Question 1

If you carefully research the products,technologies,patents,and management of firms,the efficient markets theory of stock prices,predicts that

Accepted Answer

A) you will probably reap significant gains 
B) you will actually decrease your odds of doing better than the average investor 
C) you will probably do about as well as someone who did no research 
D) you will lose money unless you failed to consider historical stock price patterns 
E) both b and d 
A) you will probably reap significant gains 
B) you will actually decrease your odds of doing better than the average investor 
C) you will probably do about as well as someone who did no research 
D) you will lose money unless you failed to consider historical stock price patterns 
E) both b and d

Question 2

You have a choice among three options.Option 1: receive $900 immediately.Option 2: receive $1,200 one year from now.Option 3: Receive $2,000 five years from now.The interest rate is 15 percent (0.15)per year.Rank these three options from highest present value to lowest present value.

Accepted Answer

A) Option 1,Option 2,Option 3 
B) Option 3,Option 2,Option 1 
C) Option 2,Option 3,Option 1 
D) Option 3,Option 1,Option 2 
E) Option 1,Option 3,Option 2 
A) Option 1,Option 2,Option 3 
B) Option 3,Option 2,Option 1 
C) Option 2,Option 3,Option 1 
D) Option 3,Option 1,Option 2 
E) Option 1,Option 3,Option 2

Question 3

According to the efficient markets theory of stock prices,some investors outperform the market because

Accepted Answer

A) they are especially skilled at analyzing stock price trends 
B) in any large group of investors,there will probably be some unusually lucky ones 
C) they are most likely the beneficiaries of insider trading 
D) they have better information about firms' technologies and production costs 
E) they have a superior ability to predict consumer behavior 
A) they are especially skilled at analyzing stock price trends 
B) in any large group of investors,there will probably be some unusually lucky ones 
C) they are most likely the beneficiaries of insider trading 
D) they have better information about firms' technologies and production costs 
E) they have a superior ability to predict consumer behavior

Question 4

Which of the following factors would not be considered by a fundamental analyst when predicting stock prices?

Accepted Answer

A) the future demand for a firm's products 
B) the patents held by a firm 
C) the likelihood of new firms competing with an existing firm 
D) potential changes in a firm's costs of production 
E) recent jumps in a firm's stock price 
A) the future demand for a firm's products 
B) the patents held by a firm 
C) the likelihood of new firms competing with an existing firm 
D) potential changes in a firm's costs of production 
E) recent jumps in a firm's stock price

Question 5

If each additional unit of capital increases a firm's yearly output by a smaller amount than the previous unit of capital,and other inputs are held constant,then the firm is experiencing

Accepted Answer

A) diminishing returns to scale 
B) negative marginal productivity of capital 
C) diminishing marginal productivity of capital 
D) capital depreciation 
E) diminishing marginal productivity of labor 
A) diminishing returns to scale 
B) negative marginal productivity of capital 
C) diminishing marginal productivity of capital 
D) capital depreciation 
E) diminishing marginal productivity of labor

Question 6

If the interest rate at which you can lend funds is r percent per year,then the present value of Y dollars to be received next year is

Accepted Answer

A) (1 + r)Y 
B) Y / r 
C) Y 
D) Y - r 
E) Y / (1 + r) 
A) (1 + r)Y 
B) Y / r 
C) Y 
D) Y - r 
E) Y / (1 + r)

Question 7

Stocks and bonds are similar in the sense that

Accepted Answer

A) both are sold initially in primary markets and then traded in secondary markets 
B) both are means of providing firms with the means of financing capital expenditures 
C) their prices are both perceived as signals of a firm's performance by management 
D) their values can both be calculated by discounting future payments to obtain a present value 
E) all of the above 
A) both are sold initially in primary markets and then traded in secondary markets 
B) both are means of providing firms with the means of financing capital expenditures 
C) their prices are both perceived as signals of a firm's performance by management 
D) their values can both be calculated by discounting future payments to obtain a present value 
E) all of the above

Question 8

If you own 10% of the shares of a corporation's stock,and the corporation is expected to earn $9 million a year in after-tax profits forever,and the interest rate is 0.05,what is the value of your shares?

