Exam 27: The Basic Tools of Finance

Twenty years ago,Dr.Montgomery borrowed money from her parents to pay her tuition at graduate school.Now she wants to pay them back.She gives them double what they gave her.According to the rule of 70,what interest rate would have given her parents the same amount of money if they had put it in the bank rather than lending it to their daughter?

By purchasing shares in a mutual fund that holds a portfolio of stocks,a person can

The present value of any future sum of money is the amount that would be needed today,at current interest rates,to produce that future sum.

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

Using the rule of 70,about how much would $100 be worth after 50 years if the interest rate were 7 percent?

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

The last $2,000 of Rolanda's wealth adds less to her utility than the previous $2,000.Based on this information,Rolanda has

If you are faced with the choice of receiving $500 today or $800 6 years from today,you will be indifferent between the two possibilities if the interest rate is 8.148 percent.

If the efficient markets hypothesis is correct,then

Suppose that an increased risk of mortgage defaults lowers the expected profitability of banks.Then we would expect to see

The problem of moral hazard arises because

Angela reads financial advice columns and concludes the following.Which,if any,of her conclusions are incorrect?

Demonstrate that whether you would prefer to have $225 today or wait five years for $300 depends on the interest rate.Show your work.

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

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

Braden says that $400 saved for one year at 4 percent interest has a smaller future value than $400 saved for two years at 2 percent interest.Lefty says that the present value of $400 to be received one year from today if the interest rate is 4 percent exceeds the present value of $400 to be received two years from today if the interest rate is 2 percent.

In which of the following games is it conceivable that a risk-averse person might be willing to play?

Whenever the price of an asset rises above what appears to be its fundamental value,the market is said to be experiencing

The performance of index funds

The rule of 70 can be stated as follows: A variable with a growth rate of X percent per year