Question 1

Which of the following is the correct expression for finding the present value of a $500 payment two years from today if the interest rate is 6 percent?

Accepted Answer

A)  $500/1.06)2 
B)  $500 - 5001.06)2 
C)  $500/1.02)6 
D)  None of the above is correct. 
A)  $500/1.06)2 
B)  $500 - 5001.06)2 
C)  $500/1.02)6 
D)  None of the above is correct.

Question 2

Which of the following has the highest future value?

Accepted Answer

A)  $100 saved for 2 years at 10 percent interest 
B)  $110 saved for 2 years at 9 percent interest 
C)  $120 saved for 2 years at 8 percent interest 
D)  $130 saved for 2 years at 7 percent interest 
A)  $100 saved for 2 years at 10 percent interest 
B)  $110 saved for 2 years at 9 percent interest 
C)  $120 saved for 2 years at 8 percent interest 
D)  $130 saved for 2 years at 7 percent interest

Question 3

Suppose Emilio offers you $500 today or $X in 10 years. If the interest rate is 6 percent, then at what value of X would you be indifferent between the two options?

Accepted Answer

A)  X = 809.33 
B)  X = 855.56 
C)  X = 895.42 
D)  X = 916.74 
A)  X = 809.33 
B)  X = 855.56 
C)  X = 895.42 
D)  X = 916.74

Question 4

Suppose the Johnson Corporation releases an earnings report that beats the market's expectations. What does the efficient markets hypothesis predict will happen to Johnson's stock price.

Accepted Answer

The efficient markets hypothes

Question 5

Diversification can reduce firm-specific risk.

Accepted Answer

A) True 
 B)False

Question 6

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, then what is the current interest rate?

Accepted Answer

A)  6 percent 
B)  7 percent 
C)  8 percent 
D)  9 percent 
A)  6 percent 
B)  7 percent 
C)  8 percent 
D)  9 percent

Question 7

In general, as a person includes fewer stocks and more bonds in his portfolio,

Accepted Answer

A)  both risk and expected return rise. 
B)  risk rises but expected return falls. 
C)  risk falls, but expected return rises. 
D)  both risk and expected return fall. 
A)  both risk and expected return rise. 
B)  risk rises but expected return falls. 
C)  risk falls, but expected return rises. 
D)  both risk and expected return fall.

Question 8

For a risk averse person,

Accepted Answer

A)  the pleasure of winning $1,000 on a bet exceeds the pain of losing $1,000 on a bet. 
B)  the pain of losing $1,000 on a bet exceeds the pleasure of winning $1,000 on a bet. 
C)  the utility function exhibits the property of increasing marginal utility. 
D)  the utility function gets steeper as wealth increases. 
A)  the pleasure of winning $1,000 on a bet exceeds the pain of losing $1,000 on a bet. 
B)  the pain of losing $1,000 on a bet exceeds the pleasure of winning $1,000 on a bet. 
C)  the utility function exhibits the property of increasing marginal utility. 
D)  the utility function gets steeper as wealth increases.

Question 9

The concept of present value helps explain why the quantity of loanable funds demanded decreases when the interest rate increases.

Accepted Answer

A) True 
 B)False

Question 10

Risk aversion helps to explain various things we observe in the economy, including

Accepted Answer

A)  adherence to the old adage, "Don't put all your eggs in one basket." 
B)  insurance. 
C)  the risk-return trade-off. 
D)  All of the above are correct. 
A)  adherence to the old adage, "Don't put all your eggs in one basket." 
B)  insurance. 
C)  the risk-return trade-off. 
D)  All of the above are correct.

Question 11

ZZL Corporation has the opportunity to undertake an investment project that will cost $20,000 today. If the interest rate is 20 percent and if the project will yield the company $30,000 in 3 years, then ZZL will undertake the project.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A)  doubles every 70/X years. 
B)  doubles every 701 - 1/X) years. 
C)  doubles every 70/X2 years. 
D)  doubles every 70/1 - X) years. 
A)  doubles every 70/X years. 
B)  doubles every 701 - 1/X) years. 
C)  doubles every 70/X2 years. 
D)  doubles every 70/1 - X) years.

Question 13

You could borrow $2,000 today from Bank A and repay the loan, with interest, by paying Bank A $2,154 one year from today. Or, you could borrow X dollars today from Bank B and repay the loan, with interest, by paying Bank B $2,477.10 one year from today. In order for the same interest rate to apply to the two loans, X =

Accepted Answer

A)  $2,300.00. 
B)  $2,450.00. 
C)  $2,500.00. 
D)  $2,525.50. 
A)  $2,300.00. 
B)  $2,450.00. 
C)  $2,500.00. 
D)  $2,525.50.

Question 14

Kurt decided to increase the number of stocks in his portfolio. In doing so, Kurt reduced

Accepted Answer

A)  both the firm-specific risk and the market risk of his portfolio. 
B)  the firm-specific risk, but not the market risk of his portfolio. 
C)  the market risk, but not the firm-specific risk of his portfolio. 
D)  neither the market risk nor the firm-specific risk of his portfolio. 
A)  both the firm-specific risk and the market risk of his portfolio. 
B)  the firm-specific risk, but not the market risk of his portfolio. 
C)  the market risk, but not the firm-specific risk of his portfolio. 
D)  neither the market risk nor the firm-specific risk of his portfolio.

