Question 1

Other things the same, as the number of stocks in a portfolio rises,

Accepted Answer

A)  risk increases and the standard deviation of the return rises. 
B)  risk increases and the standard deviation of the return falls. 
C)  risk decreases and the standard deviation of the return rises. 
D)  risk decreases and the standard deviation of the return falls. 
A)  risk increases and the standard deviation of the return rises. 
B)  risk increases and the standard deviation of the return falls. 
C)  risk decreases and the standard deviation of the return rises. 
D)  risk decreases and the standard deviation of the return falls.

Question 2

Which of the following methods of picking stocks is not consistent with fundamental analysis?

Accepted Answer

A)  doing research such as thoroughly reading and analyzing companies' annual reports 
B)  choosing mutual funds that are managed by individuals with good reputations 
C)  viewing individual stock prices as unpredictable 
D)  relying upon the advice of Wall Street analysts 
A)  doing research such as thoroughly reading and analyzing companies' annual reports 
B)  choosing mutual funds that are managed by individuals with good reputations 
C)  viewing individual stock prices as unpredictable 
D)  relying upon the advice of Wall Street analysts

Question 3

Suppose your uncle offers you $100 today or $150 in 10 years. You would prefer to take the $100 today if the interest rate is

Accepted Answer

A)  3 percent. 
B)  4 percent. 
C)  5 percent. 
D)  None of the above is correct. 
A)  3 percent. 
B)  4 percent. 
C)  5 percent. 
D)  None of the above is correct.

Question 4

If the interest rate is 7.5 percent, then what is the present value of $4,000 to be received in 6 years?

Accepted Answer

A)  $2,420.68 
B)  $2,591.85 
C)  $2,996.33 
D)  $3,040.63 
A)  $2,420.68 
B)  $2,591.85 
C)  $2,996.33 
D)  $3,040.63

Question 5

A scholarship gives you $1,000 today and promises to pay you $1,000 one year from today. What is the present value of these payments?

Accepted Answer

A)  $2,000/1 + r)2. 
B)  $1,000 + $1,000/1 + r) 
C)  $1,000/1 + r) + $1,000/1 + r)2 
D)  $1,0001 + r) + $1,0001 + r)2 
A)  $2,000/1 + r)2. 
B)  $1,000 + $1,000/1 + r) 
C)  $1,000/1 + r) + $1,000/1 + r)2 
D)  $1,0001 + r) + $1,0001 + r)2

Question 6

Diversification of a portfolio

Accepted Answer

A)  can eliminate market risk, but it cannot eliminate firm-specific risk. 
B)  can eliminate firm-specific risk, but it cannot eliminate market risk. 
C)  increases the portfolio's standard deviation. 
D)  is not necessary for a person who is risk averse. 
A)  can eliminate market risk, but it cannot eliminate firm-specific risk. 
B)  can eliminate firm-specific risk, but it cannot eliminate market risk. 
C)  increases the portfolio's standard deviation. 
D)  is not necessary for a person who is risk averse.

Question 7

Marcia has four savings accounts. Which account has the largest balance?

Accepted Answer

A)  $100 deposited 1 year ago at an 8 percent interest rate 
B)  $100 deposited 2 years ago at a 4 percent interest rate 
C)  $100 deposited 4 years ago at a 2 percent interest rate 
D)  $100 deposited 8 years ago at a 1 percent interest rate 
A)  $100 deposited 1 year ago at an 8 percent interest rate 
B)  $100 deposited 2 years ago at a 4 percent interest rate 
C)  $100 deposited 4 years ago at a 2 percent interest rate 
D)  $100 deposited 8 years ago at a 1 percent interest rate

Question 8

Amelia knows that she has about $105 in her bank account. She knows she earned an interest rate of 4 percent, but she doesn't remember how much she opened the account with a year ago. How much did she put in?

Accepted Answer

A)  $98.18 
B)  $100.96 
C)  $102.04 
D)  $103.24 
A)  $98.18 
B)  $100.96 
C)  $102.04 
D)  $103.24

Question 9

Which, if any, of the present values below are correctly computed?

