Exam 19: The Basic Tools of Finance

Write the rule of 70. Suppose that your great-great-grandmother put $50 in a savings account 100 years ago and the account is now worth $1,600. Use the rule of 70 to determine about what interest rate she earned.

Which of the following is correct?

Which of the following is correct concerning stock market irrationality?

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.

According to the efficient market hypothesis

At which interest rate is the present value of $196.85 three years from today equal to $175 today?

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?

Svetlana is risk averse. Which of the following is correct about Svetlana?

Which of the following actions best illustrates moral hazard?

Diversification reduces

A payment of $10,000 is to be made in the future. The interest rate 3%. Is this payment worth more if it is paid in 5 years or 10 years? How much more is it worth?

A bond promises to pay $500 in one year and $10,500 in two years. What is the correct way to find the present value of this bond?

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

Historically, stocks have offered higher rates of return than bonds.

Discounting refers directly to

You have been promised a payment of $100,000 in the future. In which case is the present value of this future payment highest?

Stockholders of ComfortAir Corporation, an air conditioner and furnace manufacturer, are concerned that the companies executives may take on greater risks than stockholders desire. This example illustrates

Which of the following has the highest future value?

You have a bond that entitles you to a one-time payment of $10,000 one year from now. The interest rate is 10 percent per year. How much is the bond worth today?

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