Exam 14: The Basic Tools of Finance

Alice says that the present value of $700 to be received one year from today if the interest rate is 6 percent is less than the present value of $700 to be received two years from today if the interest rate is 3 percent. Beth says that $700 saved for one year at 6 percent interest has a smaller future value than $700 saved for two years at 3 percent interest.

Sometimes On Time (SOT) Airlines is considering buying a new jet. SOT would be more likely to buy a new jet if there were either

A person's subjective measure of well-being or satisfaction is called aversion.

You put $150 in the bank two years ago and forgot about it. The bank sends you a notice that you now have $169.34 in your account. What interest rate did you earn?

The present value of a future payment to be received in three years is $1,000. If the interest rate is 5%, what is the amount that will be paid in three years?

You are expecting to receive $750 at some time in the future. Which of the following would unambiguously decrease the present value of this future payment?

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 largest sum when he retires?

Give an example of adverse selection and an example of moral hazard using homeowners insurance.

Discounting refers directly to

Stock market fluctuations

A risk-averse person has

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

According to the efficient markets hypothesis, which of the following would increase the price of stock in the Gerhardt Corporation?

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

George puts $200 into an account when the interest rate is 8 percent. Later he checks his balance and finds that he has a balance of about $272.10. How many years did he wait to check his balance?

When he was 18, Hussam put $100 into an account at an interest rate of 8 percent. He now has $158.69 in this account. For how many years did Hussam leave this money in his account?

Samantha holds stocks in four companies. If she adds stocks of several more companies she will decrease

The word "efficient" in the term "efficient markets hypothesis" refers to the idea that

Assuming the interest rate is 5 percent, which of the following has the greatest present value?

Which of the following is adverse selection?