Question 1

The value of a stock depends on the ability of the company to generate dividends and the expected price of the stock when the stockholder sells her shares.

Accepted Answer

A) True 
 B)False

Question 2

Managed mutual funds usually outperform mutual funds that are supposed to follow some stock index.

Accepted Answer

A) True 
 B)False

Question 3

Three years ago Halley put $1,200 in an account paying 2 percent interest.How much is the account worth today?

Accepted Answer

A) $1,225.38 
B) $1,248.48 
C) $1,264.72 
D) $1,273.45 
A) $1,225.38 
B) $1,248.48 
C) $1,264.72 
D) $1,273.45

Question 4

Which of the following is the largest?

Accepted Answer

A) the future value of $250 with 3% interest for 2 years 
B) the future value of $250 at 2% interest for 3 years 
C) the present value of $250 to be paid in two years when the interest rate is 3% 
D) the present value of $250 to be paid in three years when the interest rate is 2% 
A) the future value of $250 with 3% interest for 2 years 
B) the future value of $250 at 2% interest for 3 years 
C) the present value of $250 to be paid in two years when the interest rate is 3% 
D) the present value of $250 to be paid in three years when the interest rate is 2%

Question 5

A firm has three different investment options,each costing $10 million.Option A will generate $12 million in revenue at the end of one year.Option B will generate $15 million in revenue at the end of two years.Option C will generate $18 million in revenue at the end of three years.Which option should the firm choose?

Accepted Answer

A) Option A 
B) Option B 
C) Option C 
D) The answer depends on the rate of interest. 
A) Option A 
B) Option B 
C) Option C 
D) The answer depends on the rate of interest.

Question 6

Which of the following changes would increase the present value of a future payment?

Accepted Answer

A) a decrease in the size of the payment 
B) an increase in the time until the payment is made 
C) a decrease in the interest rate 
D) All of the above are correct. 
A) a decrease in the size of the payment 
B) an increase in the time until the payment is made 
C) a decrease in the interest rate 
D) All of the above are correct.

Question 7

Sari puts $100 in an account with an interest rate of 10 percent.According to the rule of 70,about how much does she have at the end of 21 years?

Accepted Answer

A) $210 
B) $300 
C) $800 
D) $1,010 
A) $210 
B) $300 
C) $800 
D) $1,010

Question 8

The last $2,000 of Samantha's wealth adds less to her utility than the previous $2,000.Based on this information,Samantha has

Accepted Answer

A) increasing marginal utility of wealth and is risk averse 
B) increasing marginal utility of wealth and is not risk averse 
C) decreasing marginal utility of wealth and is risk averse 
D) decreasing marginal utility of wealth and is not risk averse 
A) increasing marginal utility of wealth and is risk averse 
B) increasing marginal utility of wealth and is not risk averse 
C) decreasing marginal utility of wealth and is risk averse 
D) decreasing marginal utility of wealth and is not risk averse

Question 9

HydroGrow is considering building a new building in which to grow tomatoes.The board meets and decides that this is the right thing to do.Before they can put their plans into action,the interest rate increases.The present value of the returns from this investment project

Accepted Answer

A) falls, and so Hydro Grow is less likely to build the building. 
B) falls, and so HydroGrow is more likely to build the building. 
C) rise, and so HydroGrow is less likely to build the building. 
D) rise, and so HydroGrow is more likely to build the building. 
A) falls, and so Hydro Grow is less likely to build the building. 
B) falls, and so HydroGrow is more likely to build the building. 
C) rise, and so HydroGrow is less likely to build the building. 
D) rise, and so HydroGrow is more likely to build the building.

Question 10

A risk-averse person

Accepted Answer

A) would necessarily not play a game where she had a 50 percent chance of winning $1 and a 50 percent chance of losing $1. 
B) would necessarily not play a game where she had a 75 percent chance of winning $1 and a 25 percent chance of losing $1. 
C) Both A and B. 
D) Neither A nor B. 
A) would necessarily not play a game where she had a 50 percent chance of winning $1 and a 50 percent chance of losing $1. 
B) would necessarily not play a game where she had a 75 percent chance of winning $1 and a 25 percent chance of losing $1. 
C) Both A and B. 
D) Neither A nor B.

Question 11

At which interest rate is the present value of $162.24 two years from today equal to $150 today?

Accepted Answer

A) 4 percent 
B) 5 percent 
C) 6 percent 
D) None of the above would give a present value within a penny of $162.24. 
A) 4 percent 
B) 5 percent 
C) 6 percent 
D) None of the above would give a present value within a penny of $162.24.

Question 12

If you put $250 in an account with a 4 percent interest rate,how many years would you have to wait to have about $370.06?

Accepted Answer

A) 10 
B) 14 
C) 17 
D) 20 
A) 10 
B) 14 
C) 17 
D) 20

Question 13

Mixster Concrete Company is considering buying a new cement truck.The owners and their accountants decide that this is the profitable thing to do.Before they can buy the truck,the interest rate and price of trucks change.In which case do these changes both make them less likely to buy the truck?

