Question 1

The concept of present value helps explain why the quantity of loanable funds demanded decreases when the interest rate increases.

Accepted Answer

A) True 
 B)False

Question 2

Bert put $75 into an account and one year later had $100. What interest rate was paid on Bert's deposit?

Accepted Answer

A) 20 percent 
B) 25 percent 
C) 28 percent 
D) None of the above is correct. 
A) 20 percent 
B) 25 percent 
C) 28 percent 
D) None of the above is correct.

Question 3

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 4

Tonya put $250 into 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 Tonya have in her account now?

Accepted Answer

A) $302.50 
B) $306.23 
C) $308.67 
D) $309.39 
A) $302.50 
B) $306.23 
C) $308.67 
D) $309.39

Question 5

Which of the following is correct if the interest rate is 6 percent?

Accepted Answer

A) $215 to be received a year from today has a present value of over $200; $420 a year from now has a present value over $400. 
B) $215 to be received a year from today has a present value of over $200; $420 a year from now has a present value under $400. 
C) $215 to be received a year from today has a present value of under $200; $420 a year from now has a present value over $400. 
D) $215 to be received a year from today has a present value of under $200; $420 a year from now has a present value under $400. 
A) $215 to be received a year from today has a present value of over $200; $420 a year from now has a present value over $400. 
B) $215 to be received a year from today has a present value of over $200; $420 a year from now has a present value under $400. 
C) $215 to be received a year from today has a present value of under $200; $420 a year from now has a present value over $400. 
D) $215 to be received a year from today has a present value of under $200; $420 a year from now has a present value under $400.

Question 6

Three people go to the bank to cash in their accounts. Amy had her money in an account for 25 years at 4 percent interest. Bill had his money in an account for 20 years at 5 percent interest. Celia had her money in an account for 5 years at 20 percent interest. If each of them originally deposited $500 in their accounts, which of them gets the most money when they cash in their accounts?

Accepted Answer

A) Amy 
B) Bill 
C) Celia 
D) They each get the same amount. 
A) Amy 
B) Bill 
C) Celia 
D) They each get the same amount.

Question 7

Markovich Corporation is considering building a new plant. It will cost $1 million today to build it and it will generate revenues of $1.121 million three years from today. Of the interest rates below, which is the highest interest rate at which Markovich still would be willing to build the plant?

Accepted Answer

A) 3 percent 
B) 3.5 percent 
C) 4 percent 
D) 4.5 percent 
A) 3 percent 
B) 3.5 percent 
C) 4 percent 
D) 4.5 percent

Question 8

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 9

A manufacturing company is thinking about building a new factory. The factory, if built, will yield the company $300 million in 7 years, and it would cost $220 million today to build. The company will decide to build the factory if the interest rate is

Accepted Answer

A) no less than 4.53 percent. 
B) no greater than 4.53 percent. 
C) no less than 5.81 percent. 
D) no greater than 5.81 percent. 
A) no less than 4.53 percent. 
B) no greater than 4.53 percent. 
C) no less than 5.81 percent. 
D) no greater than 5.81 percent.

Question 10

Which of the following is correct?

Accepted Answer

A) Risk-averse people will not hold stock. 
B) Diversification cannot reduce firm-specific risk. 
C) The larger the percentage of stock in a portfolio, the greater the risk, but the greater the average return. 
D) Stock prices are determined by fundamental analysis rather than by supply and demand. 
A) Risk-averse people will not hold stock. 
B) Diversification cannot reduce firm-specific risk. 
C) The larger the percentage of stock in a portfolio, the greater the risk, but the greater the average return. 
D) Stock prices are determined by fundamental analysis rather than by supply and demand.

Question 11

According to fundamental analysis, when choosing stocks for your portfolio, you should prefer undervalued stocks.

Accepted Answer

A) True 
 B)False

Question 12

People who hold well-diversified portfolios of stocks have greatly reduced or eliminated

Accepted Answer

A) firm-specific risk, and so they do not need to worry about their wealth decreasing as a result of recessions. 
B) market risk, and so they do not need to worry about their wealth decreasing as a result of recessions. 
C) firm-specific risk, but still they have reason to worry about their wealth decreasing as a result of recessions. 
D) market risk, but still they have reason to worry about their wealth decreasing as a result of recessions. 
A) firm-specific risk, and so they do not need to worry about their wealth decreasing as a result of recessions. 
B) market risk, and so they do not need to worry about their wealth decreasing as a result of recessions. 
C) firm-specific risk, but still they have reason to worry about their wealth decreasing as a result of recessions. 
D) market risk, but still they have reason to worry about their wealth decreasing as a result of recessions.

Question 13

David increases the number of companies in which he holds stocks.

Accepted Answer

A) This reduces risk's standard deviation and firm-specific risk. 
B) This reduces risk's standard deviation and market risk. 
C) This raises market risk, but lowers firm-specific risk. What happens to overall risk is unclear. 
D) This raises firm-specific risk, but lowers market risk. What happens to overall risk is unclear. 
A) This reduces risk's standard deviation and firm-specific risk. 
B) This reduces risk's standard deviation and market risk. 
C) This raises market risk, but lowers firm-specific risk. What happens to overall risk is unclear. 
D) This raises firm-specific risk, but lowers market risk. What happens to overall risk is unclear.

