Question 1

Assuming the interest rate is 5 percent,which of the following has the greatest present value?

Accepted Answer

A) $240 paid in three years 
B) $225 paid in two years 
C) $210 paid in one year 
D) $200 today 
A) $240 paid in three years 
B) $225 paid in two years 
C) $210 paid in one year 
D) $200 today

Question 2

If stock prices follow a random walk,then stock investors can make large profits by

Accepted Answer

A) buying stocks whose prices have been falling for several days. 
B) buying stocks whose prices have been rising for several days. 
C) performing fundamental analysis of stocks using data contained in annual reports. 
D) using inside information. 
A) buying stocks whose prices have been falling for several days. 
B) buying stocks whose prices have been rising for several days. 
C) performing fundamental analysis of stocks using data contained in annual reports. 
D) using inside information.

Question 3

Ozzie put $15,000 into an account with a fixed rate two years ago and now has $16,224.00.What rate of interest did Ozzie earn?

Accepted Answer

A) 2 percent 
B) 3 percent 
C) 4 percent 
D) 6 percent 
A) 2 percent 
B) 3 percent 
C) 4 percent 
D) 6 percent

Question 4

Give an example of adverse selection and an example of moral hazard using homeowners insurance.

Accepted Answer

An example of adverse selection is that

Question 5

Financial intermediaries typically require mortgage borrowers to have homeowner's insurance and do credit checks before making the loan.

Accepted Answer

A) The insurance requirement and the credit check are both designed primarily to reduce adverse selection. 
B) The insurance requirement and the credit check are both designed primarily to reduce the risk of moral hazard. 
C) The insurance requirement is designed primarily to reduce adverse selection; the credit check is designed primarily to reduce the risk of moral hazard. 
D) The insurance requirement is designed primarily to reduce the risk of moral hazard; the credit check is designed primarily to reduce adverse selection. 
A) The insurance requirement and the credit check are both designed primarily to reduce adverse selection. 
B) The insurance requirement and the credit check are both designed primarily to reduce the risk of moral hazard. 
C) The insurance requirement is designed primarily to reduce adverse selection; the credit check is designed primarily to reduce the risk of moral hazard. 
D) The insurance requirement is designed primarily to reduce the risk of moral hazard; the credit check is designed primarily to reduce adverse selection.

Question 6

Which of the following has a present value of $100?

Accepted Answer

A) $110 in two years when the interest rate is 5 percent 
B) $112.36 in two years when the interest rate is 6 percent 
C) $117.49 in two years when the interest rate is 7 percent 
D) None of the above are correct to the nearest penny. 
A) $110 in two years when the interest rate is 5 percent 
B) $112.36 in two years when the interest rate is 6 percent 
C) $117.49 in two years when the interest rate is 7 percent 
D) None of the above are correct to the nearest penny.

Question 7

A scholarship gives you $1,000 today and promises to pay you $1,000 one year from today.What is the present value of these payments?

Accepted Answer

A) $2,000/(1 + r)². 
B) $1,000 + $1,000/(1 + r) 
C) $1,000/(1 + r) + $1,000/(1 + r)² 
D) $1,000(1 + r) + $1,000(1 + r)² 
A) $2,000/(1 + r)². 
B) $1,000 + $1,000/(1 + r) 
C) $1,000/(1 + r) + $1,000/(1 + r)² 
D) $1,000(1 + r) + $1,000(1 + r)²

Question 8

Two years ago David put $3,000 in an account paying 3 percent interest.How much does he have in the account today?

Accepted Answer

A) $3,180.00 
B) $3,182.70 
C) $3,183.62 
D) None of the above are correct to the nearest penny. 
A) $3,180.00 
B) $3,182.70 
C) $3,183.62 
D) None of the above are correct to the nearest penny.

Question 9

What is the present value of a payment of $100 to be made one year from today?

Accepted Answer

A) $100*(1 + r) 
B) $100/(1 + r) 
C) $100 - $100 × r 
D) $100 - (1 + r)/$100 
A) $100*(1 + r) 
B) $100/(1 + r) 
C) $100 - $100 × r 
D) $100 - (1 + r)/$100

Question 10

At which interest rate is the present value of $260.10 two years from today equal to $250 today?

Accepted Answer

A) 2 percent 
B) 3 percent 
C) 4 percent 
D) 5 percent 
A) 2 percent 
B) 3 percent 
C) 4 percent 
D) 5 percent

Question 11

At an annual interest rate of 10 percent,about how many years will it take $100 to triple in value?

Accepted Answer

A) 8 
B) 10 
C) 12 
D) 14 
A) 8 
B) 10 
C) 12 
D) 14

Question 12

At which interest rate is the present value of $360 three years from today equal to about $320 today?

Accepted Answer

A) 4 percent 
B) 4.5 percent 
C) 5 percent 
D) 5.5 percent 
A) 4 percent 
B) 4.5 percent 
C) 5 percent 
D) 5.5 percent

Question 13

Which of the following is the correct expression for finding the present value of a $1,000 payment one year from today if the interest rate is 6 percent?

