Exam 14: The Basic Tools of Finance

Nancy would like to double the money in her retirement account in five years. According to the rule of 70, what rate of interest would she need to earn to attain her objective?

David's Utility Function If David's current wealth is $61,000, then

Greg's Tasty Ice Cream is considering building a new ice cream factory that costs $8.3 million. The company accountants believe that, not accounting for interest costs, building the factory will increase profits by $5 million the first year, $4 million the second year and have no value thereafter. Greg's Tasty Ice Cream should build the factory if the interest rate is

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

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

In the 1990s, Fed Chairperson Alan Greenspan questioned whether the stock market

Figure 27-3 The following figure shows the utility function for Paul. -Refer to Figure 27-3. Suppose the vertical distance between the points 0, A) and 0, B) is 10. If his wealth increased from $700 to $900, then

Cash payments that companies make to shareholders are called

Vince says that the present value of $500 to be received one year from today if the interest rate is 8 percent is more than the present value of $500 to be received two years from today if the interest rate is 4 percent. Terri says that $500 saved for two years at an interest rate of 3 percent has a larger future value than $500 saved for one years at an interest rate of 6 percent.

The present value of a payment to be made in the future falls as

You have a contract with someone who has agreed to pay you $20,000 in four years. She offers to pay you now instead. For which of the following interest rates and payments would you take the money today?.

A pharmaceutical company unexpectedly announces that it just developed an important new drug. This news should

A person who believes strongly in the use of fundamental analysis to choose a portfolio of stocks

Figure 27-1. The figure shows a utility function. -Refer to Figure 27-1. The properties exhibited by this utility function help to explain various things we observe in the economy, including

You may be unwilling to buy a used car because you suspect the last owner found out the car was a lemon. You may treat a car you rented with a little less care than you would use on your own car.

If a savings account pays 3.5% interest, then according to the rule of 70 how long will it take for the account balance to double?

Write the formula to find the present value of $x to be paid in n years.

Two years ago Darryl put $3,000 into an account paying 3 percent interest. How much does he have in the account today?

A University of Iowa basketball standout is offered a choice of contracts by the New York Liberty. The first one gives her $100,000 one year from today and $100,000 two years from today. The second one gives her $132,000 one year from today and $66,000 two years from today. As her agent, you must compute the present value of each contract. Which of the following interest rates is the lowest one at which the present value of the second contract exceeds that of the first?

If you are faced with the choice of receiving $500 today or $800 6 years from today, you will be indifferent between the two possibilities if the interest rate is 8.148 percent.