Question 15

Melissa 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)  8 percent. 
B)  9 percent. 
C)  10 percent. 
D)  All of the above are correct. 
A)  8 percent. 
B)  9 percent. 
C)  10 percent. 
D)  All of the above are correct.

Question 16

At which interest rate is the present value of $145.80 two years from today equal to $125 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 17

You could borrow $2,000 today from Bank A and repay the loan, with interest, by paying Bank A $2,125 one year from today. Or, you could borrow X dollars today from Bank B and repay the loan, with interest, by paying Bank B $2,200 two years from today. In order for the same interest rate to apply to the two loans, X =

Accepted Answer

A)  $1,853.55. 
B)  $1,898.70. 
C)  $1,948.79. 
D)  $2,012.22. 
A)  $1,853.55. 
B)  $1,898.70. 
C)  $1,948.79. 
D)  $2,012.22.

Question 18

In the 1990s, Fed Chairperson Alan Greenspan questioned whether the stock market

Accepted Answer

A)  boom at that time reflected "irrational exuberance." 
B)  decline at that time reflected "irrational funk." 
C)  boom at that time reflected "rational exuberance." 
D)  decline at that time reflected "rational funk." 
A)  boom at that time reflected "irrational exuberance." 
B)  decline at that time reflected "irrational funk." 
C)  boom at that time reflected "rational exuberance." 
D)  decline at that time reflected "rational funk."

Question 19

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)  701 + r)/r years. 
A)  70/1 - r) years. 
B)  70/1 + r) years. 
C)  70/r years. 
D)  701 + r)/r years.

Question 20

Fundamental analysis shows that stock in Garske Software Corporation has a present value that is higher than its price.

Accepted Answer

A)  This stock is overvalued; you should consider adding it to your portfolio. 
B)  This stock is overvalued; you shouldn't consider adding it to your portfolio. 
C)  This stock is undervalued; you should consider adding it to your portfolio. 
D)  This stock is undervalued; you shouldn't consider adding it to your portfolio. 
A)  This stock is overvalued; you should consider adding it to your portfolio. 
B)  This stock is overvalued; you shouldn't consider adding it to your portfolio. 
C)  This stock is undervalued; you should consider adding it to your portfolio. 
D)  This stock is undervalued; you shouldn't consider adding it to your portfolio.

Which of the following is the correct expression for finding the present value of a $500 payment two years from today if the interest rate is 6 percent?

Which of the following has the highest future value?

Suppose Emilio offers you $500 today or $X in 10 years. If the interest rate is 6 percent, then at what value of X would you be indifferent between the two options?

Suppose the Johnson Corporation releases an earnings report that beats the market's expectations. What does the efficient markets hypothesis predict will happen to Johnson's stock price.

Diversification can reduce firm-specific risk.

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, then what is the current interest rate?

In general, as a person includes fewer stocks and more bonds in his portfolio,

For a risk averse person,

The concept of present value helps explain why the quantity of loanable funds demanded decreases when the interest rate increases.

Risk aversion helps to explain various things we observe in the economy, including

ZZL Corporation has the opportunity to undertake an investment project that will cost $20,000 today. If the interest rate is 20 percent and if the project will yield the company $30,000 in 3 years, then ZZL will undertake the project.

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

Kurt decided to increase the number of stocks in his portfolio. In doing so, Kurt reduced

Melissa 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

At which interest rate is the present value of $145.80 two years from today equal to $125 today?

In the 1990s, Fed Chairperson Alan Greenspan questioned whether the stock market

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

Fundamental analysis shows that stock in Garske Software Corporation has a present value that is higher than its price.

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Unemployment and Its Natural Rate

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 Tradeoff Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

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Exam 9: The Basic Tools of Finance

Which of the following is the correct expression for finding the present value of a $500 payment two years from today if the interest rate is 6 percent?

Which of the following has the highest future value?

Suppose Emilio offers you $500 today or $X in 10 years. If the interest rate is 6 percent, then at what value of X would you be indifferent between the two options?

Suppose the Johnson Corporation releases an earnings report that beats the market's expectations. What does the efficient markets hypothesis predict will happen to Johnson's stock price.

Diversification can reduce firm-specific risk.

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, then what is the current interest rate?

In general, as a person includes fewer stocks and more bonds in his portfolio,

For a risk averse person,

The concept of present value helps explain why the quantity of loanable funds demanded decreases when the interest rate increases.

Risk aversion helps to explain various things we observe in the economy, including

ZZL Corporation has the opportunity to undertake an investment project that will cost $20,000 today. If the interest rate is 20 percent and if the project will yield the company $30,000 in 3 years, then ZZL will undertake the project.

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

Kurt decided to increase the number of stocks in his portfolio. In doing so, Kurt reduced

Melissa 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

At which interest rate is the present value of $145.80 two years from today equal to $125 today?

In the 1990s, Fed Chairperson Alan Greenspan questioned whether the stock market

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

Fundamental analysis shows that stock in Garske Software Corporation has a present value that is higher than its price.

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Unemployment and Its Natural Rate

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 Tradeoff Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

Filters