Question 1

Should a person who is risk averse hold a portfolio with no stock and only bonds?
Explain.

Accepted Answer

Not necessarily. Historically bonds have

Question 2

If you believe that stock prices follow a random walk, then probably you

Accepted Answer

A)  do not believe that there is positive relationship between risk and return. 
B)  do not believe that stock prices reflect all available information. 
C)  believe in the validity of the efficient markets hypothesis. 
D)  believe that it is a good idea to engage in fundamental analysis. 
A)  do not believe that there is positive relationship between risk and return. 
B)  do not believe that stock prices reflect all available information. 
C)  believe in the validity of the efficient markets hypothesis. 
D)  believe that it is a good idea to engage in fundamental analysis.

Question 3

Vince says that the present value of $500 to be received one year from today if the interest rate is 8 percent is more than the present value of $500 to be received two years from today if the interest rate is 4 percent. Terri says that $500 saved for two years at an interest rate of 3 percent has a larger future value than $500 saved for one years at an interest rate of 6 percent.

Accepted Answer

A)  Both Vince and Terri are correct. 
B)  Only Vince is correct. 
C)  Only Terri is correct. 
D)  Neither Vince nor Terri is correct. 
A)  Both Vince and Terri are correct. 
B)  Only Vince is correct. 
C)  Only Terri is correct. 
D)  Neither Vince nor Terri is correct.

Question 4

By purchasing shares in a mutual fund that holds a portfolio of stocks, a person can

Accepted Answer

A)  benefit from fundamental analysis, since the mutual fund requires its shareholders to perform fundamental analysis on their own. 
B)  benefit from fundamental analysis, since the mutual fund hires one or more individuals to perform fundamental analysis for the fund. 
C)  eliminate market risk. 
D)  reduce the standard deviation of his or her portfolio to zero. 
A)  benefit from fundamental analysis, since the mutual fund requires its shareholders to perform fundamental analysis on their own. 
B)  benefit from fundamental analysis, since the mutual fund hires one or more individuals to perform fundamental analysis for the fund. 
C)  eliminate market risk. 
D)  reduce the standard deviation of his or her portfolio to zero.

Question 5

Compounding refers directly to

Accepted Answer

A)  finding the present value of a future sum of money. 
B)  finding the future value of a present sum of money. 
C)  changes in the interest rate over time on a bank account or a similar savings vehicle. 
D)  interest being earned on previously-earned interest. 
A)  finding the present value of a future sum of money. 
B)  finding the future value of a present sum of money. 
C)  changes in the interest rate over time on a bank account or a similar savings vehicle. 
D)  interest being earned on previously-earned interest.

Question 6

When he was 18, Hussam put $100 into an account at an interest rate of 8 percent. He now has $158.69 in this account. For how many years did Hussam 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 7

Suppose the interest rate is 3% and that you are to receive three annual payments of $1,000, with the first payment today, the second payment one year from now, and the third payment two years from now. What is the present value of this stream of payments?

Accepted Answer

The presen

Question 8

Figure 27-3
The following figure shows the utility function for Paul.  
-Refer to Figure 27-3. Suppose the vertical distance between the points (0, A) and (0, B) is 10. If his wealth increased from $700 to $900, then

Accepted Answer

A)  Paul's utility would increase by less than 10 units. 
B)  Paul's utility would increase by more than 10 units. 
C)  Paul's utility would increase by exactly 10 units. 
D)  Any of the above could be correct. 
A)  Paul's utility would increase by less than 10 units. 
B)  Paul's utility would increase by more than 10 units. 
C)  Paul's utility would increase by exactly 10 units. 
D)  Any of the above could be correct.

Question 9

Suppose the interest rate is 5 percent. Which of the following payment options has the highest present value today?

Accepted Answer

A)  $550 one year from today. 
B)  $580 two years from today. 
C)  $600 three years from today. 
D)  $615 four years from today. 
A)  $550 one year from today. 
B)  $580 two years from today. 
C)  $600 three years from today. 
D)  $615 four years from today.

Question 10

Which of the following changes would increase the present value of a future payment?

Accepted Answer

A)  a decrease in the size of the payment 
B)  an increase in the time until the payment is made 
C)  a decrease in the interest rate 
D)  All of the above are correct. 
A)  a decrease in the size of the payment 
B)  an increase in the time until the payment is made 
C)  a decrease in the interest rate 
D)  All of the above are correct.

