Question 1

At which interest rate is the present value of $95.40 one year from today equal to $90 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 2

Assuming the interest rate is 6 percent,which of the following has the greatest present value?

Accepted Answer

A) $300 paid in two years 
B) $150 paid in one year plus $140 paid in two years 
C) $100 paid today plus $100 paid in one year plus $100 paid in two years 
D) $285 today 
A) $300 paid in two years 
B) $150 paid in one year plus $140 paid in two years 
C) $100 paid today plus $100 paid in one year plus $100 paid in two years 
D) $285 today

Question 3

Which of the following is the correct way to figure the future value of $100 put in an account that earns 4 percent for 10 years?

Accepted Answer

A) $100(1 + .04¹⁰) 
B) $100(1 + .04 × 10) 
C) $100 x 10 x (1 + .04) 
D) $100(1 + .04)¹⁰ 
A) $100(1 + .04¹⁰) 
B) $100(1 + .04 × 10) 
C) $100 x 10 x (1 + .04) 
D) $100(1 + .04)¹⁰

Question 4

Suppose that the interest rate is 8 percent.Consider three payment options: 1.$200 today.
2)$220 one year from today.
3)$240 two years from today.
Which of the following is correct?

Accepted Answer

A) 1 has the highest present value and 2 has the lowest. 
B) 2 has the highest present value and 3 has the lowest. 
C) 3 has the highest present value and 1 has the lowest. 
D) None of the above is correct. 
A) 1 has the highest present value and 2 has the lowest. 
B) 2 has the highest present value and 3 has the lowest. 
C) 3 has the highest present value and 1 has the lowest. 
D) None of the above is correct.

Question 5

Give two conditions that are important to the efficient market theory.List one implication of the efficient market theory.

Accepted Answer

Efficient market theory says that it sho

Question 6

The present value of a payment to be made in the future falls as

Accepted Answer

A) the interest rate rises and the time until the payment is made increases. 
B) the interest rate rises and the time until the payment is made decreases. 
C) the interest rate falls and the time until the payment is made increases. 
D) the interest rate falls and the time until the payment is made decreases. 
A) the interest rate rises and the time until the payment is made increases. 
B) the interest rate rises and the time until the payment is made decreases. 
C) the interest rate falls and the time until the payment is made increases. 
D) the interest rate falls and the time until the payment is made decreases.

Question 7

Fundamental analysis shows that stock in FaceIt! Cosmetics Corporation has a present value that is higher than its price.

Accepted Answer

A) This stock is overvalued; you should consider adding it to your portfolio. 
B) This stock is overvalued; you shouldn't consider adding it to your portfolio. 
C) This stock is undervalued; you should consider adding it to your portfolio. 
D) This stock is undervalued; you shouldn't consider adding it to your portfolio. 
A) This stock is overvalued; you should consider adding it to your portfolio. 
B) This stock is overvalued; you shouldn't consider adding it to your portfolio. 
C) This stock is undervalued; you should consider adding it to your portfolio. 
D) This stock is undervalued; you shouldn't consider adding it to your portfolio.

Question 8

Nancy would like to double the money in her retirement account in five years.According to the rule of 70,what rate of interest would she need to obtain her goal?

Accepted Answer

A) 5 percent 
B) 7 percent 
C) 10 percent 
D) 14 percent 
A) 5 percent 
B) 7 percent 
C) 10 percent 
D) 14 percent

Question 9

The last $200 of Mary's wealth adds more to her utility than another $200 would.Based on this information,Mary's utility function

Accepted Answer

A) and marginal utility function are both upward sloping. 
B) and marginal utility function are both downward sloping. 
C) is upward sloping and her marginal utility function is downward sloping. 
D) is downward sloping and her marginal utility function is upward sloping. 
A) and marginal utility function are both upward sloping. 
B) and marginal utility function are both downward sloping. 
C) is upward sloping and her marginal utility function is downward sloping. 
D) is downward sloping and her marginal utility function is upward sloping.

Question 10

An increase in the number of corporations in a portfolio from 110 to 120 reduces

Accepted Answer

A) market risk by more than an increase from 1 to 10. 
B) market risk by less than an increase from 1 to 10. 
C) firm-specific risk by more than an increase from 1 to 10. 
D) firm-specific risk by less than an increase from 1 to 10. 
A) market risk by more than an increase from 1 to 10. 
B) market risk by less than an increase from 1 to 10. 
C) firm-specific risk by more than an increase from 1 to 10. 
D) firm-specific risk by less than an increase from 1 to 10.

Question 11

Edgar has four savings accounts.Which one has the most in it?

Accepted Answer

A) $100 deposited 1 year ago at an 8% interest rate. 
B) $100 deposited 2 years ago at a 4% interest rate. 
C) $100 deposited 4 years ago at a 2% interest rate. 
D) $100 deposited 8 years ago at a 1% interest rate. 
A) $100 deposited 1 year ago at an 8% interest rate. 
B) $100 deposited 2 years ago at a 4% interest rate. 
C) $100 deposited 4 years ago at a 2% interest rate. 
D) $100 deposited 8 years ago at a 1% interest rate.

