Question 1

Which of the following is correct concerning a risk-averse person?

Accepted Answer

A)  She would not play games where the probability of winning and losing a dollar are the same. 
B)  She might not buy health insurance if she thinks her risks are low. 
C)  Her marginal utility of wealth decreases as her income increases. 
D)  All of the above are correct. 
A)  She would not play games where the probability of winning and losing a dollar are the same. 
B)  She might not buy health insurance if she thinks her risks are low. 
C)  Her marginal utility of wealth decreases as her income increases. 
D)  All of the above are correct.

Question 2

Which of the following defines an annuity?

Accepted Answer

A)  For a fee,an insurance company provides you with regular income until you die. 
B)  A surcharge is added to life-insurance premiums paid by persons in dangerous occupations. 
C)  Annuity is another name for stock funds managed by mutual fund managers. 
D)  Annuity is another name for any diversified portfolio. 
A)  For a fee,an insurance company provides you with regular income until you die. 
B)  A surcharge is added to life-insurance premiums paid by persons in dangerous occupations. 
C)  Annuity is another name for stock funds managed by mutual fund managers. 
D)  Annuity is another name for any diversified portfolio.

Question 3

At which interest rate is the present value of $189.28 two years from today equal to $175 today?

Accepted Answer

A)  2 percent 
B)  4 percent 
C)  6 percent 
D)  8 percent 
A)  2 percent 
B)  4 percent 
C)  6 percent 
D)  8 percent

Question 4

U.S.Phones is considering buying new equipment to build a factory.If the interest rate rises,

Accepted Answer

A)  the present value of the returns from the factory will fall,so U.S.Phones will be less likely to build the factory. 
B)  the present value of the returns from the factory will fall,so U.S.Phones will be more likely to build the factory. 
C)  the present value of the returns from the factory will rise,so U.S.Phones will be less likely to build the factory. 
D)  the present value of the returns from the factory will rise,so U.S.Phones will be more likely to build the factory. 
A)  the present value of the returns from the factory will fall,so U.S.Phones will be less likely to build the factory. 
B)  the present value of the returns from the factory will fall,so U.S.Phones will be more likely to build the factory. 
C)  the present value of the returns from the factory will rise,so U.S.Phones will be less likely to build the factory. 
D)  the present value of the returns from the factory will rise,so U.S.Phones will be more likely to build the factory.

Question 5

Diversification

Accepted Answer

A)  increases the likely fluctuation in a portfolio's return.Thus,the likely standard deviation of the portfolio's return is higher. 
B)  increases the likely fluctuation in a portfolio's return.Thus,the likely standard deviation of the portfolio's return is lower. 
C)  reduces the likely fluctuation in a portfolio's return.Thus,the likely standard deviation of the portfolio's return is higher. 
D)  reduces the likely fluctuation in a portfolio's return.Thus,the likely standard deviation of the portfolio's return is lower. 
A)  increases the likely fluctuation in a portfolio's return.Thus,the likely standard deviation of the portfolio's return is higher. 
B)  increases the likely fluctuation in a portfolio's return.Thus,the likely standard deviation of the portfolio's return is lower. 
C)  reduces the likely fluctuation in a portfolio's return.Thus,the likely standard deviation of the portfolio's return is higher. 
D)  reduces the likely fluctuation in a portfolio's return.Thus,the likely standard deviation of the portfolio's return is lower.

Question 6

The future value of $500 saved for two years at an interest rate of 5% is

Accepted Answer

A)  $550.25. 
B)  $550.00. 
C)  $551.25. 
D)  None of the above are correct. 
A)  $550.25. 
B)  $550.00. 
C)  $551.25. 
D)  None of the above are correct.

Question 7

Nancy would like to double the money in her retirement account in five years.According to the rule of 70,what rate of interest would she need to earn to attain her objective?

Accepted Answer

A)  5 percent 
B)  7 percent 
C)  10 percent 
D)  14 percent 
A)  5 percent 
B)  7 percent 
C)  10 percent 
D)  14 percent

Question 8

Suppose you are deciding whether or not to buy a particular bond.If you buy the bond and hold it for 5 years,then at that time you will receive a payment of $10,000.If the interest rate is 6 percent,you will buy the bond if its price today is no greater than

Accepted Answer

A)  $8,225.06. 
B)  $7,652.58. 
C)  $7,472.58. 
D)  $6,998.98. 
A)  $8,225.06. 
B)  $7,652.58. 
C)  $7,472.58. 
D)  $6,998.98.

Question 9

If you wish to rely on fundamental analysis to choose a portfolio of stocks,then you have no choice but to do all the necessary research yourself.

Accepted Answer

A) True 
 B)False

Question 10

Susan put $375 into an account and one year later had $405.What interest rate was paid on Susan's deposit?

Accepted Answer

A)  5 percent 
B)  7 percent 
C)  8 percent 
D)  10 percent 
A)  5 percent 
B)  7 percent 
C)  8 percent 
D)  10 percent

Question 11

According to the efficient markets hypothesis,the number of people who think a stock is overvalued exactly balances the number of people who think a stock is undervalued.