Accepted Answer

A)  A payment of $1,000 to be received one year from today, with a 8 percent interest rate, has a present value of $945.45. 
B)  A payment of $1,000 to be received one year from today, with a 9 percent interest rate, has a present value of $911.11. 
C)  A payment of $1,000 to be received one year from today, with a 10 percent interest rate, has a present value of $905.06. 
D)  None of the above are correct to the nearest cent. 
A)  A payment of $1,000 to be received one year from today, with a 8 percent interest rate, has a present value of $945.45. 
B)  A payment of $1,000 to be received one year from today, with a 9 percent interest rate, has a present value of $911.11. 
C)  A payment of $1,000 to be received one year from today, with a 10 percent interest rate, has a present value of $905.06. 
D)  None of the above are correct to the nearest cent.

Question 10

If a stock or bond is risky

Accepted Answer

A)  risk averse people may be willing to hold it as part of a diversified portfolio. 
B)  risk averse people may be willing to hold it if the expected return is high enough. 
C)  both A and B are correct. 
D)  risk averse people will not hold it. 
A)  risk averse people may be willing to hold it as part of a diversified portfolio. 
B)  risk averse people may be willing to hold it if the expected return is high enough. 
C)  both A and B are correct. 
D)  risk averse people will not hold it.

Question 11

Anna deposited $10,000 into an account three years ago. The first year she earned 12 percent interest, the second year she earned 8 percent interest, and the third year she earned 4 percent interest. How much money does she have in her account today?

Accepted Answer

A)  $12,579.84 
B)  $12,596.80 
C)  $12,597.12 
D)  None of the above are correct to the nearest cent. 
A)  $12,579.84 
B)  $12,596.80 
C)  $12,597.12 
D)  None of the above are correct to the nearest cent.

Question 12

Tami knows that people in her family die young, and so she buys life insurance. Preston knows he is a reckless driver and so he applies for automobile insurance.

Accepted Answer

A)  These are both examples of adverse selection. 
B)  These are both examples of moral hazard. 
C)  The first example illustrates adverse selection, and the second illustrates moral hazard. 
D)  The first example illustrates moral hazard, and the second illustrates adverse selection. 
A)  These are both examples of adverse selection. 
B)  These are both examples of moral hazard. 
C)  The first example illustrates adverse selection, and the second illustrates moral hazard. 
D)  The first example illustrates moral hazard, and the second illustrates adverse selection.

Question 13

Figure 27-1. The figure shows a utility function.  
-Refer to Figure 27-1. Which distance along the vertical axis represents the marginal utility of an increase in wealth from $600 to $800?

Accepted Answer

A)  the distance between the origin and point B 
B)  the distance between the origin and point C 
C)  the distance between point A and point C 
D)  the distance between point B and point C 
A)  the distance between the origin and point B 
B)  the distance between the origin and point C 
C)  the distance between point A and point C 
D)  the distance between point B and point C

Question 14

Kyle puts a greater proportion of his portfolio into government bonds. Kyle's action

Accepted Answer

A)  increases both risk and the average rate of return. 
B)  decreases both risk and the average rate of return. 
C)  increases risk, but decreases the average rate of return. 
D)  decreases risk, but increases the average rate of return. 
A)  increases both risk and the average rate of return. 
B)  decreases both risk and the average rate of return. 
C)  increases risk, but decreases the average rate of return. 
D)  decreases risk, but increases the average rate of return.

Question 15

Kayla faces risks and she pays a fee to ABC Company; in return, ABC Company agrees to accept some or all of
Kayla's risks. ABC Company is

Accepted Answer

A)  a mutual fund. 
B)  an insurance company. 
C)  a diversified company. 
D)  an equity-financed company. 
A)  a mutual fund. 
B)  an insurance company. 
C)  a diversified company. 
D)  an equity-financed company.

Question 16

In which of the following instances is the present value of the future payment the largest?

Accepted Answer

A)  You will receive $1,000 in 5 years and the annual interest rate is 5 percent. 
B)  You will receive $1,000 in 10 years and the annual interest rate is 3 percent. 
C)  You will receive $2,000 in 10 years and the annual interest rate is 10 percent. 
D)  You will receive $2,400 in 15 years and the annual interest rate is 8 percent. 
A)  You will receive $1,000 in 5 years and the annual interest rate is 5 percent. 
B)  You will receive $1,000 in 10 years and the annual interest rate is 3 percent. 
C)  You will receive $2,000 in 10 years and the annual interest rate is 10 percent. 
D)  You will receive $2,400 in 15 years and the annual interest rate is 8 percent.

Question 17

You are tearing down a building and find $1 in change that someone lost when working on the building 140 years ago. If, instead of being careless with the $1 in change, this person had deposited it into a bank and earned 2 percent interest every year for 140 years, how much would be in the account today according to the rule of 70?

