Question 1

Figure 27-3
The following figure shows the utility function for Paul.  
-Refer to Figure 27-3. Suppose Paul begins with $900 in wealth. Starting from there,

Accepted Answer

A)  Paul would be willing to accept a coin­flip bet that would result in him winning $200 if the result was "heads" or losing $200 if the result was "tails." 
B)  the pain of losing $200 of his wealth would equal the pleasure of adding $200 to his wealth. 
C)  the pain of losing $200 of his wealth would exceed the pleasure of adding $200 to his wealth. 
D)  the pleasure of adding $200 to his wealth would exceed the pain of losing $200 of his wealth. 
A)  Paul would be willing to accept a coin­flip bet that would result in him winning $200 if the result was "heads" or losing $200 if the result was "tails." 
B)  the pain of losing $200 of his wealth would equal the pleasure of adding $200 to his wealth. 
C)  the pain of losing $200 of his wealth would exceed the pleasure of adding $200 to his wealth. 
D)  the pleasure of adding $200 to his wealth would exceed the pain of losing $200 of his wealth.

Question 2

Diminishing marginal utility of wealth implies that the utility function is

Accepted Answer

A)  upward-sloping and has decreasing slope. 
B)  upward-sloping and has increasing slope. 
C)  downward-sloping and has decreasing slope. 
D)  downward-sloping and has increasing slope. 
A)  upward-sloping and has decreasing slope. 
B)  upward-sloping and has increasing slope. 
C)  downward-sloping and has decreasing slope. 
D)  downward-sloping and has increasing slope.

Question 3

Sage decides to cash in all his savings to open a recording studio. He has three accounts to cash in. The first earned 9 percent for two years. The second earned 6 percent for three years. And the last earned 3 percent for six years. Supposing he started with $5,000 in each account, from which account will he get the most cash?

Accepted Answer

A)  the two-year account at 9 percent 
B)  the three-year account at 6 percent 
C)  the six-year account at 3 percent 
D)  The accounts are all worth the same. 
A)  the two-year account at 9 percent 
B)  the three-year account at 6 percent 
C)  the six-year account at 3 percent 
D)  The accounts are all worth the same.

Question 4

A measure of the volatility of a variable is its

Accepted Answer

A)  present value. 
B)  future value. 
C)  return. 
D)  standard deviation. 
A)  present value. 
B)  future value. 
C)  return. 
D)  standard deviation.

Question 5

If stock prices follow a random walk, then stock investors can make large profits by

Accepted Answer

A)  buying stocks whose prices have been falling for several days. 
B)  buying stocks whose prices have been rising for several days. 
C)  performing fundamental analysis of stocks using data contained in annual reports. 
D)  using inside information. 
A)  buying stocks whose prices have been falling for several days. 
B)  buying stocks whose prices have been rising for several days. 
C)  performing fundamental analysis of stocks using data contained in annual reports. 
D)  using inside information.

Question 6

A company that produces wallpaper is considering buying some new equipment that it expects will increase future profits. If the interest rate falls, then the present value of these future earnings

Accepted Answer

A)  rises. The company is more likely to buy the equipment. 
B)  rises. The company is less likely to buy the equipment. 
C)  falls. The company is more likely to buy the equipment. 
D)  falls. The company is less likely to buy the equipment. 
A)  rises. The company is more likely to buy the equipment. 
B)  rises. The company is less likely to buy the equipment. 
C)  falls. The company is more likely to buy the equipment. 
D)  falls. The company is less likely to buy the equipment.

Question 7

At about what number of companies does the reduction in risk from adding stocks of more companies to a portfolio do little to reduce risk?

Accepted Answer

The reduct

Question 8

Can insurance be thought of as diversification? Defend your answer.

Accepted Answer

Yes. It replaces a l

Question 9

What is the present value of a payment of $250 one year from today if the interest rate is 4 percent?

Accepted Answer

A)  $240.38 
B)  $242.24 
C)  $244.40 
D)  None of the above are correct to the nearest cent. 
A)  $240.38 
B)  $242.24 
C)  $244.40 
D)  None of the above are correct to the nearest cent.

Question 10

A person with diminishing marginal utility of wealth is risk averse.

Accepted Answer

A) True 
 B)False

Question 11

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)  if Alex owns a house, then he definitely would buy fire insurance provided the cost of the insurance was reasonable. 
B)  Alex would voluntarily exchange a portfolio of stocks with a high average return and a high level of risk for a portfolio with a low average return and a low level of risk. 
C)  Alex is risk averse. 
D)  Alex is not risk averse. 
A)  if Alex owns a house, then he definitely would buy fire insurance provided the cost of the insurance was reasonable. 
B)  Alex would voluntarily exchange a portfolio of stocks with a high average return and a high level of risk for a portfolio with a low average return and a low level of risk. 
C)  Alex is risk averse. 
D)  Alex is not risk averse.

Question 12

The financial system

Accepted Answer

A)  involves bank accounts, mortgages, stock prices, and many other items. 
B)  involves decisions and actions undertaken by people at a point in time that affect their lives in the future. 
C)  coordinates the economy's saving and investment. 
D)  All of the above are correct. 
A)  involves bank accounts, mortgages, stock prices, and many other items. 
B)  involves decisions and actions undertaken by people at a point in time that affect their lives in the future. 
C)  coordinates the economy's saving and investment. 
D)  All of the above are correct.

