Exam 27: The Basic Tools of Finance

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?

Economists have developed models of risk aversion using the concept of

To diversify,a homeowner with a variable-rate mortgage should choose investments that

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

Figure 27-1.The figure shows a utility function. -Refer to Figure 27-1.What is measured along the vertical axis?

Your accountant tells you that if you can continue to earn the current interest rate on your balance of $800 for the next two years you will have $898.88 in your account.If your accountant is correct what is the current interest rate?

From the standpoint of the economy as a whole,the role of insurance is

A risk-averse person has

The You Look Marvelous! cosmetic company is considering building a new shampoo factory.Its accountants and board of directors meet and decide that it is not a good idea to build the factory.If interest rates fall after the meeting

Suppose the interest rate is 5 percent.Consider three payment options: 1)$500 today. 2)$520 one year from today. 3)$550 two years from today. Which of the following is correct?

Anna deposited $10,000 into an account three years ago.The first year she earned 12 percent interest,the second year she earned 8 percent interest,and the third year she earned 4 percent interest.How much money does she have in her account today?

Hector puts $150 into an account when the interest rate is 4 percent.Later he checks his balance and finds he has about $168.73.How long did Hector wait to check his balance?

Available evidence indicates that stock prices,even if not exactly a random walk,are very close to a random walk.

A University of Iowa basketball standout is offered a choice of contracts by the New York Liberty.The first one gives her $100,000 one year from today and $100,000 two years from today.The second one gives her $132,000 one year from today and $66,000 two years from today.As her agent,you must compute the present value of each contract.Which of the following interest rates is the lowest one at which the present value of the second contract exceeds that of the first?

If a person is risk averse,then as wealth increases,total utility of wealth

Studies find that mutual fund managers who do well in one year,are likely to do well the next year.

Other things the same,as the number of stocks in a portfolio rises,

Suppose the interest rate is 8 percent.Consider three payment options. 1)$300 today. 2)$330 one year from today. 3)$360 two years from today. Which of the following is correct?

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

The financial system