Question 1

At an annual interest rate of 20 percent, about how many years will it take $100 to triple in value?

Accepted Answer

A)  5 
B)  6 
C)  8 
D)  9 
A)  5 
B)  6 
C)  8 
D)  9

Question 2

If Alan is risk-averse, then he will always

Accepted Answer

A)  choose not to play a game where he has a 50 percent chance of winning $5 and a 50 percent chance of losing $5. 
B)  choose not to play a game where he has a 75 percent chance of winning $5 and a 25 percent chance of losing $5. 
C)  choose to play a game where he has a 55 percent chance of winning $5 and a 45 percent chance of losing $5. 
D)  All of the above are correct. 
A)  choose not to play a game where he has a 50 percent chance of winning $5 and a 50 percent chance of losing $5. 
B)  choose not to play a game where he has a 75 percent chance of winning $5 and a 25 percent chance of losing $5. 
C)  choose to play a game where he has a 55 percent chance of winning $5 and a 45 percent chance of losing $5. 
D)  All of the above are correct.

Question 3

Which of the following changes would decrease the present value of a future payment?

Accepted Answer

A)  an increase in the size of the payment 
B)  an increase in the time until the payment is made 
C)  a decrease in the interest rate 
D)  All of the above are correct. 
A)  an increase in the size of the payment 
B)  an increase in the time until the payment is made 
C)  a decrease in the interest rate 
D)  All of the above are correct.

Question 4

Robert put $15,000 into an account with a fixed interest rate two years ago and now the account balance is $16,917.66. What rate of interest did Robert earn?

Accepted Answer

A)  4.5 percent 
B)  5.4 percent 
C)  6.2 percent 
D)  8.0 percent 
A)  4.5 percent 
B)  5.4 percent 
C)  6.2 percent 
D)  8.0 percent

Question 5

As the interest rate increases, the present value of future sums decreases, so firms will find fewer investment projects profitable.

Accepted Answer

A) True 
 B)False

Question 6

Veronica deposited $1,000 into an account two years ago. The first year she earned 7 percent interest; the second year she earned 5 percent. How much money does Veronica have in her account today?

Accepted Answer

A)  $1,133.31 
B)  $1,120.00 
C)  $1,123.50 
D)  None of the above are correct to the nearest cent. 
A)  $1,133.31 
B)  $1,120.00 
C)  $1,123.50 
D)  None of the above are correct to the nearest cent.

Question 7

At which interest rate is the present value of $35.00 two years from today equal to about $30.00 today?

Accepted Answer

A)  5 percent 
B)  6 percent 
C)  7 percent 
D)  8 percent 
A)  5 percent 
B)  6 percent 
C)  7 percent 
D)  8 percent

Question 8

Shawn determines that if Lexall Corporation has high revenues, then Waters Corporation will have low revenues, and that if Lexall Corporation has low revenues, then Waters Corporation will have high revenues. Shawn buys stock in both corporations.

Accepted Answer

A)  He has reduced firm-specific risk but not market risk. 
B)  He has reduced market risk, but not firm-specific risk. 
C)  He had reduce both firm-specific risk and market risk. 
D)  He has reduced neither firm-specific risk nor market risk. 
A)  He has reduced firm-specific risk but not market risk. 
B)  He has reduced market risk, but not firm-specific risk. 
C)  He had reduce both firm-specific risk and market risk. 
D)  He has reduced neither firm-specific risk nor market risk.

Question 9

Which of the following best illustrates diversification?

Accepted Answer

A)  A company that produces many different products decides to produce fewer. 
B)  After selling stock, corporate management spends funds on projects with greater risks than shareholders had anticipated. 
C)  Instead of holding only the stocks of companies engaged in the banking business, a person decides to hold stock in a number of different companies producing different goods and services. 
D)  A person decides to purchase only stocks that have paid high dividends in the past. 
A)  A company that produces many different products decides to produce fewer. 
B)  After selling stock, corporate management spends funds on projects with greater risks than shareholders had anticipated. 
C)  Instead of holding only the stocks of companies engaged in the banking business, a person decides to hold stock in a number of different companies producing different goods and services. 
D)  A person decides to purchase only stocks that have paid high dividends in the past.

