Question 1

Fundamental analysis is

Accepted Answer

A)  the study of the relation between risk and return of stock portfolios. 
B)  the determination of the allocation of savings between stocks and bonds based on a person's degree of risk aversion. 
C)  the study of a company's accounting statements and future prospects to determine its value. 
D)  a method used to determine how adding stocks to a portfolio will change the risk of the portfolio. 
A)  the study of the relation between risk and return of stock portfolios. 
B)  the determination of the allocation of savings between stocks and bonds based on a person's degree of risk aversion. 
C)  the study of a company's accounting statements and future prospects to determine its value. 
D)  a method used to determine how adding stocks to a portfolio will change the risk of the portfolio.

Question 2

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

Accepted Answer

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

Question 3

Suppose interest of 5% for two years can be earned on $1,000 saved today with no risk. What is the least amount a person would need to have a 50% chance of winning to be willing to face a 50% chance of losing $1,000 today and be considered risk averse?

Accepted Answer

A)  $907.03 to be paid in two years 
B)  $1,000.01 to be paid in two years 
C)  $1,100.01 to be paid in two years 
D)  $1,102.51 to be paid in two years 
A)  $907.03 to be paid in two years 
B)  $1,000.01 to be paid in two years 
C)  $1,100.01 to be paid in two years 
D)  $1,102.51 to be paid in two years

Question 4

Abby buys health insurance because she knows that she has health risks that wouldn't be obvious to an insurance company. Brad buys home owners insurance and then is less careful to make sure he's put out his cigarettes. The example with Abby

Accepted Answer

A)  and the example with Brad illustrate adverse selection. 
B)  and the example with Brad illustrate moral hazard. 
C)  illustrates adverse selection; the example with Brad illustrates moral hazard. 
D)  illustrates moral hazard; the example with Brad illustrates adverse selection. 
A)  and the example with Brad illustrate adverse selection. 
B)  and the example with Brad illustrate moral hazard. 
C)  illustrates adverse selection; the example with Brad illustrates moral hazard. 
D)  illustrates moral hazard; the example with Brad illustrates adverse selection.

Question 5

A risk-averse person has

Accepted Answer

A)  utility and marginal utility curves that slope upward. 
B)  utility and marginal utility curves that slope downward. 
C)  a utility curve that slopes down and a marginal utility curve that slopes upward. 
D)  a utility curve that slopes upward and a marginal utility curve that slopes downward. 
A)  utility and marginal utility curves that slope upward. 
B)  utility and marginal utility curves that slope downward. 
C)  a utility curve that slopes down and a marginal utility curve that slopes upward. 
D)  a utility curve that slopes upward and a marginal utility curve that slopes downward.

Question 6

Speculative bubbles may arise in part because the value of the stock to a stockholder depends on the final sale price.

Accepted Answer

A) True 
 B)False

Question 7

The present value of any future sum of money is the amount that would be needed today, at current interest rates, to produce that future sum.

Accepted Answer

A) True 
 B)False

Question 8

On May 25, 1980 three pals graduated from high school, pooled together $3,000 and put the money into an account promising to pay 8% for the next 30 years. On May 25, 2010 they withdrew all the money from the account. To the nearest dollar, how much did they withdraw?

Accepted Answer

A)  $25,962 
B)  $27,297 
C)  $30,188 
D)  None of the above are correct to the nearest dollar. 
A)  $25,962 
B)  $27,297 
C)  $30,188 
D)  None of the above are correct to the nearest dollar.

Question 9

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 10

What does "random walk" mean? According to the efficient markets hypothesis, should stock prices follow a random walk?

Accepted Answer

A random walk means the path of a variab

Question 11

If more people think a corporation's stock is overvalued than think it is undervalued then there is a

Accepted Answer

A)  surplus, so its price will rise. 
B)  surplus, so its price will fall. 
C)  shortage, so its price will rise. 
D)  shortage, so its price will fall. 
A)  surplus, so its price will rise. 
B)  surplus, so its price will fall. 
C)  shortage, so its price will rise. 
D)  shortage, so its price will fall.

