Question 1

Which of the following is the correct way to figure the future value of $1 put in an account that earns 5 percent for 20 years?

Accepted Answer

A) $1(1 + .05)²⁰ 
B) $1(1 + .05 × 20) 20 
C) $1(1 + .05 × 20) 
D) $1(1 + 20/.05)²⁰ 
A) $1(1 + .05)²⁰ 
B) $1(1 + .05 × 20) 20 
C) $1(1 + .05 × 20) 
D) $1(1 + 20/.05)²⁰

Question 2

If you put $300 into an account paying 2 percent interest,what will be the value of this account in two years?

Accepted Answer

A) $310 
B) $312 
C) $312.12 
D) $314.24 
A) $310 
B) $312 
C) $312.12 
D) $314.24

Question 3

Jamie deposited $1,000 into an account three years ago.The first two years she earned 5 percent interest,the third she earned 6 percent.How much money does she have in her account today?

Accepted Answer

A) $1,157.90 
B) $1,168.65 
C) $1,176.00 
D) None of the above are correct to the nearest penny. 
A) $1,157.90 
B) $1,168.65 
C) $1,176.00 
D) None of the above are correct to the nearest penny.

Question 4

Suppose that the price of a bond is equal to the sum of the present value of its future payments.Suppose further that this bond pays $50 in one year and $1,050 in two years.What is the price of the bond if the interest rate is 5 percent?

Accepted Answer

A) $1,050.00 
B) $1,045.35 
C) $1,000.00 
D) $945.35 
A) $1,050.00 
B) $1,045.35 
C) $1,000.00 
D) $945.35

Question 5

A car salesperson gives you four alternative ways to pay for your car.The first is to pay $18,000 today.The second is to pay $19,000 one year from today.The third is to pay $20,300 two years from today.The fourth is to pay $21,500 three years from today.If the interest rate is 6 percent,which payment option has the lowest present value and which has the highest?

Accepted Answer

A) The first is lowest; the second is highest. 
B) The second is lowest; the third is highest. 
C) The third is lowest; the fourth is highest. 
D) The fourth is lowest; the first is highest. 
A) The first is lowest; the second is highest. 
B) The second is lowest; the third is highest. 
C) The third is lowest; the fourth is highest. 
D) The fourth is lowest; the first is highest.

Question 6

Annie knows that people in her family die young,and so she buys life insurance.Harry knows he is a reckless driver and so he applies for automobile insurance.

Accepted Answer

A) These are both examples of adverse selection. 
B) These are both examples of moral hazard. 
C) The first example illustrates adverse selection, and the second illustrates moral hazard. 
D) The first example illustrates moral hazard, and the second illustrates adverse selection. 
A) These are both examples of adverse selection. 
B) These are both examples of moral hazard. 
C) The first example illustrates adverse selection, and the second illustrates moral hazard. 
D) The first example illustrates moral hazard, and the second illustrates adverse selection.

Question 7

You want to have $100,000 in five years.If the interest rate is 8 percent,about how much do you need to save today?

Accepted Answer

A) $66,225.25 
B) $67,556.42 
C) $68,058.32 
D) $71,428.57 
A) $66,225.25 
B) $67,556.42 
C) $68,058.32 
D) $71,428.57

Question 8

Of the following interest rates which is the highest one at which you would prefer to have $200 ten years from today instead of $100 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 9

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

Accepted Answer

A) 7% 
B) 6% 
C) 5% 
D) It is not profitable at any of these interest rates. 
A) 7% 
B) 6% 
C) 5% 
D) It is not profitable at any of these interest rates.

Exam 27: The Basic Tools of Finance

Which of the following is the correct way to figure the future value of $1 put in an account that earns 5 percent for 20 years?

If you put $300 into an account paying 2 percent interest,what will be the value of this account in two years?

Jamie deposited $1,000 into an account three years ago.The first two years she earned 5 percent interest,the third she earned 6 percent.How much money does she have in her account today?

Suppose that the price of a bond is equal to the sum of the present value of its future payments.Suppose further that this bond pays $50 in one year and $1,050 in two years.What is the price of the bond if the interest rate is 5 percent?

Annie knows that people in her family die young,and so she buys life insurance.Harry knows he is a reckless driver and so he applies for automobile insurance.

You want to have $100,000 in five years.If the interest rate is 8 percent,about how much do you need to save today?

Of the following interest rates which is the highest one at which you would prefer to have $200 ten years from today instead of $100 today?

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

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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