Exam 27: The Basic Tools of Finance

Fundamental analysis shows that Green Leaf Tea Company is fairly valued.Then Green Leaf Tea Company unexpectedly improves its production techniques and unexpectedly hires a new CEO away from another very successful tea producer.Suppose this has no effect on the price of the stock of Green Leaf Tea Company.

Prospect theory says that

Nobel Prize winner Daniel Kahaneman argues that investors tend to be

Sage decides to cash in all his savings to open a recording studio.He has three accounts to cash in.The first earned 9 percent for two years.The second earned 6 percent for three years.And the last earned 3 percent for six years.Supposing he started with $5,000 in each account,from which account will he get the most cash?

In the 1990s,several stocks had very,very high price to earnings ratios.These stocks appeared overvalued to many observers.What might the people who bought them have been thinking?

Felix deposited $500 into an account two years ago.The first year he earned 3 percent interest and the second year he earned 5 percent interest.How much money does Felix have in his account now?

Kramer's Frozen Sandwiches is thinking of building a new warehouse.They believe that this will given them $50,000 of additional revenue at the end of one year,$60,000 additional revenue at the end of two years,and $70,000 in additional revenue at the end of three years.If the interest rate is 5 percent,they would be willing to pay

Your financial advisor tells you that if you earn the historical rate of return on a certain mutual fund,then in three years your $20,000 will grow to $23,152.50.What rate of interest does your financial advisor expect you to earn?

Which of the following is a source of market risk?

Angela reads financial advice columns and concludes the following.Which,if any,of her conclusions are incorrect?

Manufacturers of Weightbegone are concerned that genetic advances in weight control might reduce the demand for their diet snacks.This is an example of

At an annual interest rate of 20 percent,about how many years will it take $100 to triple in value?

You put $275 in the bank one year ago and forgot about it.The bank sends you a notice that you now have $291.50 in your account.What interest rate did you earn?

Imagine that two years ago you inherited $20,000 and put it in an account paying a fixed 8% annual interest rate.To the nearest dollar,how much money do you have in your account now?

You are expecting to receive $750 at some time in the future.Which of the following would unambiguously increase the present value of this future payment?

Suppose that Rupert's utility drops more if he loses $50 than if he gains $50.This implies that Rupert's

According to the efficient markets hypothesis,which of the following would increase the price of stock in the McCloud Corporation?

Research studies have shown that

Risk

Which of the following is the correct expression for finding the present value of a $500 payment two years from today if the interest rate is 4 percent?