Question 12

Which of the following is the correct way to figure the future value of $X that earns r percent for N years?

Accepted Answer

A) $X(1 + rN)ᴺ 
B) $X(1 + r)ᴺ 
C) $X(1 + rN) 
D) $X(1 + r/N)N 
A) $X(1 + rN)ᴺ 
B) $X(1 + r)ᴺ 
C) $X(1 + rN) 
D) $X(1 + r/N)N

Question 13

What is the present value of a payment of $100 one year from today if the interest rate is 5 percent?

Accepted Answer

A) $95.50 
B) $95.24 
C) $95.00 
D) None of the above are correct to the nearest penny. 
A) $95.50 
B) $95.24 
C) $95.00 
D) None of the above are correct to the nearest penny.

Question 14

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

Accepted Answer

A) $1,000 
B) $1,050 
C) $1,100 
D) None of the above is correct. 
A) $1,000 
B) $1,050 
C) $1,100 
D) None of the above is correct.

Question 15

Fundamental analysis shows that stock in Cedar Valley Furniture Corporation has a price that exceeds its present value.

Accepted Answer

A) This stock is overvalued; you should consider adding it to your portfolio. 
B) This stock is overvalued; you shouldn't consider adding it to your portfolio. 
C) This stock is undervalued; you should consider adding it to your portfolio. 
D) This stock is undervalued; you shouldn't consider adding it to your portfolio. 
A) This stock is overvalued; you should consider adding it to your portfolio. 
B) This stock is overvalued; you shouldn't consider adding it to your portfolio. 
C) This stock is undervalued; you should consider adding it to your portfolio. 
D) This stock is undervalued; you shouldn't consider adding it to your portfolio.

Question 16

Other things the same,as the stocks of a greater number of corporations are held in a portfolio,

Accepted Answer

A) risk increases at an increasing rate. 
B) risk increases at a decreasing rate. 
C) risk decreases at an increasing rate. 
D) risk decreases at a decreasing rate. 
A) risk increases at an increasing rate. 
B) risk increases at a decreasing rate. 
C) risk decreases at an increasing rate. 
D) risk decreases at a decreasing rate.

Question 17

What is the future value of $500 one year from today if the interest rate is 6 percent?

Accepted Answer

A) $503 
B) $515 
C) $530 
D) None of the above is correct. 
A) $503 
B) $515 
C) $530 
D) None of the above is correct.

Question 18

A judge requires Harry to make a payment to Sally.The judge says that Harry can pay her either $10,000 today or $11,000 two years from today.Of the following interest rates,which is the highest one at which Harry would be better off paying the money today?

Accepted Answer

A) 3% 
B) 4% 
C) 5% 
D) 6% 
A) 3% 
B) 4% 
C) 5% 
D) 6%

Question 19

Marcus puts $500 in an account and one year later has $550;what was the interest rate on the account?

Accepted Answer

A) 10 percent 
B) 9 percent 
C) 8 percent 
D) None of the above is correct. 
A) 10 percent 
B) 9 percent 
C) 8 percent 
D) None of the above is correct.

Question 20

What is the present value of a payment of $150 one year from today if the interest rate is 6 percent?

Accepted Answer

A) $141.11 
B) $141.36 
C) $141.75 
D) None of the above are correct to the nearest penny. 
A) $141.11 
B) $141.36 
C) $141.75 
D) None of the above are correct to the nearest penny.

Exam 27: The Basic Tools of Finance

At which interest rate is the present value of $95.40 one year from today equal to $90 today?

Assuming the interest rate is 6 percent,which of the following has the greatest present value?

Which of the following is the correct way to figure the future value of $100 put in an account that earns 4 percent for 10 years?

Suppose that the interest rate is 8 percent.Consider three payment options: 1.$200 today. 2)$220 one year from today. 3)$240 two years from today. Which of the following is correct?

Give two conditions that are important to the efficient market theory.List one implication of the efficient market theory.

The present value of a payment to be made in the future falls as

Fundamental analysis shows that stock in FaceIt! Cosmetics Corporation has a present value that is higher than its price.

Nancy would like to double the money in her retirement account in five years.According to the rule of 70,what rate of interest would she need to obtain her goal?

The last $200 of Mary's wealth adds more to her utility than another $200 would.Based on this information,Mary's utility function

An increase in the number of corporations in a portfolio from 110 to 120 reduces

Edgar has four savings accounts.Which one has the most in it?

Which of the following is the correct way to figure the future value of $X that earns r percent for N years?

What is the present value of a payment of $100 one year from today if the interest rate is 5 percent?

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

Fundamental analysis shows that stock in Cedar Valley Furniture Corporation has a price that exceeds its present value.

Other things the same,as the stocks of a greater number of corporations are held in a portfolio,

What is the future value of $500 one year from today if the interest rate is 6 percent?

A judge requires Harry to make a payment to Sally.The judge says that Harry can pay her either $10,000 today or $11,000 two years from today.Of the following interest rates,which is the highest one at which Harry would be better off paying the money today?

Marcus puts $500 in an account and one year later has $550;what was the interest rate on the account?

What is the present value of a payment of $150 one year from today if the interest rate is 6 percent?

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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