Question 1

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

Accepted Answer

A)  risk increases at an increasing rate. 
B)  risk increases at a decreasing rate. 
C)  risk decreases at an increasing rate. 
D)  risk decreases at a decreasing rate. 
A)  risk increases at an increasing rate. 
B)  risk increases at a decreasing rate. 
C)  risk decreases at an increasing rate. 
D)  risk decreases at a decreasing rate.

Question 2

Your accountant tells you that if you can continue to earn the current interest rate on your balance of $500 for ten years,you will have about $983.58.If your accountant is correct,what is the current rate of interest?

Accepted Answer

A)  5 percent 
B)  6 percent 
C)  7 percent 
D)  8 percent 
A)  5 percent 
B)  6 percent 
C)  7 percent 
D)  8 percent

Question 3

Risk aversion simply means that people dislike bad things to happen.

Accepted Answer

A) True 
 B)False

Question 4

Figure 27-2.On the graph,x represents risk and y represents return.  
-Refer to Figure 27-2.Point A represents a situation in which

Accepted Answer

A)  all of a person's savings are allocated to a class of safe assets. 
B)  the person knows with certainty that his or her return will be 3 percent. 
C)  the standard deviation of the person's portfolio is zero. 
D)  All of the above are correct. 
A)  all of a person's savings are allocated to a class of safe assets. 
B)  the person knows with certainty that his or her return will be 3 percent. 
C)  the standard deviation of the person's portfolio is zero. 
D)  All of the above are correct.

Question 5

Which of the following is not consistent with the efficient market hypothesis?

Accepted Answer

A)  Stock prices should follow a random walk. 
B)  Index funds should typically outperform highly managed funds. 
C)  News has no effect on stock prices.. 
D)  There is little point in spending many hours studying the business pages looking for undervalued stocks. 
A)  Stock prices should follow a random walk. 
B)  Index funds should typically outperform highly managed funds. 
C)  News has no effect on stock prices.. 
D)  There is little point in spending many hours studying the business pages looking for undervalued stocks.

Question 6

Some people claim that stocks follow a random walk.What does this mean?

Accepted Answer

A)  The price of stock one day is about what it was on the previous day. 
B)  Changes in stock prices cannot be predicted from available information. 
C)  Stock prices are not determined by market fundamentals such as supply and demand. 
D)  Prices of stocks of different firms in the same industry show no or little tendency to move together. 
A)  The price of stock one day is about what it was on the previous day. 
B)  Changes in stock prices cannot be predicted from available information. 
C)  Stock prices are not determined by market fundamentals such as supply and demand. 
D)  Prices of stocks of different firms in the same industry show no or little tendency to move together.

Question 7

Your parents put $500 into an account paying 7 percent interest for you when you were ten.Ten years later they tell you that you can take the money out of the account.What is the balance to the nearest cent?

Accepted Answer

A)  $1,200.00 
B)  $1,111.77 
C)  $983.58 
D)  $850.00 
A)  $1,200.00 
B)  $1,111.77 
C)  $983.58 
D)  $850.00

Question 8

Two years ago Brian put some money into an account.He earned 6 percent interest on this account and now has about $1,000.About how much did he deposit into his account two years ago?

Accepted Answer

A)  about $860 
B)  about $870 
C)  about $880 
D)  about $890 
A)  about $860 
B)  about $870 
C)  about $880 
D)  about $890

Question 9

Imagine that someone offers you $1,000 today or $1,500 in 5 years.You would prefer to take the $1,500 in 5 years if the interest rate is

Accepted Answer

A)  7 percent. 
B)  10 percent. 
C)  12 percent. 
D)  All of the above are correct. 
A)  7 percent. 
B)  10 percent. 
C)  12 percent. 
D)  All of the above are correct.

Question 10

Mixster Concrete Company is considering buying a new cement truck.The owners and their accountants decide that this is the profitable thing to do.Before they can buy the truck,the interest rate and price of trucks change.In which case do these changes both make them less likely to buy the truck?

