Exam 27: The Basic Tools of Finance

Bo knows that he has about $95 in his bank account.He knows he earned an interest rate of 4 percent,but he doesn't remember how much he opened the account with a year ago.How much did he put in?

What is the future value of $500 one year from today if the interest rate is 4 percent?

What is the present value of a payment of $100 to be made one year from today?

Fundamental analysis shows that Green Leaf Tea Company is fairly valued.Then Green Leaf Tea Company unexpectedly improves its production techniques and unexpectedly hires a new CEO away from another very successful tea producer.Suppose this has no effect on the price of the stock of Green Leaf Tea Company.

A company that can build a project that will cost $50,000,but returns $52,000 in one year would make a good decision by turning this project down if the interest rate were 3 percent.

Of the following interest rates,which is the highest one at which you would prefer to have $200 ten years from today instead of $100 today?

Suppose that fundamental analysis indicates a particular company's stock is overvalued.

If you deposit $900 into an account for two years and the interest rate is 4%,how much do you have at the end of the two years?

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.

If you believe that stock prices follow a random walk,then probably you

An increase in the number of corporations in a portfolio from 1 to 10 reduces

Brittany wants to have about $500,000 when she retires in 10 years.She has $200,000 to deposit now.At which of the following interest rates would her deposit come closest to $500,000 after 10 years?

Rosie is risk averse and has $1,000 with which to make a financial investment.She has three options.Option A is a risk-free government bond that pays 5 percent interest each year for two years.Option B is a low-risk stock that analysts expect to be worth about $1,102.50 in two years.Option C is a high-risk stock that is expected to be worth about $1,200 in four years.Rosie should choose

A high ranking corporate official of a well-known company is unexpectedly sentenced to prison for criminal activity in trading stocks.This should

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?

Which of the following is correct concerning stock market irrationality?

Manufacturers of Weightbegone are concerned that genetic advances in weight control might reduce the demand for their diet snacks.This is an example of

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

The possibility of speculative bubbles in the stock market arises in part because

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