Question 10

If you deposit $1,000 into a savings account that pays you 5% interest per year, approximately how long will it take to double your money?

Accepted Answer

A)  8 years 
B)  10 years 
C)  12 years 
D)  14 years 
A)  8 years 
B)  10 years 
C)  12 years 
D)  14 years

Question 11

What is the future value of $800 one year from today if the interest rate is 7 percent?

Accepted Answer

A)  $747.66 
B)  $756.00 
C)  $856.00 
D)  None of the above are correct to the nearest cent. 
A)  $747.66 
B)  $756.00 
C)  $856.00 
D)  None of the above are correct to the nearest cent.

Question 12

Adverse selection is illustrated by people who take greater risks after they purchase insurance.

Accepted Answer

A) True 
 B)False

Question 13

If the interest rate is 2.49 percent, then what is the present value of $5,000 to be received in 4 years?

Accepted Answer

A)  $4,531.52 
B)  $4,878.52 
C)  $5,124.50 
D)  $5,516.91 
A)  $4,531.52 
B)  $4,878.52 
C)  $5,124.50 
D)  $5,516.91

Question 14

An increase in the number of corporations in a portfolio from 110 to 120 reduces

Accepted Answer

A)  market risk by more than an increase from 1 to 10. 
B)  market risk by less than an increase from 1 to 10. 
C)  firm-specific risk by more than an increase from 1 to 10. 
D)  firm-specific risk by less than an increase from 1 to 10. 
A)  market risk by more than an increase from 1 to 10. 
B)  market risk by less than an increase from 1 to 10. 
C)  firm-specific risk by more than an increase from 1 to 10. 
D)  firm-specific risk by less than an increase from 1 to 10.

Question 15

When you rent a car, you might treat it with less care than you would if it were your own. This is an example of

Accepted Answer

A)  market risk. 
B)  moral hazard. 
C)  adverse selection. 
D)  risk aversion. 
A)  market risk. 
B)  moral hazard. 
C)  adverse selection. 
D)  risk aversion.

Question 16

If a friend tells you that he is certain a stock price will rise based on information he heard on television or saw on the Internet, should you be skeptical? Explain.

Accepted Answer

Yes, according to the efficient markets

Question 17

Which of the following best illustrates moral hazard?

Accepted Answer

A)  After a person obtains life insurance, she takes up skydiving. 
B)  A person obtains insurance knowing he is in poor health. 
C)  A person holds stock only in very risky corporations. 
D)  A person holds stocks from only a few corporations. 
A)  After a person obtains life insurance, she takes up skydiving. 
B)  A person obtains insurance knowing he is in poor health. 
C)  A person holds stock only in very risky corporations. 
D)  A person holds stocks from only a few corporations.

Question 18

Braden says that $400 saved for one year at 4 percent interest has a smaller future value than $400 saved for two years at 2 percent interest. Lefty says that the present value of $400 to be received one year from today if the interest rate is 4 percent exceeds the present value of $400 to be received two years from today if the interest rate is 2 percent.

Accepted Answer

A)  Braden and Lefty are both correct. 
B)  Braden and Lefty are both incorrect. 
C)  Only Braden is correct. 
D)  Only Lefty is correct. 
A)  Braden and Lefty are both correct. 
B)  Braden and Lefty are both incorrect. 
C)  Only Braden is correct. 
D)  Only Lefty is correct.

Question 19

Imagine that someone offers you $100 today or $200 in 10 years. You would prefer to take the $100 today if the interest rate is

Accepted Answer

A)  4 percent. 
B)  6 percent. 
C)  8 percent. 
D)  All of the above are correct. 
A)  4 percent. 
B)  6 percent. 
C)  8 percent. 
D)  All of the above are correct.