Accepted Answer

A)  Interest rates rise and truck prices rise. 
B)  Interest rates fall and truck prices rise. 
C)  Interest rates rise and truck prices fall. 
D)  Interest rates fall and truck prices fall. 
A)  Interest rates rise and truck prices rise. 
B)  Interest rates fall and truck prices rise. 
C)  Interest rates rise and truck prices fall. 
D)  Interest rates fall and truck prices fall.

Question 11

At which interest rate is the present value of $95.40 one year from today equal to $90 today?

Accepted Answer

A)  4 percent 
B)  5 percent 
C)  6 percent 
D)  7 percent 
A)  4 percent 
B)  5 percent 
C)  6 percent 
D)  7 percent

Question 12

What is the present value of a payment of $2,000 to be received two years from today if the interest rate is 5%?

Accepted Answer

A)  $2205 
B)  $2200 
C)  $1818.18 
D)  $1814.06 
A)  $2205 
B)  $2200 
C)  $1818.18 
D)  $1814.06

Question 13

According to the efficient market hypothesis,which of the following statements is not correct?

Accepted Answer

A)  Stock market prices tend to rise today if they rose yesterday. 
B)  As judged by the typical person in the market,all stocks are fairly valued all the time. 
C)  At the market price,the number of shares being offered for sale matches the number of shares people want to buy. 
D)  All of the above statements are incorrect. 
A)  Stock market prices tend to rise today if they rose yesterday. 
B)  As judged by the typical person in the market,all stocks are fairly valued all the time. 
C)  At the market price,the number of shares being offered for sale matches the number of shares people want to buy. 
D)  All of the above statements are incorrect.

Question 14

Marcia has four savings accounts.Which account has the largest balance?

Accepted Answer

A)  $100 deposited 1 year ago at an 8 percent interest rate 
B)  $100 deposited 2 years ago at a 4 percent interest rate 
C)  $100 deposited 4 years ago at a 2 percent interest rate 
D)  $100 deposited 8 years ago at a 1 percent interest rate 
A)  $100 deposited 1 year ago at an 8 percent interest rate 
B)  $100 deposited 2 years ago at a 4 percent interest rate 
C)  $100 deposited 4 years ago at a 2 percent interest rate 
D)  $100 deposited 8 years ago at a 1 percent interest rate

Question 15

The concept of present value helps explain why

Accepted Answer

A)  investment decreases when the interest rate increases,and it also helps explain why the quantity of loanable funds demanded decreases when the interest rate increases. 
B)  investment decreases when the interest rate increases,but it is of no help in explaining why the quantity of loanable funds demanded decreases when the interest rate increases. 
C)  the quantity of loanable funds demanded decreases when the interest rate increases,but it is of no help in explaining why investment decreases when the interest rate increases. 
D)  None of the above are correct;the concept of present value is of no help in explaining why either investment or the quantity of loanable funds demanded decreases when the interest rate increases. 
A)  investment decreases when the interest rate increases,and it also helps explain why the quantity of loanable funds demanded decreases when the interest rate increases. 
B)  investment decreases when the interest rate increases,but it is of no help in explaining why the quantity of loanable funds demanded decreases when the interest rate increases. 
C)  the quantity of loanable funds demanded decreases when the interest rate increases,but it is of no help in explaining why investment decreases when the interest rate increases. 
D)  None of the above are correct;the concept of present value is of no help in explaining why either investment or the quantity of loanable funds demanded decreases when the interest rate increases.

Question 16

What's the difference between firm-specific risk and market risk? Will diversification eliminate one or both? Explain.

Accepted Answer

Market risk refers to economywide risk c

Question 17

When he was 18,Gerald put $100 into an account at an interest rate of 8 percent.He now has $171.38 in this account.For how many years did Gerald leave this money in his account?