Question 11

Figure 27-1. The figure shows a utility function.  
-Refer to Figure 27-1. For the person to whom this utility function applies,

Accepted Answer

A)  the more wealth she has, the less utility she gets from an additional dollar of wealth. 
B)  the more wealth she has, the more utility she gets from an additional dollar of wealth. 
C)  her level of satisfaction will be enhanced more by an increase in wealth from $600 to $800 than it would be by an increase in wealth from $400 to $600. 
D)  her level of satisfaction will be enhanced equally by an increase in wealth from $600 to $800 or by an increase in wealth from $400 to $600. 
A)  the more wealth she has, the less utility she gets from an additional dollar of wealth. 
B)  the more wealth she has, the more utility she gets from an additional dollar of wealth. 
C)  her level of satisfaction will be enhanced more by an increase in wealth from $600 to $800 than it would be by an increase in wealth from $400 to $600. 
D)  her level of satisfaction will be enhanced equally by an increase in wealth from $600 to $800 or by an increase in wealth from $400 to $600.

Question 12

What is the present value of a payment of $100 one year from today if the interest rate is 5 percent?

Accepted Answer

A)  $95.50 
B)  $95.24 
C)  $95.00 
D)  None of the above are correct to the nearest cent. 
A)  $95.50 
B)  $95.24 
C)  $95.00 
D)  None of the above are correct to the nearest cent.

Question 13

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 14

A judge requires Harry to make a payment to Sally. The judge says that Harry can pay her either $10,000 today or $11,000 two years from today. Of the following interest rates, which is the lowest one at which Harry would be better off paying $11,000 two years from today?

Accepted Answer

A)  2 percent 
B)  3 percent 
C)  4 percent 
D)  5 percent 
A)  2 percent 
B)  3 percent 
C)  4 percent 
D)  5 percent

Question 15

Yoyo's Frozen Yogurt, Inc. is thinking of building a new warehouse. They believe that this will give them $50,000 of additional revenue at the end of one year, $60,000 additional revenue at the end of two years, and $70,000 in additional revenue at the end of three years. If the interest rate is 5 percent, Yoyo would be willing to pay

Accepted Answer

A)  $140,000, but not $150,000. 
B)  $150,000, but not $160,000. 
C)  $160,000, but not $170,000. 
D)  $170,000, but not $180,000. 
A)  $140,000, but not $150,000. 
B)  $150,000, but not $160,000. 
C)  $160,000, but not $170,000. 
D)  $170,000, but not $180,000.

Question 16

Figure 27-6. On the graph, x represents risk and y represents return.  
-Refer to Figure 27-6. Which of the following statements is correct?

Accepted Answer

A)  At point A the standard deviation of the portfolio is 3. 
B)  A risk averse person always will choose to be at point A. 
C)  At point D the portfolio consists of about 15 percent stocks and 85 percent safe assets. 
D)  The figure shows that the greater the risk, the greater the return. 
A)  At point A the standard deviation of the portfolio is 3. 
B)  A risk averse person always will choose to be at point A. 
C)  At point D the portfolio consists of about 15 percent stocks and 85 percent safe assets. 
D)  The figure shows that the greater the risk, the greater the return.

Question 17

Which famous person referred to compounding as "the greatest mathematical discovery of all time?"

Accepted Answer

A)  Abraham Lincoln 
B)  Thomas Edison 
C)  Benjamin Franklin 
D)  Albert Einstein 
A)  Abraham Lincoln 
B)  Thomas Edison 
C)  Benjamin Franklin 
D)  Albert Einstein

Question 18

Which of the following is correct if the interest rate is 6 percent?

Accepted Answer

A)  $215 to be received a year from today has a present value of over $200; $420 a year from now has a present value over $400. 
B)  $215 to be received a year from today has a present value of over $200; $420 a year from now has a present value under $400. 
C)  $215 to be received a year from today has a present value of under $200; $420 a year from now has a present value over $400. 
D)  $215 to be received a year from today has a present value of under $200; $420 a year from now has a present value under $400. 
A)  $215 to be received a year from today has a present value of over $200; $420 a year from now has a present value over $400. 
B)  $215 to be received a year from today has a present value of over $200; $420 a year from now has a present value under $400. 
C)  $215 to be received a year from today has a present value of under $200; $420 a year from now has a present value over $400. 
D)  $215 to be received a year from today has a present value of under $200; $420 a year from now has a present value under $400.