Accepted Answer

A) $18 million 
B) $900,000 
C) $9 million 
D) $6 million 
E) $180 million 
A) $18 million 
B) $900,000 
C) $9 million 
D) $6 million 
E) $180 million

Question 9

A new moving van will increase a moving company's yearly revenue by $15,000.Its useful life is three years.If the interest rate is 10 percent (0.1)per year,which of the following is the highest price the firm would be willing to pay for the van? Assume that each year's revenue is received at the end of the year.(Answers are rounded to the nearest $100. )

Accepted Answer

A) $15,000 
B) $20,000 
C) $37,300 
D) $44,100 
E) $45,000 
A) $15,000 
B) $20,000 
C) $37,300 
D) $44,100 
E) $45,000

Question 10

Elena Johnson owns 100 shares of Funky Foods,which has 100,000 shares of stock outstanding.Funky Foods is expected to earn $1 million in after-tax profits every year forever.The interest rate is 5 percent (0.05)per year.According to the principle of asset valuation,what is the value of Elena's shares?

Accepted Answer

A) $200,000 
B) $10,000 
C) $20,000 
D) $100,000 
E) $2,000 
A) $200,000 
B) $10,000 
C) $20,000 
D) $100,000 
E) $2,000

Question 11

A bond with a face value of $10,000 (and no coupon payments)is always worth

Accepted Answer

A) $10,000 
B) less than $10,000 before the maturity date 
C) more than $10,000 if the interest rate is high enough 
D) $10,000 on the date of purchase 
E) $9,090.91 two years before the maturity date 
A) $10,000 
B) less than $10,000 before the maturity date 
C) more than $10,000 if the interest rate is high enough 
D) $10,000 on the date of purchase 
E) $9,090.91 two years before the maturity date

Question 12

There is a specific relationship between the price of a bond and its yield.Which of the following describes that relationship?

Accepted Answer

A) If the price falls,the yield stays the same,but if the price rises,the yield rises. 
B) As the price falls,the yield falls. 
C) If the price rises,the yield stays the same,but if the price falls,the yield falls. 
D) As the price rises,the yield rises. 
E) As the price rises,the yield falls. 
A) If the price falls,the yield stays the same,but if the price rises,the yield rises. 
B) As the price falls,the yield falls. 
C) If the price rises,the yield stays the same,but if the price falls,the yield falls. 
D) As the price rises,the yield rises. 
E) As the price rises,the yield falls.

Question 13

A pizza shop owner who needs to buy a new pizza oven is trying to decide between two different used ones.Whichever oven he buys,it will generate $6,000 net revenue per year.But the older pizza oven has a useful life of only 3 years and the newer oven has a useful life of 5 years.If the interest rate is 7% per year,what is the difference in value between the two ovens? (Assume that each year's revenue is received at the end of the year. )

Accepted Answer

A) 413.25 
B) $10,892.99 
C) $15,745.90 
D) $24,601.18 
E) $8,855.29 
A) 413.25 
B) $10,892.99 
C) $15,745.90 
D) $24,601.18 
E) $8,855.29

Question 14

Consider the following three bonds,Bond F,Bond J and Bond P.Bonds F and P mature in 1 year while Bond J matures in 2 years.Bond F and J have a face value of $10,000 while Bond P has a face value of $12,000.If the interest rate is 15%,rank the three bonds from highest present value to lowest present value.

Accepted Answer

A) Bond F,Bond P,Bond J 
B) Bond P,Bond F,Bond J 
C) Bond J,Bond F,Bond P 
D) Bond P,Bond J,Bond F 
E) Bond F,Bond J,Bond P 
A) Bond F,Bond P,Bond J 
B) Bond P,Bond F,Bond J 
C) Bond J,Bond F,Bond P 
D) Bond P,Bond J,Bond F 
E) Bond F,Bond J,Bond P

Question 15

Taking a course in computer repair will increase an individual's yearly income by $10,000 per year,starting the year after the course is completed.After three years,the skills learned will be obsolete.What is the present value of taking the course if the interest rate is 8 percent (0.08)per year?

