Question 1

Suppose you place $1,000 into a savings account that will pay you 4% interest per year. What will be the future value of the savings account in 10 years?

Accepted Answer

The future

Question 2

You are better off choosing $400 in 4 years rather than $300 today if the interest rate is

Accepted Answer

A)  lower than about 5.5 percent. 
B)  higher than about 5.5 percent. 
C)  lower than about 7.5 percent. 
D)  higher than about 7.5 percent. 
A)  lower than about 5.5 percent. 
B)  higher than about 5.5 percent. 
C)  lower than about 7.5 percent. 
D)  higher than about 7.5 percent.

Question 3

Toni deposited $250 into an account and one year later she had $272.50 in the account. What interest rate was paid on Toni's deposit?

Accepted Answer

A)  8 percent 
B)  9 percent 
C)  10 percent 
D)  None of the above is correct. 
A)  8 percent 
B)  9 percent 
C)  10 percent 
D)  None of the above is correct.

Question 4

At an annual interest rate of 14 percent, about how many years will it take $100 to double in value?

Accepted Answer

A)  3 
B)  4 
C)  5 
D)  7 
A)  3 
B)  4 
C)  5 
D)  7

Question 5

Which of the following concepts is most helpful in explaining why investment increases when the interest rate falls?

Accepted Answer

A)  deadweight loss 
B)  present value 
C)  economic growth 
D)  financial intermediation 
A)  deadweight loss 
B)  present value 
C)  economic growth 
D)  financial intermediation

Question 6

A company has an investment project that will cost $2 million today and yield a payoff of $3 million in 5 years. What interest rate represents the cutoff between profitability and nonprofitability for this project?

Accepted Answer

The present value of the futur

Question 7

According to the efficient markets hypothesis, worse-than-expected news about a corporation will

Accepted Answer

A)  have no effect on its stock price. 
B)  raise the price of the stock. 
C)  lower the price of the stock. 
D)  change the price of the stock in a random direction. 
A)  have no effect on its stock price. 
B)  raise the price of the stock. 
C)  lower the price of the stock. 
D)  change the price of the stock in a random direction.

Question 8

No particular stock is a better buy than any other stock if

Accepted Answer

A)  stock prices are driven by investors' "animal spirits." 
B)  the random-walk theory of stock prices is incorrect. 
C)  the efficient markets hypothesis is correct. 
D)  actively managed mutual funds always outperform index funds. 
A)  stock prices are driven by investors' "animal spirits." 
B)  the random-walk theory of stock prices is incorrect. 
C)  the efficient markets hypothesis is correct. 
D)  actively managed mutual funds always outperform index funds.

Question 9

Consider the following two situations. Irene accepts a job where she will be driving in dangerous traffic, so she seeks auto insurance. After Victor buys health insurance, he visits the gym less frequently. Which of these person's actions illustrates moral hazard?

Accepted Answer

A)  both Irene's and Victor's 
B)  Irene's but not Victor's 
C)  Victor's but not Irene's 
D)  neither Victor's nor Irene's 
A)  both Irene's and Victor's 
B)  Irene's but not Victor's 
C)  Victor's but not Irene's 
D)  neither Victor's nor Irene's

Question 10

Figure 27-2. The figure shows a utility function for Britney.  
-Refer to Figure 27-2. Suppose Britney begins with $1,050 in wealth. Starting from there,

Accepted Answer

A)  she would be willing to accept a coin­flip bet that would result in her winning $300 if the result was "heads" or losing $300 if the result was "tails." 
B)  the pain of losing $300 of her wealth would equal the pleasure of adding $300 to her wealth. 
C)  the pain of losing $300 of her wealth would exceed the pleasure of adding $300 to her wealth. 
D)  the pleasure of adding $300 to her wealth would exceed the pain of losing $300 of her wealth. 
A)  she would be willing to accept a coin­flip bet that would result in her winning $300 if the result was "heads" or losing $300 if the result was "tails." 
B)  the pain of losing $300 of her wealth would equal the pleasure of adding $300 to her wealth. 
C)  the pain of losing $300 of her wealth would exceed the pleasure of adding $300 to her wealth. 
D)  the pleasure of adding $300 to her wealth would exceed the pain of losing $300 of her wealth.

