Question 1

Susan puts $125 into an account and one year later has $135;what was the interest rate?

Accepted Answer

A) 5 percent 
B) 7 percent 
C) 8 percent 
D) 10 percent 
A) 5 percent 
B) 7 percent 
C) 8 percent 
D) 10 percent

Question 2

You put $75 in the bank one year ago and forgot about it.The bank sends you a notice that you now have $81 in your account.What interest rate did you earn?

Accepted Answer

A) 5 percent 
B) 6 percent 
C) 7 percent 
D) 8 percent 
A) 5 percent 
B) 6 percent 
C) 7 percent 
D) 8 percent

Question 3

Rita puts $10,000 into to two different assets.The first pays 10% and the second pays 5%.According to the rule of 70,what is the approximate difference in the value of the two assets after 14 years?

Accepted Answer

A) $12,000 
B) $14,000 
C) $17,000 
D) $20,000 
A) $12,000 
B) $14,000 
C) $17,000 
D) $20,000

Question 4

According to the rule of 70,if you earn an interest rate of 3.5 percent,your savings will double about every 20 years.

Accepted Answer

A) True 
 B)False

Question 5

Fundamental analysis shows that stock in Lodgefire Restaurants has a present value below its price.

Accepted Answer

A) This stock is overvalued; you should consider adding it to your portfolio. 
B) This stock is overvalued; you shouldn't consider adding it to your portfolio. 
C) This stock is undervalued; you should consider adding it to your portfolio. 
D) This stock is undervalued; you shouldn't consider adding it to your portfolio. 
A) This stock is overvalued; you should consider adding it to your portfolio. 
B) This stock is overvalued; you shouldn't consider adding it to your portfolio. 
C) This stock is undervalued; you should consider adding it to your portfolio. 
D) This stock is undervalued; you shouldn't consider adding it to your portfolio.

Question 6

At which interest rate is the present value of $189.28 two years from today equal to $175 today?

Accepted Answer

A) 2 percent 
B) 4 percent 
C) 6 percent 
D) 8 percent 
A) 2 percent 
B) 4 percent 
C) 6 percent 
D) 8 percent

Question 7

A high ranking corporate official of a well-known company is unexpectedly sentenced to prison for criminal activity in trading stocks.This should

Accepted Answer

A) raise the price and the present value of the corporation's stock. 
B) raise the price and lower the present value of the corporation's stock. 
C) lower the price and raise the present value of the corporation's stock. 
D) lower the price and the present value of the corporation's stock. 
A) raise the price and the present value of the corporation's stock. 
B) raise the price and lower the present value of the corporation's stock. 
C) lower the price and raise the present value of the corporation's stock. 
D) lower the price and the present value of the corporation's stock.

Question 8

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

Accepted Answer

A) rise, and investment spending rise. 
B) rise, and investment spending fall. 
C) fall, and investment spending rise. 
D) fall, and investment spending fall. 
A) rise, and investment spending rise. 
B) rise, and investment spending fall. 
C) fall, and investment spending rise. 
D) fall, and investment spending fall.

Question 9

Darby puts $75 in an account and one year later has $100;what was the interest rate on the account?

Accepted Answer

A) 20 percent 
B) 25 percent 
C) 30 percent 
D) None of the above is correct. 
A) 20 percent 
B) 25 percent 
C) 30 percent 
D) None of the above is correct.

Question 10

What is the present value of a payment of $100 to be made one year from today if the interest rate is 5 percent?

Accepted Answer

A) $105.26 
B) $105.00 
C) $95.24 
D) $95.00 
A) $105.26 
B) $105.00 
C) $95.24 
D) $95.00

Question 11

Discuss the statistical evidence concerning the efficient markets hypothesis.

Accepted Answer

The evidence indicates that stock prices

Question 12

If a person is risk averse,then as wealth increases,total utility of wealth

Accepted Answer

A) increases at an increasing rate. 
B) increases at a decreasing rate. 
C) decreases at an increasing rate. 
D) decreases at a decreasing rate. 
A) increases at an increasing rate. 
B) increases at a decreasing rate. 
C) decreases at an increasing rate. 
D) decreases at a decreasing rate.

Question 13

Alice says that the present value of $700 one year from today if the interest rate is 6 percent is less than the present value of $700 two years from today if the interest rate is 3 percent.Beth says that $700 saved for one year at 6 percent interest has a smaller future value than $700 saved for two years at 3 percent interest.

