Question 1

Dividends

Accepted Answer

A)  are the rates of return on mutual funds. 
B)  are cash payments that companies make to shareholders. 
C)  are the difference between the price and present value per share of a stock. 
D)  are the rates of return on a company's capital stock. 
A)  are the rates of return on mutual funds. 
B)  are cash payments that companies make to shareholders. 
C)  are the difference between the price and present value per share of a stock. 
D)  are the rates of return on a company's capital stock.

Question 2

Define the efficient markets hypothesis.

Accepted Answer

The efficient market hypothesi

Question 3

At which interest rate is the present value of $260.10 two years from today equal to $250 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 4

Figure 27-4. The figure shows a utility function for Alex.  
-Refer to Figure 27-4. From the appearance of Alex's utility function, we know that

Accepted Answer

A)  the pain that Alex would experience if he lost $500 of his wealth would exceed the pleasure that he would experience if he added $500 to his wealth. 
B)  the pleasure that Alex would experience if he added $500 to his wealth would exceed the pain that he would experience if he lost $500 of his wealth. 
C)  the property of increasing utility does not apply to Alex. 
D)  the property of diminishing marginal utility does not apply to Alex. 
A)  the pain that Alex would experience if he lost $500 of his wealth would exceed the pleasure that he would experience if he added $500 to his wealth. 
B)  the pleasure that Alex would experience if he added $500 to his wealth would exceed the pain that he would experience if he lost $500 of his wealth. 
C)  the property of increasing utility does not apply to Alex. 
D)  the property of diminishing marginal utility does not apply to Alex.

Question 5

Lori, who currently owns stock in four companies, has decided to expand her portfolio by purchasing stock in virtually every company that sells stock. In doing so, Lori will

Accepted Answer

A)  increase the risk of her portfolio. 
B)  decrease some, but not all, of the risk of her portfolio. 
C)  decrease all of the risk of her portfolio. 
D)  leave the risk of her portfolio unchanged from its present level. 
A)  increase the risk of her portfolio. 
B)  decrease some, but not all, of the risk of her portfolio. 
C)  decrease all of the risk of her portfolio. 
D)  leave the risk of her portfolio unchanged from its present level.

Question 6

Felix deposited $500 into an account two years ago. The first year he earned 3 percent interest and the second year he earned 5 percent interest. How much money does Felix have in his account now?

Accepted Answer

A)  $540.75 
B)  $540.80 
C)  $540.85 
D)  None of the above are correct to the nearest cent. 
A)  $540.75 
B)  $540.80 
C)  $540.85 
D)  None of the above are correct to the nearest cent.

Question 7

A person's subjective measure of well­being or satisfaction is called aversion.

Accepted Answer

A) True 
 B)False

Question 8

Economists disagree as to whether

Accepted Answer

A)  the stock price of a company should reflect the company's expected profitability. 
B)  the basic tools of finance reflect valid ideas. 
C)  stock prices reflect rational estimates of a company's true worth. 
D)  there is any relationship between stock market fluctuations and fluctuations in the economy more broadly. 
A)  the stock price of a company should reflect the company's expected profitability. 
B)  the basic tools of finance reflect valid ideas. 
C)  stock prices reflect rational estimates of a company's true worth. 
D)  there is any relationship between stock market fluctuations and fluctuations in the economy more broadly.

Question 9

Moral hazard is illustrated by people who take greater risks after they purchase insurance.

Accepted Answer

A) True 
 B)False

Question 10

The present value of a payment of $500 to be made two years from today is greater if the interest rate is 7% than if it is 6%.

Accepted Answer

A) True 
 B)False

Question 11

Managed mutual funds usually outperform mutual funds that are supposed to follow some stock index.

Accepted Answer

A) True 
 B)False

Question 12

You are a financial advisor and a client tells you he is concerned about the amount of risk in his portfolio. Assuming your client hasn't already done them, what two things can you suggest to reduce your client's risk? What additional information about reducing risk should you provide?