Accepted Answer

A)  5 years 
B)  6 years 
C)  7 years 
D)  8 years 
A)  5 years 
B)  6 years 
C)  7 years 
D)  8 years

Question 18

Given that Isabella is a risk-averse person,she might accept a bet with a 50 percent chance of losing $100 today if she had a 50 percent

Accepted Answer

A)  chance of winning $120 in two years and the interest rate was 11%. 
B)  chance of winning $114 in two years and the interest rate was 7%. 
C)  chance of winning $110 in two years and the interest rate was 3%. 
D)  None of the above are correct;a risk averse person would not accept any of the above bets. 
A)  chance of winning $120 in two years and the interest rate was 11%. 
B)  chance of winning $114 in two years and the interest rate was 7%. 
C)  chance of winning $110 in two years and the interest rate was 3%. 
D)  None of the above are correct;a risk averse person would not accept any of the above bets.

Question 19

On the Internet you find the following offers for opening an online account.Which of them is the best offer if you have $2,000 to save for two years?

Accepted Answer

A)  an interest rate of 5 percent,with the bank charging you a $15 processing fee at the time you open your account 
B)  an interest rate of 3.5 percent,with the bank giving you a $35 bonus to open your account 
C)  an interest rate of 4 percent,with the bank giving you a $20 bonus at the time you open your account 
D)  an interest rate of 4.5 percent,with no processing fee and no bonus 
A)  an interest rate of 5 percent,with the bank charging you a $15 processing fee at the time you open your account 
B)  an interest rate of 3.5 percent,with the bank giving you a $35 bonus to open your account 
C)  an interest rate of 4 percent,with the bank giving you a $20 bonus at the time you open your account 
D)  an interest rate of 4.5 percent,with no processing fee and no bonus

Question 20

Happy Trails,a bicycle rental company,is considering purchasing three additional bicycles.Each bicycle would cost them $249.66.At the end of the first year the increase to their revenues would be $140 per bicycle.At the end of the second year the increase to their revenues again would be $140 per bicycle.Thereafter,there are no increases to their revenues.At which of the following interest rates is the sum of the present values of the additional revenues closest to the price of a bicycle?

Accepted Answer

A)  5 percent 
B)  6 percent 
C)  7 percent 
D)  8 percent 
A)  5 percent 
B)  6 percent 
C)  7 percent 
D)  8 percent

Exam 27: The Basic Tools of Finance

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

Your accountant tells you that if you can continue to earn the current interest rate on your balance of $500 for ten years,you will have about $983.58.If your accountant is correct,what is the current rate of interest?

Risk aversion simply means that people dislike bad things to happen.

Figure 27-2.On the graph,x represents risk and y represents return. -Refer to Figure 27-2.Point A represents a situation in which

Which of the following is not consistent with the efficient market hypothesis?

Some people claim that stocks follow a random walk.What does this mean?

Your parents put $500 into an account paying 7 percent interest for you when you were ten.Ten years later they tell you that you can take the money out of the account.What is the balance to the nearest cent?

Two years ago Brian put some money into an account.He earned 6 percent interest on this account and now has about $1,000.About how much did he deposit into his account two years ago?

Imagine that someone offers you $1,000 today or $1,500 in 5 years.You would prefer to take the $1,500 in 5 years if the interest rate is

Mixster Concrete Company is considering buying a new cement truck.The owners and their accountants decide that this is the profitable thing to do.Before they can buy the truck,the interest rate and price of trucks change.In which case do these changes both make them less likely to buy the truck?

At which interest rate is the present value of $95.40 one year from today equal to $90 today?

What is the present value of a payment of $2,000 to be received two years from today if the interest rate is 5%?

According to the efficient market hypothesis,which of the following statements is not correct?

Marcia has four savings accounts.Which account has the largest balance?

The concept of present value helps explain why

What's the difference between firm-specific risk and market risk? Will diversification eliminate one or both? Explain.

When he was 18,Gerald put $100 into an account at an interest rate of 8 percent.He now has $171.38 in this account.For how many years did Gerald leave this money in his account?

Given that Isabella is a risk-averse person,she might accept a bet with a 50 percent chance of losing $100 today if she had a 50 percent

On the Internet you find the following offers for opening an online account.Which of them is the best offer if you have $2,000 to save for two years?

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

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

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 Macroeconomics: Basic Concepts

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

Five Debates Over Macroeconomic Policy

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