Question 11

Assuming the interest rate is 5 percent, which of the following has the greatest present value?

Accepted Answer

A)  $240 paid in three years 
B)  $225 paid in two years 
C)  $210 paid in one year 
D)  $200 today 
A)  $240 paid in three years 
B)  $225 paid in two years 
C)  $210 paid in one year 
D)  $200 today

Question 12

Historically the return on stocks has been higher than the return on bonds. In part this reflects the higher risk from holding stock.

Accepted Answer

A) True 
 B)False

Question 13

Diversification cannot reduce market risk.

Accepted Answer

A) True 
 B)False

Question 14

Using the rule of 70, about how much would $100 be worth after 50 years if the interest rate were 7 percent?

Accepted Answer

A)  $400 
B)  $800 
C)  $1,600 
D)  $3,200 
A)  $400 
B)  $800 
C)  $1,600 
D)  $3,200

Question 15

According to fundamental analysis, when choosing stocks for your portfolio, you should prefer undervalued stocks.

Accepted Answer

A) True 
 B)False

Question 16

If you put $1,000 in the bank today at an interest rate of 6% what is its value in two years?

Accepted Answer

A)  $2,0001.06) 
B)  $1,000 + $1.06)2 
C)  $1,0001.06)2 
D)  None of the above are correct. 
A)  $2,0001.06) 
B)  $1,000 + $1.06)2 
C)  $1,0001.06)2 
D)  None of the above are correct.

Question 17

Recently, Lisa's wealth increased by $500. If her wealth were to increase by another $500 in the near future, then her utility would increase, but not by as much as it increased with the recent increase to her wealth. Based on this information, Lisa's utility function

Accepted Answer

A)  and marginal utility function are both upward sloping. 
B)  and marginal utility function are both downward sloping. 
C)  is upward sloping and her marginal utility function is downward sloping. 
D)  is downward sloping and her marginal utility function is upward sloping. 
A)  and marginal utility function are both upward sloping. 
B)  and marginal utility function are both downward sloping. 
C)  is upward sloping and her marginal utility function is downward sloping. 
D)  is downward sloping and her marginal utility function is upward sloping.

Question 18

Over the past two centuries, the average annual rates of return were about

Accepted Answer

A)  5 percent for stocks and about 1.5 percent for short-term government bonds. 
B)  6 percent for stocks and about 2.5 percent for short-term government bonds. 
C)  8 percent for stocks and about 3 percent for short-term government bonds. 
D)  None of the above is correct. 
A)  5 percent for stocks and about 1.5 percent for short-term government bonds. 
B)  6 percent for stocks and about 2.5 percent for short-term government bonds. 
C)  8 percent for stocks and about 3 percent for short-term government bonds. 
D)  None of the above is correct.

Question 19

In effect, an annuity provides insurance

Accepted Answer

A)  against the risk of dying and leaving one's family without a regular income. 
B)  against the risk of living too long. 
C)  to people who are not risk-averse. 
D)  to people whose utility functions do not display the usual properties. 
A)  against the risk of dying and leaving one's family without a regular income. 
B)  against the risk of living too long. 
C)  to people who are not risk-averse. 
D)  to people whose utility functions do not display the usual properties.

Question 20

Risk-averse people will choose different asset portfolios than people who are not risk averse. Over a long period of time, we would expect that

Accepted Answer

A)  every risk-averse person will earn a higher rate of return than every non-risk-averse person. 
B)  every risk-averse person will earn a lower rate of return than every non-risk-averse person. 
C)  the average risk-averse person will earn a higher rate of return than the average non-risk-averse person. 
D)  the average risk-averse person will earn a lower rate of return than the average non-risk-averse person. 
A)  every risk-averse person will earn a higher rate of return than every non-risk-averse person. 
B)  every risk-averse person will earn a lower rate of return than every non-risk-averse person. 
C)  the average risk-averse person will earn a higher rate of return than the average non-risk-averse person. 
D)  the average risk-averse person will earn a lower rate of return than the average non-risk-averse person.