Accepted Answer

A) both interest rates and price of trucks rise 
B) both interest rates and the price of trucks fall 
C) the interest rate rises and the price of trucks fall 
D) the interest rate falls and the price of trucks rises 
A) both interest rates and price of trucks rise 
B) both interest rates and the price of trucks fall 
C) the interest rate rises and the price of trucks fall 
D) the interest rate falls and the price of trucks rises

Question 14

A risk averse person

Accepted Answer

A) has a utility curve where the slope increases with wealth, and might take a bet with a 60 percent chance of wining $100 and a 40 per chance of losing $100. 
B) has a utility curve where the slope increases with wealth, and would never take a bet with a 60 percent chance of wining $100 and a 40 per cent chance of losing $100. 
C) has a utility curve where the slope decreases with wealth, and might take a bet with a 60 percent chance of wining $100 and a 40 per chance of losing $100. 
D) has a utility curve where the slope decreases with wealth, and would never take a bet with a 60 percent chance of wining $100 and a 40 per cent chance of losing $100. 
A) has a utility curve where the slope increases with wealth, and might take a bet with a 60 percent chance of wining $100 and a 40 per chance of losing $100. 
B) has a utility curve where the slope increases with wealth, and would never take a bet with a 60 percent chance of wining $100 and a 40 per cent chance of losing $100. 
C) has a utility curve where the slope decreases with wealth, and might take a bet with a 60 percent chance of wining $100 and a 40 per chance of losing $100. 
D) has a utility curve where the slope decreases with wealth, and would never take a bet with a 60 percent chance of wining $100 and a 40 per cent chance of losing $100.

Question 15

Speculative bubbles may arise in part because the value of the stock to a stockholder depends on the final sale price.

Accepted Answer

A) True 
 B)False

Question 16

Natasha promises to pay Jennifer $1,000 in two years.If the interest rate is 6 percent,how many dollars today is this future payment worth?

Accepted Answer

A) $883.60 
B) $887.97 
C) $893.67 
D) None of the above are correct to the nearest penny. 
A) $883.60 
B) $887.97 
C) $893.67 
D) None of the above are correct to the nearest penny.

Question 17

At which interest rate is the present value of $79.50 one year from today equal to $75 today?

Accepted Answer

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

Question 18

You are given three options.You may have the balance in an account that has been collecting 5 percent interest for 20 years,the balance in an account that has been collecting 10 percent interest for 10 years,or the balance in an account that has been collecting 20 percent interest for five years.Each account had the same original balance.Which account now has the lowest balance?

Accepted Answer

A) the first one 
B) the second one 
C) the third one 
D) It doesn't matter; they all have the same balance. 
A) the first one 
B) the second one 
C) the third one 
D) It doesn't matter; they all have the same balance.

Question 19

Diversification can reduce firm-specific risk.

Accepted Answer

A) True 
 B)False

Question 20

What's the difference between firm-specific risk and market risk? Will diversification eliminate one or both? Explain.

Accepted Answer

Market risk refers to economywide risk c

Exam 27: The Basic Tools of Finance

The value of a stock depends on the ability of the company to generate dividends and the expected price of the stock when the stockholder sells her shares.

Managed mutual funds usually outperform mutual funds that are supposed to follow some stock index.

Three years ago Halley put $1,200 in an account paying 2 percent interest.How much is the account worth today?

Which of the following is the largest?

Which of the following changes would increase the present value of a future payment?

Sari puts $100 in an account with an interest rate of 10 percent.According to the rule of 70,about how much does she have at the end of 21 years?

The last $2,000 of Samantha's wealth adds less to her utility than the previous $2,000.Based on this information,Samantha has

HydroGrow is considering building a new building in which to grow tomatoes.The board meets and decides that this is the right thing to do.Before they can put their plans into action,the interest rate increases.The present value of the returns from this investment project

A risk-averse person

At which interest rate is the present value of $162.24 two years from today equal to $150 today?

If you put $250 in an account with a 4 percent interest rate,how many years would you have to wait to have about $370.06?

Mixster Concrete Company is considering buying a new cement truck.The owners and their accountants decide that this is the profitable thing to do.Before they can buy the truck,the interest rate and price of trucks change.In which case do these changes both make them less likely to buy the truck?

A risk averse person

Speculative bubbles may arise in part because the value of the stock to a stockholder depends on the final sale price.

Natasha promises to pay Jennifer $1,000 in two years.If the interest rate is 6 percent,how many dollars today is this future payment worth?

At which interest rate is the present value of $79.50 one year from today equal to $75 today?

Diversification can reduce firm-specific risk.

What's the difference between firm-specific risk and market risk? Will diversification eliminate one or both? Explain.

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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