Accepted Answer

A)  $4 
B)  $8 
C)  $16 
D)  $32 
A)  $4 
B)  $8 
C)  $16 
D)  $32

Question 18

Suppose the interest rate is 7 percent. Consider four payment options: Option

Accepted Answer

A: $500 today.
Option B: $550 one year f

Question 19

At which interest rate is the present value of $168.54 two years from today equal to $150 today?

Accepted Answer

A)  4 percent 
B)  5 percent 
C)  6 percent 
D)  None of the above would give a present value within a cent of $162.24. 
A)  4 percent 
B)  5 percent 
C)  6 percent 
D)  None of the above would give a present value within a cent of $162.24.

Question 20

According to the efficient markets hypothesis, the number of people who think a stock is overvalued exactly balances the number of people who think a stock is undervalued.

Accepted Answer

A) True 
 B)False

Other things the same, as the number of stocks in a portfolio rises,

Which of the following methods of picking stocks is not consistent with fundamental analysis?

Suppose your uncle offers you $100 today or $150 in 10 years. You would prefer to take the $100 today if the interest rate is

If the interest rate is 7.5 percent, then what is the present value of $4,000 to be received in 6 years?

A scholarship gives you $1,000 today and promises to pay you $1,000 one year from today. What is the present value of these payments?

Diversification of a portfolio

Marcia has four savings accounts. Which account has the largest balance?

Amelia knows that she has about $105 in her bank account. She knows she earned an interest rate of 4 percent, but she doesn't remember how much she opened the account with a year ago. How much did she put in?

Which, if any, of the present values below are correctly computed?

If a stock or bond is risky

Anna deposited $10,000 into an account three years ago. The first year she earned 12 percent interest, the second year she earned 8 percent interest, and the third year she earned 4 percent interest. How much money does she have in her account today?

Tami knows that people in her family die young, and so she buys life insurance. Preston knows he is a reckless driver and so he applies for automobile insurance.

Figure 27-1. The figure shows a utility function. -Refer to Figure 27-1. Which distance along the vertical axis represents the marginal utility of an increase in wealth from $600 to $800?

Kyle puts a greater proportion of his portfolio into government bonds. Kyle's action

Kayla faces risks and she pays a fee to ABC Company; in return, ABC Company agrees to accept some or all of Kayla's risks. ABC Company is

In which of the following instances is the present value of the future payment the largest?

Suppose the interest rate is 7 percent. Consider four payment options: Option

At which interest rate is the present value of $168.54 two years from today equal to $150 today?

According to the efficient markets hypothesis, the number of people who think a stock is overvalued exactly balances the number of people who think a stock is undervalued.

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

Exam 9: The Basic Tools of Finance

Other things the same, as the number of stocks in a portfolio rises,

Which of the following methods of picking stocks is not consistent with fundamental analysis?

Suppose your uncle offers you $100 today or $150 in 10 years. You would prefer to take the $100 today if the interest rate is

If the interest rate is 7.5 percent, then what is the present value of $4,000 to be received in 6 years?

A scholarship gives you $1,000 today and promises to pay you $1,000 one year from today. What is the present value of these payments?

Diversification of a portfolio

Marcia has four savings accounts. Which account has the largest balance?

Amelia knows that she has about $105 in her bank account. She knows she earned an interest rate of 4 percent, but she doesn't remember how much she opened the account with a year ago. How much did she put in?

Which, if any, of the present values below are correctly computed?

If a stock or bond is risky

Anna deposited $10,000 into an account three years ago. The first year she earned 12 percent interest, the second year she earned 8 percent interest, and the third year she earned 4 percent interest. How much money does she have in her account today?

Tami knows that people in her family die young, and so she buys life insurance. Preston knows he is a reckless driver and so he applies for automobile insurance.

Figure 27-1. The figure shows a utility function. -Refer to Figure 27-1. Which distance along the vertical axis represents the marginal utility of an increase in wealth from $600 to $800?

Kyle puts a greater proportion of his portfolio into government bonds. Kyle's action

Kayla faces risks and she pays a fee to ABC Company; in return, ABC Company agrees to accept some or all of Kayla's risks. ABC Company is

In which of the following instances is the present value of the future payment the largest?

Suppose the interest rate is 7 percent. Consider four payment options: Option

At which interest rate is the present value of $168.54 two years from today equal to $150 today?

According to the efficient markets hypothesis, the number of people who think a stock is overvalued exactly balances the number of people who think a stock is undervalued.

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