Accepted Answer

A) $1,000 × (1.06) 
B) $1,000⁽¹.⁰⁶⁾ 
C) $1,000/(1.06) 
D) None of the above is correct. 
A) $1,000 × (1.06) 
B) $1,000⁽¹.⁰⁶⁾ 
C) $1,000/(1.06) 
D) None of the above is correct.

Question 14

According to the efficient markets hypothesis,stocks follow a random walk so that stocks that increase in price one year are more likely to increase than decrease in the next year.

Accepted Answer

A) True 
 B)False

Question 15

Dividends

Accepted Answer

A) are the rates of return on mutual funds. 
B) are cash payments that companies make to shareholders. 
C) are the difference between the price and present value per share of a stock. 
D) are the rates of return on a company's capital stock. 
A) are the rates of return on mutual funds. 
B) are cash payments that companies make to shareholders. 
C) are the difference between the price and present value per share of a stock. 
D) are the rates of return on a company's capital stock.

Question 16

Dobson Construction has an investment project that would cost $150,000 today and yield a one-time payoff of $167,000 in two years.What is the highest interest rate at which Dobson would find this project profitable?

Accepted Answer

A) 7% 
B) 6% 
C) 5% 
D) 4% 
A) 7% 
B) 6% 
C) 5% 
D) 4%

Question 17

At which interest rate is the present value of $35.00 two years from today equal to about $30.00 today?

Accepted Answer

A) 9 percent 
B) 8 percent 
C) 7 percent 
D) 6 percent 
A) 9 percent 
B) 8 percent 
C) 7 percent 
D) 6 percent

Question 18

Suppose that the interest rate is 4 percent.Which of the following has the greatest present value?

Accepted Answer

A) $100 today plus $190 one year from today 
B) $150 today plus $140 one year from today 
C) $200 today plus $90 one year from today 
D) $250 today plus $40 one year from today 
A) $100 today plus $190 one year from today 
B) $150 today plus $140 one year from today 
C) $200 today plus $90 one year from today 
D) $250 today plus $40 one year from today

Question 19

Other things the same,as the interest rate rises,the present value of future revenues from investment projects

Accepted Answer

A) rise, so investment spending rises. 
B) fall, so investment spending rises. 
C) rise, so investment spending falls. 
D) fall, so investment spending falls. 
A) rise, so investment spending rises. 
B) fall, so investment spending rises. 
C) rise, so investment spending falls. 
D) fall, so investment spending falls.

Question 20

Which of the following games might a risk-averse person be willing to play?

Accepted Answer

A) A game where she has a 60 percent chance of winning $1 and a 40 percent chance of losing $1. 
B) A game where she has a 70 percent chance of winning $1 and a 30 percent chance of losing $1. 
C) Both A and B. 
D) Neither A nor B. 
A) A game where she has a 60 percent chance of winning $1 and a 40 percent chance of losing $1. 
B) A game where she has a 70 percent chance of winning $1 and a 30 percent chance of losing $1. 
C) Both A and B. 
D) Neither A nor B.

Exam 27: The Basic Tools of Finance

Assuming the interest rate is 5 percent,which of the following has the greatest present value?

If stock prices follow a random walk,then stock investors can make large profits by

Ozzie put $15,000 into an account with a fixed rate two years ago and now has $16,224.00.What rate of interest did Ozzie earn?

Give an example of adverse selection and an example of moral hazard using homeowners insurance.

Financial intermediaries typically require mortgage borrowers to have homeowner's insurance and do credit checks before making the loan.

Which of the following has a present value of $100?

A scholarship gives you $1,000 today and promises to pay you $1,000 one year from today.What is the present value of these payments?

Two years ago David put $3,000 in an account paying 3 percent interest.How much does he have in the account today?

What is the present value of a payment of $100 to be made one year from today?

At which interest rate is the present value of $260.10 two years from today equal to $250 today?

At an annual interest rate of 10 percent,about how many years will it take $100 to triple in value?

At which interest rate is the present value of $360 three years from today equal to about $320 today?

Which of the following is the correct expression for finding the present value of a $1,000 payment one year from today if the interest rate is 6 percent?

According to the efficient markets hypothesis,stocks follow a random walk so that stocks that increase in price one year are more likely to increase than decrease in the next year.

Dividends

Dobson Construction has an investment project that would cost $150,000 today and yield a one-time payoff of $167,000 in two years.What is the highest interest rate at which Dobson would find this project profitable?

At which interest rate is the present value of $35.00 two years from today equal to about $30.00 today?

Suppose that the interest rate is 4 percent.Which of the following has the greatest present value?

Other things the same,as the interest rate rises,the present value of future revenues from investment projects

Which of the following games might a risk-averse person be willing to play?

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

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