Question 12

If your research leads you to believe that the present value of a stock's dividend stream and future price is less than
Its price then you believe the stock is

Accepted Answer

A)  overvalued so you should consider buying it. 
B)  overvalued so you should not consider buying it. 
C)  undervalued so you should consider buying it. 
D)  undervalued so you should not consider buying it. 
A)  overvalued so you should consider buying it. 
B)  overvalued so you should not consider buying it. 
C)  undervalued so you should consider buying it. 
D)  undervalued so you should not consider buying it.

Question 13

If a savings account pays 5 percent annual interest, then the rule of 70 tells us that the account value will double in approximately 14 years.

Accepted Answer

A) True 
 B)False

Question 14

According to the rule of 70, if the interest rate is 5 percent, how long will it take for the value of a savings account to double?

Accepted Answer

A)  about 3.5 years 
B)  about 6.3 years 
C)  about 12 years 
D)  about 14 years 
A)  about 3.5 years 
B)  about 6.3 years 
C)  about 12 years 
D)  about 14 years

Question 15

Scenario 27-1
Lisa has a utility function   where W is Lisa's wealth in millions of dollars and U is the utility she obtains.
-Refer to Scenario 27-1. Is Lisa risk averse? Explain.

Accepted Answer

Yes, Lisa is risk averse. The

Question 16

How does adverse selection affect the insurance market?

Accepted Answer

High risk persons ar

Question 17

Suppose you put $350 into a bank account today. Interest is paid annually and the annual interest rate is 6 percent. The future value of the $350 after 4 years is

Accepted Answer

A)  $414.09. 
B)  $434.00. 
C)  $441.87. 
D)  $481.24. 
A)  $414.09. 
B)  $434.00. 
C)  $441.87. 
D)  $481.24.

Question 18

According to the rule of 70, if the interest rate is 10 percent, about how long will it take for the value of a savings account to double?

Accepted Answer

A)  about 6.3 years 
B)  about 7 years 
C)  about 7.7 years 
D)  about 10 years 
A)  about 6.3 years 
B)  about 7 years 
C)  about 7.7 years 
D)  about 10 years

Question 19

In the 1990s, Fed Chair Alan Greenspan believed that the market was

Accepted Answer

A)  undervalued, and evidence later showed that this was clearly correct. 
B)  undervalued, but whether it was remains debatable. 
C)  overvalued, and evidence later showed that this was clearly correct. 
D)  overvalued, but whether it was remains debatable. 
A)  undervalued, and evidence later showed that this was clearly correct. 
B)  undervalued, but whether it was remains debatable. 
C)  overvalued, and evidence later showed that this was clearly correct. 
D)  overvalued, but whether it was remains debatable.

Question 20

You have a choice among three options. Option 1: receive $900 immediately. Option 2: receive $1,200 one year from now. Option 3: receive $2,000 five years from now. The interest rate is 15 percent. Rank these three options from highest present value to lowest present value.

Accepted Answer

A)  Option 1; Option 2; Option 3 
B)  Option 3; Option 2; Option 1 
C)  Option 2; Option 3; Option 1 
D)  Option 3; Option 1; Option 2 
A)  Option 1; Option 2; Option 3 
B)  Option 3; Option 2; Option 1 
C)  Option 2; Option 3; Option 1 
D)  Option 3; Option 1; Option 2

Fundamental analysis is

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

Suppose interest of 5% for two years can be earned on $1,000 saved today with no risk. What is the least amount a person would need to have a 50% chance of winning to be willing to face a 50% chance of losing $1,000 today and be considered risk averse?