Suppose you place $1,000 into a savings account that will pay you 4% interest per year. What will be the future value of the savings account in 10 years?

You are better off choosing $400 in 4 years rather than $300 today if the interest rate is

Toni deposited $250 into an account and one year later she had $272.50 in the account. What interest rate was paid on Toni's deposit?

At an annual interest rate of 14 percent, about how many years will it take $100 to double in value?

Which of the following concepts is most helpful in explaining why investment increases when the interest rate falls?

A company has an investment project that will cost $2 million today and yield a payoff of $3 million in 5 years. What interest rate represents the cutoff between profitability and nonprofitability for this project?

According to the efficient markets hypothesis, worse-than-expected news about a corporation will

No particular stock is a better buy than any other stock if

Consider the following two situations. Irene accepts a job where she will be driving in dangerous traffic, so she seeks auto insurance. After Victor buys health insurance, he visits the gym less frequently. Which of these person's actions illustrates moral hazard?

Figure 27-2. The figure shows a utility function for Britney. -Refer to Figure 27-2. Suppose Britney begins with $1,050 in wealth. Starting from there,

Assuming the interest rate is 5 percent, which of the following has the greatest present value?

Historically the return on stocks has been higher than the return on bonds. In part this reflects the higher risk from holding stock.

Diversification cannot reduce market risk.

Using the rule of 70, about how much would $100 be worth after 50 years if the interest rate were 7 percent?

According to fundamental analysis, when choosing stocks for your portfolio, you should prefer undervalued stocks.

If you put $1,000 in the bank today at an interest rate of 6% what is its value in two years?

Recently, Lisa's wealth increased by $500. If her wealth were to increase by another $500 in the near future, then her utility would increase, but not by as much as it increased with the recent increase to her wealth. Based on this information, Lisa's utility function

Over the past two centuries, the average annual rates of return were about

In effect, an annuity provides insurance

Risk-averse people will choose different asset portfolios than people who are not risk averse. Over a long period of time, we would expect that

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

Suppose you place $1,000 into a savings account that will pay you 4% interest per year. What will be the future value of the savings account in 10 years?

You are better off choosing $400 in 4 years rather than $300 today if the interest rate is

Toni deposited $250 into an account and one year later she had $272.50 in the account. What interest rate was paid on Toni's deposit?

At an annual interest rate of 14 percent, about how many years will it take $100 to double in value?

Which of the following concepts is most helpful in explaining why investment increases when the interest rate falls?

A company has an investment project that will cost $2 million today and yield a payoff of $3 million in 5 years. What interest rate represents the cutoff between profitability and nonprofitability for this project?

According to the efficient markets hypothesis, worse-than-expected news about a corporation will

No particular stock is a better buy than any other stock if

Consider the following two situations. Irene accepts a job where she will be driving in dangerous traffic, so she seeks auto insurance. After Victor buys health insurance, he visits the gym less frequently. Which of these person's actions illustrates moral hazard?

Figure 27-2. The figure shows a utility function for Britney. -Refer to Figure 27-2. Suppose Britney begins with $1,050 in wealth. Starting from there,

Assuming the interest rate is 5 percent, which of the following has the greatest present value?

Historically the return on stocks has been higher than the return on bonds. In part this reflects the higher risk from holding stock.

Diversification cannot reduce market risk.

Using the rule of 70, about how much would $100 be worth after 50 years if the interest rate were 7 percent?

According to fundamental analysis, when choosing stocks for your portfolio, you should prefer undervalued stocks.

If you put $1,000 in the bank today at an interest rate of 6% what is its value in two years?

Recently, Lisa's wealth increased by $500. If her wealth were to increase by another $500 in the near future, then her utility would increase, but not by as much as it increased with the recent increase to her wealth. Based on this information, Lisa's utility function

Over the past two centuries, the average annual rates of return were about

In effect, an annuity provides insurance

Risk-averse people will choose different asset portfolios than people who are not risk averse. Over a long period of time, we would expect that

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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