D)  $439.15 
A)  $56.04 
B)  $112.26 
C)  $208.03 
D)  $439.15

Question 20

Scenario: A friend approaches you with four different investment plans that offer you the following returns on an investment of $10,000.
Plan 1: promises a return of $20,000 in 5 years
Plan 2: promises you a return of $5,000 in 2 years and $2,000 in 3 years
Plan 3: promises you a return of $20,000 in 20 years
Plan 4: promises you a return of $15,000 in 10 years
The market rate of interest is 5 percent.
-Refer to the scenario above.Which of the following will you choose in order to maximize returns?

Accepted Answer

A)  Plan 1 
B)  Plan 2 
C)  Plan 3 
D)  Plan 4 
A)  Plan 1 
B)  Plan 2 
C)  Plan 3 
D)  Plan 4

The ________ is referred to as future value.

Scenario: Jenny deposits $3,000 in a bank for a period of 1 year at an annual rate of interest of 10 percent. -Refer to the scenario above.After a year,the bank will pay interest of ________.

The time value of money is also referred to as ________.

Scenario: The rules of a roulette game with pockets numbered from 1 to 100 are such that if the ball ends in a pocket with an even number, the player wins $300. However, if the ball ends in a pocket with an odd number, he loses $200. -Refer to the scenario above.What is the probability of losing?

Scenario: Suppose you deposit $520 in a bank for a period of 1 year. The interest rate offered by the bank is 10 percent per year. -Refer to the scenario above.The interest that you will earn after a year is equal to ________.

To an economist,risky options ________.

Ryan deposits $900 in a bank at an annual interest rate of 9 percent.The total amount in Ryan's account after one year will be ________.

Scenario: A bag contains ten green balls, five blue balls, and fifteen yellow balls. If an individual picks a green ball from the bag, she wins $200. If she picks either a blue ball or a yellow ball, she loses $300. -Refer to the scenario above.What is the probability of losing?

Which of the following is most likely to increase an individual's current spending?

In economics,risk is said to exist when the ________.

Scenario: Suppose you deposit $520 in a bank for a period of 1 year. The interest rate offered by the bank is 10 percent per year. -Refer to the scenario above.Suppose the interest rate is 5 percent.In this case,you will have ________ in your account after 1 year.

Scenario: A bag contains ten green balls, five blue balls, and fifteen yellow balls. If an individual picks a green ball from the bag, she wins $200. If she picks either a blue ball or a yellow ball, she loses $300. -Refer to the scenario above.What is the expected value of the game?

The discounted value of a future payment is also referred to as ________ value.

The Principles and Practice of Economics

Economic Methods and Economic Questions

Optimization: Doing the Best You Can

Demand, supply, and Equilibrium

Consumers and Incentives

Sellers and Incentives

Perfect Competition and the Invisible Hand

Trade

Externalities and Public Goods

The Government in the Economy: Taxation and Regulation

Markets for Factors of Production

Monopoly

Game Theory and Strategic Play

Oligopoly and Monopolistic Competition

The Economics of Information

Auctions and Bargaining

Social Economics

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Exam 15: Trade-Offs Involving Time and Risk

The ________ is referred to as future value.

Scenario: Jenny deposits $3,000 in a bank for a period of 1 year at an annual rate of interest of 10 percent. -Refer to the scenario above.After a year,the bank will pay interest of ________.

The time value of money is also referred to as ________.

Scenario: The rules of a roulette game with pockets numbered from 1 to 100 are such that if the ball ends in a pocket with an even number, the player wins $300. However, if the ball ends in a pocket with an odd number, he loses $200. -Refer to the scenario above.What is the probability of losing?

Scenario: Suppose you deposit $520 in a bank for a period of 1 year. The interest rate offered by the bank is 10 percent per year. -Refer to the scenario above.The interest that you will earn after a year is equal to ________.

To an economist,risky options ________.

Ryan deposits $900 in a bank at an annual interest rate of 9 percent.The total amount in Ryan's account after one year will be ________.

Scenario: A bag contains ten green balls, five blue balls, and fifteen yellow balls. If an individual picks a green ball from the bag, she wins $200. If she picks either a blue ball or a yellow ball, she loses $300. -Refer to the scenario above.What is the probability of losing?

Which of the following is most likely to increase an individual's current spending?

In economics,risk is said to exist when the ________.

Scenario: Suppose you deposit $520 in a bank for a period of 1 year. The interest rate offered by the bank is 10 percent per year. -Refer to the scenario above.Suppose the interest rate is 5 percent.In this case,you will have ________ in your account after 1 year.

Scenario: A bag contains ten green balls, five blue balls, and fifteen yellow balls. If an individual picks a green ball from the bag, she wins $200. If she picks either a blue ball or a yellow ball, she loses $300. -Refer to the scenario above.What is the expected value of the game?

The discounted value of a future payment is also referred to as ________ value.

The Principles and Practice of Economics

Economic Methods and Economic Questions

Optimization: Doing the Best You Can

Demand, supply, and Equilibrium

Consumers and Incentives

Sellers and Incentives

Perfect Competition and the Invisible Hand

Trade

Externalities and Public Goods

The Government in the Economy: Taxation and Regulation

Markets for Factors of Production

Monopoly

Game Theory and Strategic Play

Oligopoly and Monopolistic Competition

The Economics of Information

Auctions and Bargaining

Social Economics

Filters