Accepted Answer

A) $1,248.29 
B) $10,356.65 
C) $25,770.97 
D) $30,000.00 
E) none of the above 
A) $1,248.29 
B) $10,356.65 
C) $25,770.97 
D) $30,000.00 
E) none of the above

Question 16

Abacus.com has just made an initial public offering of stock with the help of an investment bank.It sold 5 million shares at a price of $84 each.How much money did the corporation raise through this stock offering?

Accepted Answer

A) $420 million 
B) zero,because a firm only acquires funds on the secondary market 
C) $336 million 
D) $420 million minus fees paid to the investment bank 
E) It depends on the interest rate 
A) $420 million 
B) zero,because a firm only acquires funds on the secondary market 
C) $336 million 
D) $420 million minus fees paid to the investment bank 
E) It depends on the interest rate

Question 17

Consider the following three bonds,Bond F,Bond J and Bond P.Bonds F and P mature in 1 year while Bond J matures in 4 years.Bond F and J have a face value of $10,000 while Bond P has a face value of $11,000.If the interest rate is 15%,rank the three bonds from highest present value to lowest present value.

Accepted Answer

A) Bond F,Bond P,Bond J 
B) Bond P,Bond F,Bond J 
C) Bond J,Bond F,Bond P 
D) Bond P,Bond J,Bond F 
E) Bond F,Bond J,Bond P 
A) Bond F,Bond P,Bond J 
B) Bond P,Bond F,Bond J 
C) Bond J,Bond F,Bond P 
D) Bond P,Bond J,Bond F 
E) Bond F,Bond J,Bond P

Question 18

A shipping company can buy either a new truck or a used truck.Each truck will generate $4,000 in net revenue per year.But the new truck has a useful life of three years,whereas the used truck has a useful life of only two years.If the interest rate is 5 percent (0.05)per year,what is the difference in value between the two trucks? (Assume that each year's revenue is received at the end of the year. )

Accepted Answer

A) $0 
B) $4,000.00 
C) $3,455.35 
D) $1,185.19 
E) $8,000.00 
A) $0 
B) $4,000.00 
C) $3,455.35 
D) $1,185.19 
E) $8,000.00

Question 19

Agrophonic.com has issued 80 million shares of stock.You own 5 million of them.You also own Agrophonic.com bonds with a present value of $1 million.What percentage of Agrophonic.com do you own?

Accepted Answer

A) zero 
B) 7.1% 
C) 6.3% 
D) 5.9% 
E) 4.7% 
A) zero 
B) 7.1% 
C) 6.3% 
D) 5.9% 
E) 4.7%

Question 20

A newly issued bond with a face value of $12,000 and no coupon payments is priced at $9,000.The bond will mature in one year.What is the yield on this bond?

Accepted Answer

A) 33.3 percent 
B) 25 percent 
C) $3,000 
D) $1,909.09 
E) It depends on the interest rate 
A) 33.3 percent 
B) 25 percent 
C) $3,000 
D) $1,909.09 
E) It depends on the interest rate

If you carefully research the products,technologies,patents,and management of firms,the efficient markets theory of stock prices,predicts that

You have a choice among three options.Option 1: receive $900 immediately.Option 2: receive $1,200 one year from now.Option 3: Receive $2,000 five years from now.The interest rate is 15 percent (0.15)per year.Rank these three options from highest present value to lowest present value.

According to the efficient markets theory of stock prices,some investors outperform the market because

Which of the following factors would not be considered by a fundamental analyst when predicting stock prices?