Question 14

If the interest rate is 8 percent, then the present value of $1,000 to be received in 4 years is $735.03.

Accepted Answer

A) True 
 B)False

Question 15

As the number of stocks in a person's portfolio increases,

Accepted Answer

A) the risk of the portfolio increases, as indicated by the increasing value of the standard deviation of the portfolio. 
B) the risk of the portfolio increases, as indicated by the decreasing value of the standard deviation of the portfolio. 
C) the risk of the portfolio decreases, as indicated by the increasing value of the standard deviation of the portfolio. 
D) the risk of the portfolio decreases, as indicated by the decreasing value of the standard deviation of the portfolio. 
A) the risk of the portfolio increases, as indicated by the increasing value of the standard deviation of the portfolio. 
B) the risk of the portfolio increases, as indicated by the decreasing value of the standard deviation of the portfolio. 
C) the risk of the portfolio decreases, as indicated by the increasing value of the standard deviation of the portfolio. 
D) the risk of the portfolio decreases, as indicated by the decreasing value of the standard deviation of the portfolio.

Question 16

A soup manufacturer unexpectedly announces that it has hired a new manager. It is widely believed that this manager will raise the profitability of the corporation. At the same time interest rates unexpectedly rise. Which of the above would tend to make the price of the stock rise?

Accepted Answer

A) the announcement and the rise in interest rates 
B) the announcement but not the rise in interest rates 
C) the rise in interest rates, but not the announcement 
D) neither the announcement nor the rise in interest rates 
A) the announcement and the rise in interest rates 
B) the announcement but not the rise in interest rates 
C) the rise in interest rates, but not the announcement 
D) neither the announcement nor the rise in interest rates

Question 17

At which interest rate is the present value of $360 three years from today equal to about $310 today?

Accepted Answer

A) 4.7 percent 
B) 5.1 percent 
C) 5.5 percent 
D) 5.9 percent 
A) 4.7 percent 
B) 5.1 percent 
C) 5.5 percent 
D) 5.9 percent

Question 18

Suppose interest of 5% for two years can be earned on $1,000 saved today with no risk. What is the least amount a person would need to have a 50% chance of winning to be willing to face a 50% chance of losing $1,000 today and be considered risk averse?

Accepted Answer

A) $907.03 to be paid in two years 
B) $1,000.01 to be paid in two years 
C) $1,100.01 to be paid in two years 
D) $1,102.51 to be paid in two years 
A) $907.03 to be paid in two years 
B) $1,000.01 to be paid in two years 
C) $1,100.01 to be paid in two years 
D) $1,102.51 to be paid in two years

Question 19

Risk-averse persons will take no risks.

Accepted Answer

A) True 
 B)False

Question 20

If the efficient markets hypothesis is correct, then

Accepted Answer

A) the number of shares of stock offered for sale exceeds the number of shares of stock that people want to buy. 
B) the stock market is informationally efficient. 
C) stock prices never follow a random walk. 
D) All of the above are correct. 
A) the number of shares of stock offered for sale exceeds the number of shares of stock that people want to buy. 
B) the stock market is informationally efficient. 
C) stock prices never follow a random walk. 
D) All of the above are correct.

Exam 14: The Basic Tools of Finance

The concept of present value helps explain why the quantity of loanable funds demanded decreases when the interest rate increases.

Bert put $75 into an account and one year later had $100. What interest rate was paid on Bert's deposit?

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

Tonya put $250 into 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 Tonya have in her account now?

Which of the following is correct if the interest rate is 6 percent?

Markovich Corporation is considering building a new plant. It will cost $1 million today to build it and it will generate revenues of $1.121 million three years from today. Of the interest rates below, which is the highest interest rate at which Markovich still would be willing to build the plant?

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

A manufacturing company is thinking about building a new factory. The factory, if built, will yield the company $300 million in 7 years, and it would cost $220 million today to build. The company will decide to build the factory if the interest rate is

Which of the following is correct?

According to fundamental analysis, when choosing stocks for your portfolio, you should prefer undervalued stocks.

People who hold well-diversified portfolios of stocks have greatly reduced or eliminated

David increases the number of companies in which he holds stocks.

If the interest rate is 8 percent, then the present value of $1,000 to be received in 4 years is $735.03.

As the number of stocks in a person's portfolio increases,

A soup manufacturer unexpectedly announces that it has hired a new manager. It is widely believed that this manager will raise the profitability of the corporation. At the same time interest rates unexpectedly rise. Which of the above would tend to make the price of the stock rise?

At which interest rate is the present value of $360 three years from today equal to about $310 today?

Suppose interest of 5% for two years can be earned on $1,000 saved today with no risk. What is the least amount a person would need to have a 50% chance of winning to be willing to face a 50% chance of losing $1,000 today and be considered risk averse?

Risk-averse persons will take no risks.

If the efficient markets hypothesis is correct, then

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

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 Macroeconomic Models

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

Six Debates Over Macroeconomic Policy

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