Accepted Answer

A) Both Alice and Beth are correct. 
B) Both Alice and Beth are incorrect. 
C) Only Alice is correct. 
D) Only Beth is correct. 
A) Both Alice and Beth are correct. 
B) Both Alice and Beth are incorrect. 
C) Only Alice is correct. 
D) Only Beth is correct.

Question 14

At which interest rate is the present value of $135.20 two years from today equal to $125 today?

Accepted Answer

A) 2 percent 
B) 4 percent 
C) 6 percent 
D) 8 percent 
A) 2 percent 
B) 4 percent 
C) 6 percent 
D) 8 percent

Question 15

The market for insurance is one example of reducing risk by using diversification.

Accepted Answer

A) True 
 B)False

Question 16

Suppose that 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?

Accepted Answer

A) Option A 
B) Option B 
C) Option C 
D) Option D 
A) Option A 
B) Option B 
C) Option C 
D) Option D

Question 17

Happy Trails,a bicycle rental company,is considering purchasing three additional bicycles.Each bicycle would cost them $249.66.At the end of the first year the increase to their revenues would be $140 per bicycle.At the end of the second year the increase to their revenues would be $115 per bicycle and they can sell each used bike for another $25.At which of the following interest rates is the sum of the present value of the revenues from buying a bicycle closest to the price of a bicycle?

Accepted Answer

A) 5 percent 
B) 6 percent 
C) 7 percent 
D) 8 percent 
A) 5 percent 
B) 6 percent 
C) 7 percent 
D) 8 percent

Question 18

To diversify,a homeowner with a variable-rate mortgage should choose investments that

Accepted Answer

A) pay higher returns when interest rates rise and lower returns when interest rates fall. 
B) pay lower returns when interest rates rise and higher returns when interest rates fall. 
C) provide a higher return than the market average. 
D) provide a lower return than the market average. 
A) pay higher returns when interest rates rise and lower returns when interest rates fall. 
B) pay lower returns when interest rates rise and higher returns when interest rates fall. 
C) provide a higher return than the market average. 
D) provide a lower return than the market average.

Question 19

As the interest rate increases,what happens to the present value of a future payment? Explain why changes in the interest rate will lead to changes in the quantity of loanable funds demanded and investment spending.

Accepted Answer

An increase in the interest rate reduces

Question 20

Rex 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,Rex should choose investments that

Accepted Answer

A) provide a higher return than the market average. 
B) provide a lower return than the market average. 
C) pay higher returns when interest rates rise and lower returns when interest rates fall. 
D) pay lower returns when interest rates rise and higher returns when interest rates fall. 
A) provide a higher return than the market average. 
B) provide a lower return than the market average. 
C) pay higher returns when interest rates rise and lower returns when interest rates fall. 
D) pay lower returns when interest rates rise and higher returns when interest rates fall.

Exam 27: The Basic Tools of Finance

Susan puts $125 into an account and one year later has $135;what was the interest rate?

You put $75 in the bank one year ago and forgot about it.The bank sends you a notice that you now have $81 in your account.What interest rate did you earn?

Rita puts $10,000 into to two different assets.The first pays 10% and the second pays 5%.According to the rule of 70,what is the approximate difference in the value of the two assets after 14 years?

According to the rule of 70,if you earn an interest rate of 3.5 percent,your savings will double about every 20 years.

Fundamental analysis shows that stock in Lodgefire Restaurants has a present value below its price.

At which interest rate is the present value of $189.28 two years from today equal to $175 today?

A high ranking corporate official of a well-known company is unexpectedly sentenced to prison for criminal activity in trading stocks.This should

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

Darby puts $75 in an account and one year later has $100;what was the interest rate on the account?

What is the present value of a payment of $100 to be made one year from today if the interest rate is 5 percent?

Discuss the statistical evidence concerning the efficient markets hypothesis.

If a person is risk averse,then as wealth increases,total utility of wealth

At which interest rate is the present value of $135.20 two years from today equal to $125 today?

The market for insurance is one example of reducing risk by using diversification.

Suppose that 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?

To diversify,a homeowner with a variable-rate mortgage should choose investments that

As the interest rate increases,what happens to the present value of a future payment? Explain why changes in the interest rate will lead to changes in the quantity of loanable funds demanded and investment spending.

Rex 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,Rex should choose investments that

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Applications

Supply, demand, and Government Policies

Consumers, producers, and the Efficiency of Markets

Application: the Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Oligopoly

Monopolistic Competition

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, investment, and the Financial System

Unemployment

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short Run Trade Off Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

Filters