If each additional unit of capital increases a firm's yearly output by a smaller amount than the previous unit of capital,and other inputs are held constant,then the firm is experiencing

If the interest rate at which you can lend funds is r percent per year,then the present value of Y dollars to be received next year is

Stocks and bonds are similar in the sense that

If you own 10% of the shares of a corporation's stock,and the corporation is expected to earn $9 million a year in after-tax profits forever,and the interest rate is 0.05,what is the value of your shares?

A bond with a face value of $10,000 (and no coupon payments)is always worth

There is a specific relationship between the price of a bond and its yield.Which of the following describes that relationship?

Taking a course in computer repair will increase an individual's yearly income by $10,000 per year,starting the year after the course is completed.After three years,the skills learned will be obsolete.What is the present value of taking the course if the interest rate is 8 percent (0.08)per year?

Abacus.com has just made an initial public offering of stock with the help of an investment bank.It sold 5 million shares at a price of $84 each.How much money did the corporation raise through this stock offering?

Agrophonic.com has issued 80 million shares of stock.You own 5 million of them.You also own Agrophonic.com bonds with a present value of $1 million.What percentage of Agrophonic.com do you own?

A newly issued bond with a face value of $12,000 and no coupon payments is priced at $9,000.The bond will mature in one year.What is the yield on this bond?

What Is Economics

Scarcity, choice, and Economic Systems

Supply and Demand

Working With Supply and Demand

Elasticity

Consumer Choice

Production and Cost

How Firms Make Decisions: Profit Maximization

Perfect Competition

B:Perfect Competition

Monopolistic Competition and Oligopoly

Monopoly

Labor Markets

B: Labor Markets

Economic Efficiency and the Competitive Ideal

Governments Role in Economic Efficiency

Comparative Advantage and the Gains From International Trade

Filters

Exam 14: Capital and Financial Markets

If you carefully research the products,technologies,patents,and management of firms,the efficient markets theory of stock prices,predicts that

You have a choice among three options.Option 1: receive $900 immediately.Option 2: receive $1,200 one year from now.Option 3: Receive $2,000 five years from now.The interest rate is 15 percent (0.15)per year.Rank these three options from highest present value to lowest present value.

According to the efficient markets theory of stock prices,some investors outperform the market because

Which of the following factors would not be considered by a fundamental analyst when predicting stock prices?

If each additional unit of capital increases a firm's yearly output by a smaller amount than the previous unit of capital,and other inputs are held constant,then the firm is experiencing

If the interest rate at which you can lend funds is r percent per year,then the present value of Y dollars to be received next year is

Stocks and bonds are similar in the sense that

If you own 10% of the shares of a corporation's stock,and the corporation is expected to earn $9 million a year in after-tax profits forever,and the interest rate is 0.05,what is the value of your shares?

A bond with a face value of $10,000 (and no coupon payments)is always worth

There is a specific relationship between the price of a bond and its yield.Which of the following describes that relationship?

Taking a course in computer repair will increase an individual's yearly income by $10,000 per year,starting the year after the course is completed.After three years,the skills learned will be obsolete.What is the present value of taking the course if the interest rate is 8 percent (0.08)per year?

Abacus.com has just made an initial public offering of stock with the help of an investment bank.It sold 5 million shares at a price of $84 each.How much money did the corporation raise through this stock offering?

Agrophonic.com has issued 80 million shares of stock.You own 5 million of them.You also own Agrophonic.com bonds with a present value of $1 million.What percentage of Agrophonic.com do you own?

A newly issued bond with a face value of $12,000 and no coupon payments is priced at $9,000.The bond will mature in one year.What is the yield on this bond?

What Is Economics

Scarcity, choice, and Economic Systems

Supply and Demand

Working With Supply and Demand

Elasticity

Consumer Choice

Production and Cost

How Firms Make Decisions: Profit Maximization

Perfect Competition

B:Perfect Competition

Monopolistic Competition and Oligopoly

Monopoly

Labor Markets

B: Labor Markets

Economic Efficiency and the Competitive Ideal

Governments Role in Economic Efficiency

Comparative Advantage and the Gains From International Trade

Filters