Exam 9: The Basic Tools of Finance

A company that can build a project that will cost $50,000, but returns $52,000 in one year would make a good decision by turning this project down if the interest rate were 3 percent.

Stock market fluctuations

Suppose that Thom experiences a greater loss in utility if he loses $50 than he would gain in utility if he wins $50. This implies that Thom's

Other things the same, an increase in the interest rate makes the quantity of loanable funds supplied

Which of the following is correct?

Twenty years ago, Dr. Montgomery borrowed money from her parents to pay her tuition at graduate school. Now she wants to pay them back. She gives them double what they gave her. According to the rule of 70, what interest rate would have given her parents the same amount of money if they had put it in the bank rather than lending it to their daughter?

If the interest rate is 4 percent, then you would be equally happy if you received a gift of either $100 today or a gift of

Which of the following games might a risk-averse person play?

Albert Einstein once referred to compounding as

Two years ago Darryl put $3,000 into an account paying 3 percent interest. How much does he have in the account today?

Risk

Jarrod says that the future value of $250 saved for one year at 6 percent interest is less than the future value of $250 saved for two years at 3 percent interest. Simon says that the present value of a $250 payment to be received in one year when the interest rate is 6 percent is less than the value of a $250 payment to be received in two years when the interest rate is 3 percent.

Suppose you are deciding whether or not to buy a particular bond for $5,980.17. If you buy the bond and hold it for 5 years, then at that time you will receive a payment of $10,000. You will buy the bond today if the interest rate is

If the interest rate is 5 percent, then what is the present value of $2,000 to be received in three years?

Jorge deposited $1,000 into an account three years ago. The first two years he earned 5 percent interest; the third year he earned 6 percent interest. How much money does Jorge have in his account today?

According to the efficient market hypothesis

Suppose you will receive $500 at some point in the future. If the annual interest rate is 7.5 percent, then the present value of the $500 is

From the standpoint of the economy as a whole, the role of insurance is

Which of the following is not consistent with the efficient market hypothesis?

Figure 27-2. The figure shows a utility function for Britney. -Refer to Figure 27-2. From the appearance of the utility function, we know that