Question 1

Suppose you will receive $800 in two years. If the interest rate is 5 percent, then the present value of this future payment is

Accepted Answer

A)  $725.62. It would be higher if the interest rate were higher. 
B)  $727.28. It would be higher if the interest rate were higher. 
C)  $725.62. It would be lower if the interest rate were higher. 
D)  $727.28. It would be lower if the interest rate were higher. 
A)  $725.62. It would be higher if the interest rate were higher. 
B)  $727.28. It would be higher if the interest rate were higher. 
C)  $725.62. It would be lower if the interest rate were higher. 
D)  $727.28. It would be lower if the interest rate were higher.

Question 2

Cash payments that companies make to shareholders are called

Accepted Answer

A)  annuities. 
B)  dividends. 
C)  premiums. 
D)  favorables. 
A)  annuities. 
B)  dividends. 
C)  premiums. 
D)  favorables.

Question 3

Which of the following is correct concerning stock market irrationality?

Accepted Answer

A)  Bubbles could arise, in part, because the price that people pay for stock depends on what they think someone else will pay for it in the future. 
B)  Economists almost all agree that the evidence for stock market irrationality is convincing and the departures from rational pricing are important. 
C)  Some evidence for the existence of market irrationality is that informed and presumably rational managers of mutual funds generally beat the market. 
D)  All of the above are correct. 
A)  Bubbles could arise, in part, because the price that people pay for stock depends on what they think someone else will pay for it in the future. 
B)  Economists almost all agree that the evidence for stock market irrationality is convincing and the departures from rational pricing are important. 
C)  Some evidence for the existence of market irrationality is that informed and presumably rational managers of mutual funds generally beat the market. 
D)  All of the above are correct.

Question 4

As the interest rate increases, what happens to the present value of a future payment? Explain why changes in the interest rate will lead to changes in the quantity of loanable funds demanded and investment spending.

Accepted Answer

An increase in the interest rate reduces

Question 5

John has been a sky diver for many years. When the company John works for offers its employees the option to purchase a life insurance policy, John purchases a policy. This illustrates the problem of

Accepted Answer

A)  moral hazard. 
B)  adverse selection. 
C)  risk-return tradeoff. 
D)  diversification. 
A)  moral hazard. 
B)  adverse selection. 
C)  risk-return tradeoff. 
D)  diversification.

Question 6

Suppose your bank account pays a 5% interest rate. You are considering purchasing a share of stock in DH Corporation for $250. The stock will pay you a $10 dividend at the end of years 1, 2, 3, 4, and 5. You expect to be able to sell the stock at the end of year 5 for $300. Is DH a good investment? Provide evidence to support your answer.

Accepted Answer

The present value of

Question 7

Suppose you purchase a savings bond today for $25. In seven years you may cash in the savings bond for $50. What is the approximate interest rate paid by the savings bond?

Accepted Answer

A)  5% 
B)  10% 
C)  15% 
D)  20% 
A)  5% 
B)  10% 
C)  15% 
D)  20%

Question 8

Risk-averse individuals like good things more than they dislike comparable bad things.

Accepted Answer

A) True 
 B)False

Question 9

Figure 27-4. The figure shows a utility function for Alex.  
-Refer to Figure 27-4. If most people's utility functions look like Alex's utility function, then it is easy to explain
Why

Accepted Answer

A)  people buy various types of insurance. 
B)  we observe a trade-off between risk and return. 
C)  most people prefer to hold diversified portfolios of assets to undiversified portfolios of assets. 
D)  None of the above are correct. 
A)  people buy various types of insurance. 
B)  we observe a trade-off between risk and return. 
C)  most people prefer to hold diversified portfolios of assets to undiversified portfolios of assets. 
D)  None of the above are correct.

Question 10

The present value of a future payment to be received in three years is $1,000. If the interest rate is 5%, what is the amount that will be paid in three years?

Accepted Answer

A)  $1,150.00 
B)  $1,157.63 
C)  $1,215.51 
D)  $1,250.00 
A)  $1,150.00 
B)  $1,157.63 
C)  $1,215.51 
D)  $1,250.00

Question 11

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 12

Until recently, shares of stock accounted for 40 percent of Jimmy's savings. A few days ago, Jimmy sold some bonds and bought some additional shares of stock. Now shares of stock account for 70 percent of Jimmy's savings. How did this change affect Jimmy's expected retun on his savings? How did it affect the risks he faces?

Accepted Answer

The increased percentage of st

Question 13

Fundamental analysis shows that stock in Stainless Appliance Company has a present value below 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.

Question 14

Which of the following is the correct expression for finding the present value of a $1,000 payment one year from today if the interest rate is 6 percent?

Accepted Answer

A)  $1,000   (1.06) 
B)    
C)  $1,000/(1.06) 
D)  None of the above is correct. 
A)  $1,000   (1.06) 
B)    
C)  $1,000/(1.06) 
D)  None of the above is correct.

Question 15

Historically, stocks have offered higher rates of return than bonds.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following statements is correct?