Accepted Answer

A) True 
 B)False

Question 12

Figure 27-1.The figure shows a utility function.  
-Refer to Figure 27-1.The properties exhibited by this utility function help to explain various things we observe in the economy,including

Accepted Answer

A)  the risk-return tradeoff. 
B)  insurance. 
C)  diversification. 
D)  All of the above are correct. 
A)  the risk-return tradeoff. 
B)  insurance. 
C)  diversification. 
D)  All of the above are correct.

Question 13

Imagine that someone offers you $X today or $1,500 in 5 years.If the interest rate is 6 percent,then you would prefer to take the $X today if and only if

Accepted Answer

A)  X > 1,055.56. 
B)  X > 1,120.89. 
C)  X > 1,213.33. 
D)  X > 1,338.26. 
A)  X > 1,055.56. 
B)  X > 1,120.89. 
C)  X > 1,213.33. 
D)  X > 1,338.26.

Question 14

If the interest rate is r percent,then the rule of 70 says that your savings will double about every

Accepted Answer

A)  70/(1 - r)years. 
B)  70/(1 + r)years. 
C)  70/r years. 
D)  70(1 + r)/r years. 
A)  70/(1 - r)years. 
B)  70/(1 + r)years. 
C)  70/r years. 
D)  70(1 + r)/r years.

Question 15

Tonya put $250 into an account three years ago.The first year he earned 6 percent interest,the second year 7 percent,and the third year 8 percent.About how about much does Tonya have in her account now?

Accepted Answer

A)  $302.50 
B)  $306.23 
C)  $308.67 
D)  $309.39 
A)  $302.50 
B)  $306.23 
C)  $308.67 
D)  $309.39

Question 16

You put $75 in the bank one year ago and forgot about it.The bank sends you a notice that you now have $81 in your account.What interest rate did you earn?

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 17

If the interest rate is 8 percent,then the present value of $1,000 to be received in 4 years is $735.03.

Accepted Answer

A) True 
 B)False

Question 18

Toni put $500 into an account and one year later she had $534.What interest rate was paid on Toni's deposit?

Accepted Answer

A)  7.1 percent 
B)  5.9 percent 
C)  6.8 percent 
D)  None of the above is correct. 
A)  7.1 percent 
B)  5.9 percent 
C)  6.8 percent 
D)  None of the above is correct.

Question 19

At an annual interest rate of 10 percent,about how many years will it take $100 to triple in value?

Accepted Answer

A)  8 
B)  10 
C)  12 
D)  14 
A)  8 
B)  10 
C)  12 
D)  14

Question 20

Other things the same,an increase in the interest rate makes the quantity of loanable funds supplied

Accepted Answer

A)  rise,and investment spending rise. 
B)  rise,and investment spending fall. 
C)  fall,and investment spending rise. 
D)  fall,and investment spending fall. 
A)  rise,and investment spending rise. 
B)  rise,and investment spending fall. 
C)  fall,and investment spending rise. 
D)  fall,and investment spending fall.

Exam 27: The Basic Tools of Finance

Which of the following is correct concerning a risk-averse person?

Which of the following defines an annuity?

At which interest rate is the present value of $189.28 two years from today equal to $175 today?

U.S.Phones is considering buying new equipment to build a factory.If the interest rate rises,

Diversification

The future value of $500 saved for two years at an interest rate of 5% is

Nancy would like to double the money in her retirement account in five years.According to the rule of 70,what rate of interest would she need to earn to attain her objective?

Suppose you are deciding whether or not to buy a particular bond.If you buy the bond and hold it for 5 years,then at that time you will receive a payment of $10,000.If the interest rate is 6 percent,you will buy the bond if its price today is no greater than

If you wish to rely on fundamental analysis to choose a portfolio of stocks,then you have no choice but to do all the necessary research yourself.

Susan put $375 into an account and one year later had $405.What interest rate was paid on Susan's deposit?

According to the efficient markets hypothesis,the number of people who think a stock is overvalued exactly balances the number of people who think a stock is undervalued.

Figure 27-1.The figure shows a utility function. -Refer to Figure 27-1.The properties exhibited by this utility function help to explain various things we observe in the economy,including

Imagine that someone offers you $X today or $1,500 in 5 years.If the interest rate is 6 percent,then you would prefer to take the $X today if and only if

If the interest rate is r percent,then the rule of 70 says that your savings will double about every

Tonya put $250 into an account three years ago.The first year he earned 6 percent interest,the second year 7 percent,and the third year 8 percent.About how about much does Tonya have in her account now?

You put $75 in the bank one year ago and forgot about it.The bank sends you a notice that you now have $81 in your account.What interest rate did you earn?

If the interest rate is 8 percent,then the present value of $1,000 to be received in 4 years is $735.03.

Toni put $500 into an account and one year later she had $534.What interest rate was paid on Toni's deposit?

At an annual interest rate of 10 percent,about how many years will it take $100 to triple in value?

Other things the same,an increase in the interest rate makes the quantity of loanable funds supplied

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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