Accepted Answer

The client can reduce his risk by furthe

Question 13

By holding insurance a person

Accepted Answer

A)  reduces the risk of a bad outcome, such as their house burning down. 
B)  shares risk and so reduces the burden of risk. 
C)  Both A and B are correct. 
D)  Neither A nor B are correct. 
A)  reduces the risk of a bad outcome, such as their house burning down. 
B)  shares risk and so reduces the burden of risk. 
C)  Both A and B are correct. 
D)  Neither A nor B are correct.

Question 14

You receive $500 today which you plan to save for two years. Also, in two years you will be given another $500. If the interest rate is 5 percent, what is the present value of the payment of $500 today and the $500 in two years?

Accepted Answer

A)  $5001.05)2 + $500/1.05)2 
B)  $5001.05)2 + $500 
C)  $500 + $500/1.05)2 
D)  $500 + $500 
A)  $5001.05)2 + $500/1.05)2 
B)  $5001.05)2 + $500 
C)  $500 + $500/1.05)2 
D)  $500 + $500

Question 15

A person who is risk averse might accept a 50% chance of losing $100 today in exchange for a 50% chance of winning $125 in two years if the interest rate was

Accepted Answer

A)  9% but not 10% 
B)  10% but not 11% 
C)  11% but not 12% 
D)  None of the above is correct; a risk averse person would not accept any of the above bets. 
A)  9% but not 10% 
B)  10% but not 11% 
C)  11% but not 12% 
D)  None of the above is correct; a risk averse person would not accept any of the above bets.

Question 16

You are better off choosing $100 today rather than $200 in 9 years if the interest rate is

Accepted Answer

A)  lower than about 8 percent. 
B)  higher than about 8 percent. 
C)  lower than about 10 percent. 
D)  higher than about 10 percent. 
A)  lower than about 8 percent. 
B)  higher than about 8 percent. 
C)  lower than about 10 percent. 
D)  higher than about 10 percent.

Question 17

To diversify, a homeowner with a variable-rate mortgage should choose investments that

Accepted Answer

A)  pay higher returns when interest rates rise and lower returns when interest rates fall. 
B)  pay lower returns when interest rates rise and higher returns when interest rates fall. 
C)  provide a higher return than the market average. 
D)  provide a lower return than the market average. 
A)  pay higher returns when interest rates rise and lower returns when interest rates fall. 
B)  pay lower returns when interest rates rise and higher returns when interest rates fall. 
C)  provide a higher return than the market average. 
D)  provide a lower return than the market average.

Question 18

Figure 27-1. The figure shows a utility function.  
-Refer to Figure 27-1. What is measured along the vertical axis?

Accepted Answer

A)  risk aversion 
B)  marginal utility 
C)  utility 
D)  the number of units of a good that can be purchased 
A)  risk aversion 
B)  marginal utility 
C)  utility 
D)  the number of units of a good that can be purchased

Question 19

Some people claim that stocks follow a random walk. What does this mean?

Accepted Answer

A)  The price of stock one day is about what it was on the previous day. 
B)  Changes in stock prices cannot be predicted from available information. 
C)  Stock prices are not determined by market fundamentals such as supply and demand. 
D)  Prices of stocks of different firms in the same industry show no or little tendency to move together. 
A)  The price of stock one day is about what it was on the previous day. 
B)  Changes in stock prices cannot be predicted from available information. 
C)  Stock prices are not determined by market fundamentals such as supply and demand. 
D)  Prices of stocks of different firms in the same industry show no or little tendency to move together.

Question 20

The problem of moral hazard arises because

Accepted Answer

A)  life is full of all sorts of risks. 
B)  after people buy insurance, they have less incentive to be careful about their risky behavior. 
C)  a high-risk person is more likely to apply for insurance than is a low-risk person. 
D)  insurance companies go to great effort to avoid paying claims to their policy holders. 
A)  life is full of all sorts of risks. 
B)  after people buy insurance, they have less incentive to be careful about their risky behavior. 
C)  a high-risk person is more likely to apply for insurance than is a low-risk person. 
D)  insurance companies go to great effort to avoid paying claims to their policy holders.

