Exam 27: The Basic Tools of Finance

According to the efficient markets hypothesis,at any moment in time,the market price is the best estimate of the company's value based on publicly available information.

On May 25,1975 three pals graduated from high school,pooled together $1000 and put the money into an account promising to pay 8% for the next 30 years.On May 25,2005 they withdrew the money? To the nearest dollar,how much did they withdraw?

What is the future value of $333 at an interest rate of 3 percent one year from today?

What is the present value of a payment of $200 to be made one year from today if the interest rate is 10 percent?

Diversification reduces

According to the efficient markets hypothesis,worse than expected news about a corporation will

Heidi deposits $250 in an account and one year later has $270;what was the interest rate?

A firm has three different investment options.Option A will give the firm $10 million at the end of one year,$10 million at the end of two years,and $10 million at the end of three years.Option B will give the firm $15 million at the end of one year,$10 million at the end of two years,and $5 million at the end of three years.Option C will give the firm $30 million at the end of one year,and nothing thereafter.Which of these options has the highest present value?

Martin put $250 in an account three years ago.The first year he earned 6 percent interest,the second year 7 percent,and the third year 8 percent.About how about much does Martin have in his account now?

Which of the following is correct concerning stock market irrationality?

Your rich uncle Earl tells you that he will give you $500 in two years.You could borrow the present value of this $500 and when your uncle sends you the gift have just enough to pay off the loan.About how much can you borrow if the interest rate is 11 percent?

Dakota rearranges her portfolio so that it has a higher average return.In doing this rearranging,she

The future value of a deposit in a savings account will be smaller

Which of the following is adverse selection?

Which of the following best illustrates moral hazard?

You've been promised a payment of $400 in the future.In which case is the present value of this payment highest?

Fundamental analysis shows that stock in Wallace Electronics Corporation has a present value that is higher than its price.

Al,Ralph,and Stan are all intending to retire.Each currently has $1 million in assets.Al will earn 16% interest and retire in two years.Ralph will earn 8% interest and retire in four years.Stan will earn 4% interest and retire in eight years.Who will have the most dollars when he retires?

Risk-averse people will choose different asset portfolios than people who are not risk averse.Over a long period of time,we would expect that

What is the future value of $450 at an interest rate of 11 percent one year from today?