Question 13

Figure 27-5. The figure shows a utility function for Dexter.  
-Refer to Figure 27-5. From the appearance of the utility function, we know that

Accepted Answer

A)  Dexter is risk averse. 
B)  Dexter gains more satisfaction when his wealth increases by X dollars than he loses in satisfaction when his wealth decreases by X dollars. 
C)  the property of decreasing marginal utility applies to Dexter. 
D)  All of the above are correct. 
A)  Dexter is risk averse. 
B)  Dexter gains more satisfaction when his wealth increases by X dollars than he loses in satisfaction when his wealth decreases by X dollars. 
C)  the property of decreasing marginal utility applies to Dexter. 
D)  All of the above are correct.

Question 14

The efficient markets hypothesis says that

Accepted Answer

A)  only individual investors can make money in the stock market. 
B)  it should be easy to find stocks whose price differs from their fundamental value. 
C)  stock prices follow a random walk. 
D)  All of the above are correct. 
A)  only individual investors can make money in the stock market. 
B)  it should be easy to find stocks whose price differs from their fundamental value. 
C)  stock prices follow a random walk. 
D)  All of the above are correct.

Question 15

Draw graphs showing the following three relationships.
1. The relation between utility and wealth for a risk averse consumer.
2. The relation between standard deviation and the number of stocks in a portfolio.
3. The relation between return and risk.

Accepted Answer

The answer of Draw graphs showing the following three relationships.
1....

Question 16

Which of the following has a present value of $100?

Accepted Answer

A)  $109.12 in two years when the interest rate is 4 percent 
B)  $113.98 in two years when the interest rate is 6 percent 
C)  $116.64 in two years when the interest rate is 8 percent 
D)  $123.17 in two years when the interest rate is 10 percent 
A)  $109.12 in two years when the interest rate is 4 percent 
B)  $113.98 in two years when the interest rate is 6 percent 
C)  $116.64 in two years when the interest rate is 8 percent 
D)  $123.17 in two years when the interest rate is 10 percent

Question 17

Suppose your bank account pays a 4% interest rate. You are considering purchasing a share of stock in ABC Corporation for $500. The stock will pay you a $10 dividend at the end of years 1, 2, and 3. You expect to be able to sell the stock at the end of year 3 for $550. Is ABC a good investment? Provide evidence to support your answer.

Accepted Answer

The present value of the inves

Question 18

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. Use the following diagram to graph Lisa's utility function for   
.

Accepted Answer

Here is th

Question 19

An index fund

Accepted Answer

A)  holds only stocks and bonds that are indexed to inflation. 
B)  holds all the stocks in a given stock index. 
C)  guarantees a return that follows the index of leading economic indicators. 
D)  typically has a lower return than a managed fund. 
A)  holds only stocks and bonds that are indexed to inflation. 
B)  holds all the stocks in a given stock index. 
C)  guarantees a return that follows the index of leading economic indicators. 
D)  typically has a lower return than a managed fund.

Question 20

When the price of an asset rises above what appears to be its fundamental value, the market is said to be experiencing a speculative bubble.

Accepted Answer

A) True 
 B)False

Figure 27-3 The following figure shows the utility function for Paul. -Refer to Figure 27-3. Suppose Paul begins with $900 in wealth. Starting from there,

Diminishing marginal utility of wealth implies that the utility function is

A measure of the volatility of a variable is its

If stock prices follow a random walk, then stock investors can make large profits by

A company that produces wallpaper is considering buying some new equipment that it expects will increase future profits. If the interest rate falls, then the present value of these future earnings

At about what number of companies does the reduction in risk from adding stocks of more companies to a portfolio do little to reduce risk?

Can insurance be thought of as diversification? Defend your answer.

What is the present value of a payment of $250 one year from today if the interest rate is 4 percent?

A person with diminishing marginal utility of wealth is risk averse.

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

The financial system

Figure 27-5. The figure shows a utility function for Dexter. -Refer to Figure 27-5. From the appearance of the utility function, we know that

The efficient markets hypothesis says that

Draw graphs showing the following three relationships. 1. The relation between utility and wealth for a risk averse consumer. 2. The relation between standard deviation and the number of stocks in a portfolio. 3. The relation between return and risk.

Which of the following has a present value of $100?

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. Use the following diagram to graph Lisa's utility function for .

An index fund

When the price of an asset rises above what appears to be its fundamental value, the market is said to be experiencing a speculative bubble.

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

Figure 27-3 The following figure shows the utility function for Paul. -Refer to Figure 27-3. Suppose Paul begins with $900 in wealth. Starting from there,

Diminishing marginal utility of wealth implies that the utility function is

A measure of the volatility of a variable is its

If stock prices follow a random walk, then stock investors can make large profits by

A company that produces wallpaper is considering buying some new equipment that it expects will increase future profits. If the interest rate falls, then the present value of these future earnings

At about what number of companies does the reduction in risk from adding stocks of more companies to a portfolio do little to reduce risk?

Can insurance be thought of as diversification? Defend your answer.

What is the present value of a payment of $250 one year from today if the interest rate is 4 percent?

A person with diminishing marginal utility of wealth is risk averse.

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

The financial system

Figure 27-5. The figure shows a utility function for Dexter. -Refer to Figure 27-5. From the appearance of the utility function, we know that

The efficient markets hypothesis says that

Draw graphs showing the following three relationships. 1. The relation between utility and wealth for a risk averse consumer. 2. The relation between standard deviation and the number of stocks in a portfolio. 3. The relation between return and risk.

Which of the following has a present value of $100?

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. Use the following diagram to graph Lisa's utility function for .

An index fund

When the price of an asset rises above what appears to be its fundamental value, the market is said to be experiencing a speculative bubble.

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