Abby buys health insurance because she knows that she has health risks that wouldn't be obvious to an insurance company. Brad buys home owners insurance and then is less careful to make sure he's put out his cigarettes. The example with Abby

A risk-averse person has

Speculative bubbles may arise in part because the value of the stock to a stockholder depends on the final sale price.

The present value of any future sum of money is the amount that would be needed today, at current interest rates, to produce that future sum.

On May 25, 1980 three pals graduated from high school, pooled together $3,000 and put the money into an account promising to pay 8% for the next 30 years. On May 25, 2010 they withdrew all the money from the account. To the nearest dollar, how much did they withdraw?

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

What does "random walk" mean? According to the efficient markets hypothesis, should stock prices follow a random walk?

If more people think a corporation's stock is overvalued than think it is undervalued then there is a

If your research leads you to believe that the present value of a stock's dividend stream and future price is less than Its price then you believe the stock is

If a savings account pays 5 percent annual interest, then the rule of 70 tells us that the account value will double in approximately 14 years.

According to the rule of 70, if the interest rate is 5 percent, how long will it take for the value of a savings account to double?

Scenario 27-1 Lisa has a utility function where W is Lisa's wealth in millions of dollars and U is the utility she obtains. -Refer to Scenario 27-1. Is Lisa risk averse? Explain.

How does adverse selection affect the insurance market?

Suppose you put $350 into a bank account today. Interest is paid annually and the annual interest rate is 6 percent. The future value of the $350 after 4 years is

According to the rule of 70, if the interest rate is 10 percent, about how long will it take for the value of a savings account to double?

In the 1990s, Fed Chair Alan Greenspan believed that the market was

You have a choice among three options. Option 1: receive $900 immediately. Option 2: receive $1,200 one year from now. Option 3: receive $2,000 five years from now. The interest rate is 15 percent. Rank these three options from highest present value to lowest present value.

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

Fundamental analysis is

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

Suppose interest of 5% for two years can be earned on $1,000 saved today with no risk. What is the least amount a person would need to have a 50% chance of winning to be willing to face a 50% chance of losing $1,000 today and be considered risk averse?

Abby buys health insurance because she knows that she has health risks that wouldn't be obvious to an insurance company. Brad buys home owners insurance and then is less careful to make sure he's put out his cigarettes. The example with Abby

A risk-averse person has

Speculative bubbles may arise in part because the value of the stock to a stockholder depends on the final sale price.

The present value of any future sum of money is the amount that would be needed today, at current interest rates, to produce that future sum.

On May 25, 1980 three pals graduated from high school, pooled together $3,000 and put the money into an account promising to pay 8% for the next 30 years. On May 25, 2010 they withdrew all the money from the account. To the nearest dollar, how much did they withdraw?

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

What does "random walk" mean? According to the efficient markets hypothesis, should stock prices follow a random walk?

If more people think a corporation's stock is overvalued than think it is undervalued then there is a

If your research leads you to believe that the present value of a stock's dividend stream and future price is less than Its price then you believe the stock is

If a savings account pays 5 percent annual interest, then the rule of 70 tells us that the account value will double in approximately 14 years.

According to the rule of 70, if the interest rate is 5 percent, how long will it take for the value of a savings account to double?

Scenario 27-1 Lisa has a utility function where W is Lisa's wealth in millions of dollars and U is the utility she obtains. -Refer to Scenario 27-1. Is Lisa risk averse? Explain.

How does adverse selection affect the insurance market?

Suppose you put $350 into a bank account today. Interest is paid annually and the annual interest rate is 6 percent. The future value of the $350 after 4 years is

According to the rule of 70, if the interest rate is 10 percent, about how long will it take for the value of a savings account to double?

In the 1990s, Fed Chair Alan Greenspan believed that the market was

You have a choice among three options. Option 1: receive $900 immediately. Option 2: receive $1,200 one year from now. Option 3: receive $2,000 five years from now. The interest rate is 15 percent. Rank these three options from highest present value to lowest present value.

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