Question 20

Which of the following terms is used to describe a situation in which the price of an asset rises above what appears to be its fundamental value?

Accepted Answer

A)  "random walk" 
B)  "random bubble" 
C)  "speculative bubble" 
D)  "speculative hedge" 
A)  "random walk" 
B)  "random bubble" 
C)  "speculative bubble" 
D)  "speculative hedge"

At an annual interest rate of 20 percent, about how many years will it take $100 to triple in value?

If Alan is risk-averse, then he will always

Which of the following changes would decrease the present value of a future payment?

Robert put $15,000 into an account with a fixed interest rate two years ago and now the account balance is $16,917.66. What rate of interest did Robert earn?

As the interest rate increases, the present value of future sums decreases, so firms will find fewer investment projects profitable.

Veronica deposited $1,000 into an account two years ago. The first year she earned 7 percent interest; the second year she earned 5 percent. How much money does Veronica have in her account today?

At which interest rate is the present value of $35.00 two years from today equal to about $30.00 today?

Shawn determines that if Lexall Corporation has high revenues, then Waters Corporation will have low revenues, and that if Lexall Corporation has low revenues, then Waters Corporation will have high revenues. Shawn buys stock in both corporations.

Which of the following best illustrates diversification?

If you deposit $1,000 into a savings account that pays you 5% interest per year, approximately how long will it take to double your money?

What is the future value of $800 one year from today if the interest rate is 7 percent?

Adverse selection is illustrated by people who take greater risks after they purchase insurance.

If the interest rate is 2.49 percent, then what is the present value of $5,000 to be received in 4 years?

An increase in the number of corporations in a portfolio from 110 to 120 reduces

When you rent a car, you might treat it with less care than you would if it were your own. This is an example of

If a friend tells you that he is certain a stock price will rise based on information he heard on television or saw on the Internet, should you be skeptical? Explain.

Which of the following best illustrates moral hazard?

Imagine that someone offers you $100 today or $200 in 10 years. You would prefer to take the $100 today if the interest rate is

Which of the following terms is used to describe a situation in which the price of an asset rises above what appears to be its fundamental value?

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

At an annual interest rate of 20 percent, about how many years will it take $100 to triple in value?

If Alan is risk-averse, then he will always

Which of the following changes would decrease the present value of a future payment?

Robert put $15,000 into an account with a fixed interest rate two years ago and now the account balance is $16,917.66. What rate of interest did Robert earn?

As the interest rate increases, the present value of future sums decreases, so firms will find fewer investment projects profitable.

Veronica deposited $1,000 into an account two years ago. The first year she earned 7 percent interest; the second year she earned 5 percent. How much money does Veronica have in her account today?

At which interest rate is the present value of $35.00 two years from today equal to about $30.00 today?

Shawn determines that if Lexall Corporation has high revenues, then Waters Corporation will have low revenues, and that if Lexall Corporation has low revenues, then Waters Corporation will have high revenues. Shawn buys stock in both corporations.

Which of the following best illustrates diversification?

If you deposit $1,000 into a savings account that pays you 5% interest per year, approximately how long will it take to double your money?

What is the future value of $800 one year from today if the interest rate is 7 percent?

Adverse selection is illustrated by people who take greater risks after they purchase insurance.

If the interest rate is 2.49 percent, then what is the present value of $5,000 to be received in 4 years?

An increase in the number of corporations in a portfolio from 110 to 120 reduces

When you rent a car, you might treat it with less care than you would if it were your own. This is an example of

If a friend tells you that he is certain a stock price will rise based on information he heard on television or saw on the Internet, should you be skeptical? Explain.

Which of the following best illustrates moral hazard?

Imagine that someone offers you $100 today or $200 in 10 years. You would prefer to take the $100 today if the interest rate is

Which of the following terms is used to describe a situation in which the price of an asset rises above what appears to be its fundamental value?

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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