Exam 27: The Basic Tools of Finance

Your accountant tells you that if you can continue to earn the current interest rate on your balance of $750 for the next three years,you will have $998.25 in your account.If your accountant is correct,what is the current interest rate?

Suppose the interest rate is 7 percent.Consider four payment options: Option A: $500 today. Option B: $550 one year from today. Option C: $575 two years from today. Option D: $600 three years from today. Which of the payments has the lowest present value today?

Kastle Corporation is considering building a new plant.It will cost $1 million today to build it and it will generate revenues of $1.121 million three years from today.Of the interest rates below,which is the highest interest rate at which Kastle would still be willing to build the plant?

Risk-averse persons will take no risks.

What is the future value of $750 one year from today if the interest rate is 3 percent?

What is the present value of a payment of $1,000 two years from now if the interest rate is 6%?

When a person engages in detailed analysis of a company to determine its value,he or she is engaging in

You may be unwilling to buy a used car because you suspect the last owner found out the car was a lemon.You may treat a car you rented with a little less care than you'd use on your own car.

Write the rule of 70.Suppose that your great-great-grandmother put $50 in a savings account 100 years ago and the account is now worth $1,600.Use the rule of 70 to determine about what interest rate she earned.

Diversification reduces

In 2005,the Wall Street Journal reported that researchers in an interdisciplinary field called neuroeconomics had concluded a study that suggests that

Risk-averse people will choose different asset portfolios than people who are not risk averse.Over a long period of time,we would expect that

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

Compounding refers directly to

If the interest rate is 5 percent,what is the present value of a payment of $500 to be made one year from today?

Dobson Construction has an investment project that would cost $150,000 today and yield a one-time payoff of $167,000 in two years.Among the following interest rates,which is the highest one at which Dobson would find this project profitable?

Robert put $15,000 into an account with a fixed interest rate two years ago and now the account balance is $16,695.38.What rate of interest did Robert earn?

The present value of a payment to be made in the future falls as

Suppose the interest rate is 4 percent.Which of the following has the greatest present value?

Fundamental analysis determines the value of a stock based on