Question 19

If Cara's utility falls more by losing $600 than it rises by gaining $600, she has

Accepted Answer

A)  increasing marginal utility of wealth and is risk averse. 
B)  increasing marginal utility of wealth but is not risk averse. 
C)  decreasing marginal utility of wealth and is risk averse. 
D)  decreasing marginal utility of wealth but is not risk averse. 
A)  increasing marginal utility of wealth and is risk averse. 
B)  increasing marginal utility of wealth but is not risk averse. 
C)  decreasing marginal utility of wealth and is risk averse. 
D)  decreasing marginal utility of wealth but is not risk averse.

Question 20

Suppose the interest rate is 8 percent. Consider three payment options.
1) $300 today.
2) $330 one year from today.
"3) $360 two years from today.
Which of the following is correct?"

Accepted Answer

A)  1 has the highest present value and 2 has the lowest. 
B)  2 has the highest present value and 3 has the lowest. 
C)  3 has the highest present value and 1 has the lowest. 
D)  None of the above is correct. 
A)  1 has the highest present value and 2 has the lowest. 
B)  2 has the highest present value and 3 has the lowest. 
C)  3 has the highest present value and 1 has the lowest. 
D)  None of the above is correct.

Should a person who is risk averse hold a portfolio with no stock and only bonds? Explain.

If you believe that stock prices follow a random walk, then probably you

By purchasing shares in a mutual fund that holds a portfolio of stocks, a person can

Compounding refers directly to

When he was 18, Hussam put $100 into an account at an interest rate of 8 percent. He now has $158.69 in this account. For how many years did Hussam leave this money in his account?

Suppose the interest rate is 3% and that you are to receive three annual payments of $1,000, with the first payment today, the second payment one year from now, and the third payment two years from now. What is the present value of this stream of payments?

Figure 27-3 The following figure shows the utility function for Paul. -Refer to Figure 27-3. Suppose the vertical distance between the points (0, A) and (0, B) is 10. If his wealth increased from $700 to $900, then

Suppose the interest rate is 5 percent. Which of the following payment options has the highest present value today?

Which of the following changes would increase the present value of a future payment?

Figure 27-1. The figure shows a utility function. -Refer to Figure 27-1. For the person to whom this utility function applies,

What is the present value of a payment of $100 one year from today if the interest rate is 5 percent?

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.

A judge requires Harry to make a payment to Sally. The judge says that Harry can pay her either $10,000 today or $11,000 two years from today. Of the following interest rates, which is the lowest one at which Harry would be better off paying $11,000 two years from today?

Figure 27-6. On the graph, x represents risk and y represents return. -Refer to Figure 27-6. Which of the following statements is correct?

Which famous person referred to compounding as "the greatest mathematical discovery of all time?"

Which of the following is correct if the interest rate is 6 percent?

If Cara's utility falls more by losing $600 than it rises by gaining $600, she has

Suppose the interest rate is 8 percent. Consider three payment options. 1) $300 today. 2) $330 one year from today. "3) $360 two years from today. Which of the following is correct?"

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

Should a person who is risk averse hold a portfolio with no stock and only bonds? Explain.

If you believe that stock prices follow a random walk, then probably you

By purchasing shares in a mutual fund that holds a portfolio of stocks, a person can

Compounding refers directly to

When he was 18, Hussam put $100 into an account at an interest rate of 8 percent. He now has $158.69 in this account. For how many years did Hussam leave this money in his account?

Suppose the interest rate is 3% and that you are to receive three annual payments of $1,000, with the first payment today, the second payment one year from now, and the third payment two years from now. What is the present value of this stream of payments?

Figure 27-3 The following figure shows the utility function for Paul. -Refer to Figure 27-3. Suppose the vertical distance between the points (0, A) and (0, B) is 10. If his wealth increased from $700 to $900, then

Suppose the interest rate is 5 percent. Which of the following payment options has the highest present value today?

Which of the following changes would increase the present value of a future payment?

Figure 27-1. The figure shows a utility function. -Refer to Figure 27-1. For the person to whom this utility function applies,

What is the present value of a payment of $100 one year from today if the interest rate is 5 percent?

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.

A judge requires Harry to make a payment to Sally. The judge says that Harry can pay her either $10,000 today or $11,000 two years from today. Of the following interest rates, which is the lowest one at which Harry would be better off paying $11,000 two years from today?

Figure 27-6. On the graph, x represents risk and y represents return. -Refer to Figure 27-6. Which of the following statements is correct?

Which famous person referred to compounding as "the greatest mathematical discovery of all time?"

Which of the following is correct if the interest rate is 6 percent?

If Cara's utility falls more by losing $600 than it rises by gaining $600, she has

Suppose the interest rate is 8 percent. Consider three payment options. 1) $300 today. 2) $330 one year from today. "3) $360 two years from today. Which of the following is correct?"

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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