Accepted Answer

A)  A high-risk person is more likely to apply for insurance than a low-risk person because a high-risk person would benefit more from insurance protection. 
B)  A low-risk person is more likely to apply for insurance than a high-risk person because a low-risk person would benefit more from insurance protection. 
C)  Insurance companies can fully guard against the problem of adverse selection, but they cannot fully guard against the problem of moral hazard. 
D)  Insurance companies can fully guard against the problem of moral hazard, but they cannot fully guard against the problem of adverse selection. 
A)  A high-risk person is more likely to apply for insurance than a low-risk person because a high-risk person would benefit more from insurance protection. 
B)  A low-risk person is more likely to apply for insurance than a high-risk person because a low-risk person would benefit more from insurance protection. 
C)  Insurance companies can fully guard against the problem of adverse selection, but they cannot fully guard against the problem of moral hazard. 
D)  Insurance companies can fully guard against the problem of moral hazard, but they cannot fully guard against the problem of adverse selection.

Question 17

If Joanna is risk averse, then

Accepted Answer

A)  her utility function exhibits the property of decreasing utility. 
B)  her utility function exhibits the property of increasing marginal utility. 
C)  she dislikes bad things more than she likes comparable good things. 
D)  she is unlike most people, because most people are not risk averse. 
A)  her utility function exhibits the property of decreasing utility. 
B)  her utility function exhibits the property of increasing marginal utility. 
C)  she dislikes bad things more than she likes comparable good things. 
D)  she is unlike most people, because most people are not risk averse.

Question 18

If you put $250 into an account with a 4 percent interest rate, how many years would you have to wait to have $432.92?

Accepted Answer

A)  10 
B)  14 
C)  17 
D)  20 
A)  10 
B)  14 
C)  17 
D)  20

Question 19

You want to have $100,000 in five years. If the interest rate is 8 percent, about how much do you need to have today?

Accepted Answer

A)  $66,225.25 
B)  $67,556.42 
C)  $68,058.32 
D)  $71,428.57 
A)  $66,225.25 
B)  $67,556.42 
C)  $68,058.32 
D)  $71,428.57

Question 20

Four years ago Ollie deposited some money into an account. He earned 5 percent interest on this account and now it has a balance of $303.88. About how much money did Ollie deposit into his account when he opened it?

Accepted Answer

A)  $210 
B)  $220 
C)  $240 
D)  $250 
A)  $210 
B)  $220 
C)  $240 
D)  $250

Suppose you will receive $800 in two years. If the interest rate is 5 percent, then the present value of this future payment is

Cash payments that companies make to shareholders are called

Which of the following is correct concerning stock market irrationality?

As the interest rate increases, what happens to the present value of a future payment? Explain why changes in the interest rate will lead to changes in the quantity of loanable funds demanded and investment spending.

John has been a sky diver for many years. When the company John works for offers its employees the option to purchase a life insurance policy, John purchases a policy. This illustrates the problem of

Suppose you purchase a savings bond today for $25. In seven years you may cash in the savings bond for $50. What is the approximate interest rate paid by the savings bond?

Risk-averse individuals like good things more than they dislike comparable bad things.

Figure 27-4. The figure shows a utility function for Alex. -Refer to Figure 27-4. If most people's utility functions look like Alex's utility function, then it is easy to explain Why

The present value of a future payment to be received in three years is $1,000. If the interest rate is 5%, what is the amount that will be paid in three years?

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

Fundamental analysis shows that stock in Stainless Appliance Company has a present value below its price.

Which of the following is the correct expression for finding the present value of a $1,000 payment one year from today if the interest rate is 6 percent?

Historically, stocks have offered higher rates of return than bonds.

Which of the following statements is correct?

If Joanna is risk averse, then

If you put $250 into an account with a 4 percent interest rate, how many years would you have to wait to have $432.92?

You want to have $100,000 in five years. If the interest rate is 8 percent, about how much do you need to have today?

Four years ago Ollie deposited some money into an account. He earned 5 percent interest on this account and now it has a balance of $303.88. About how much money did Ollie deposit into his account when he opened it?

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

Suppose you will receive $800 in two years. If the interest rate is 5 percent, then the present value of this future payment is

Cash payments that companies make to shareholders are called

Which of the following is correct concerning stock market irrationality?

As the interest rate increases, what happens to the present value of a future payment? Explain why changes in the interest rate will lead to changes in the quantity of loanable funds demanded and investment spending.

John has been a sky diver for many years. When the company John works for offers its employees the option to purchase a life insurance policy, John purchases a policy. This illustrates the problem of

Suppose you purchase a savings bond today for $25. In seven years you may cash in the savings bond for $50. What is the approximate interest rate paid by the savings bond?

Risk-averse individuals like good things more than they dislike comparable bad things.

Figure 27-4. The figure shows a utility function for Alex. -Refer to Figure 27-4. If most people's utility functions look like Alex's utility function, then it is easy to explain Why

The present value of a future payment to be received in three years is $1,000. If the interest rate is 5%, what is the amount that will be paid in three years?

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

Fundamental analysis shows that stock in Stainless Appliance Company has a present value below its price.

Which of the following is the correct expression for finding the present value of a $1,000 payment one year from today if the interest rate is 6 percent?

Historically, stocks have offered higher rates of return than bonds.

Which of the following statements is correct?

If Joanna is risk averse, then

If you put $250 into an account with a 4 percent interest rate, how many years would you have to wait to have $432.92?

You want to have $100,000 in five years. If the interest rate is 8 percent, about how much do you need to have today?

Four years ago Ollie deposited some money into an account. He earned 5 percent interest on this account and now it has a balance of $303.88. About how much money did Ollie deposit into his account when he opened it?

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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