Dividends

Define the efficient markets hypothesis.

At which interest rate is the present value of $260.10 two years from today equal to $250 today?

Figure 27-4. The figure shows a utility function for Alex. -Refer to Figure 27-4. From the appearance of Alex's utility function, we know that

Lori, who currently owns stock in four companies, has decided to expand her portfolio by purchasing stock in virtually every company that sells stock. In doing so, Lori will

Felix deposited $500 into an account two years ago. The first year he earned 3 percent interest and the second year he earned 5 percent interest. How much money does Felix have in his account now?

A person's subjective measure of wellbeing or satisfaction is called aversion.

Economists disagree as to whether

Moral hazard is illustrated by people who take greater risks after they purchase insurance.

The present value of a payment of $500 to be made two years from today is greater if the interest rate is 7% than if it is 6%.

Managed mutual funds usually outperform mutual funds that are supposed to follow some stock index.

You are a financial advisor and a client tells you he is concerned about the amount of risk in his portfolio. Assuming your client hasn't already done them, what two things can you suggest to reduce your client's risk? What additional information about reducing risk should you provide?

By holding insurance a person

You receive $500 today which you plan to save for two years. Also, in two years you will be given another $500. If the interest rate is 5 percent, what is the present value of the payment of $500 today and the $500 in two years?

A person who is risk averse might accept a 50% chance of losing $100 today in exchange for a 50% chance of winning $125 in two years if the interest rate was

You are better off choosing $100 today rather than $200 in 9 years if the interest rate is

To diversify, a homeowner with a variable-rate mortgage should choose investments that

Figure 27-1. The figure shows a utility function. -Refer to Figure 27-1. What is measured along the vertical axis?

Some people claim that stocks follow a random walk. What does this mean?

The problem of moral hazard arises because

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

Dividends

Define the efficient markets hypothesis.

At which interest rate is the present value of $260.10 two years from today equal to $250 today?

Figure 27-4. The figure shows a utility function for Alex. -Refer to Figure 27-4. From the appearance of Alex's utility function, we know that

Lori, who currently owns stock in four companies, has decided to expand her portfolio by purchasing stock in virtually every company that sells stock. In doing so, Lori will

Felix deposited $500 into an account two years ago. The first year he earned 3 percent interest and the second year he earned 5 percent interest. How much money does Felix have in his account now?

A person's subjective measure of well­being or satisfaction is called aversion.

Economists disagree as to whether

Moral hazard is illustrated by people who take greater risks after they purchase insurance.

The present value of a payment of $500 to be made two years from today is greater if the interest rate is 7% than if it is 6%.

Managed mutual funds usually outperform mutual funds that are supposed to follow some stock index.

You are a financial advisor and a client tells you he is concerned about the amount of risk in his portfolio. Assuming your client hasn't already done them, what two things can you suggest to reduce your client's risk? What additional information about reducing risk should you provide?

By holding insurance a person

You receive $500 today which you plan to save for two years. Also, in two years you will be given another $500. If the interest rate is 5 percent, what is the present value of the payment of $500 today and the $500 in two years?

A person who is risk averse might accept a 50% chance of losing $100 today in exchange for a 50% chance of winning $125 in two years if the interest rate was

You are better off choosing $100 today rather than $200 in 9 years if the interest rate is

To diversify, a homeowner with a variable-rate mortgage should choose investments that

Figure 27-1. The figure shows a utility function. -Refer to Figure 27-1. What is measured along the vertical axis?

Some people claim that stocks follow a random walk. What does this mean?

The problem of moral hazard arises because

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

A person's subjective measure of wellbeing or satisfaction is called aversion.