Exam 14: The Basic Tools of Finance

When you were 10 years old, your grandparents put $500 into an account for you paying 7 percent interest. Now that you are 18 years old, your grandparents tell you that you can take the money out of the account. What is the balance to the nearest cent?

Your accountant tells you that if you can continue to earn the current interest rate on your balance of $500 for ten years, you will have about $983.58. If your accountant is correct, what is the current rate of interest?

As the number of stocks in a portfolio rises,

A person's subjective measure of well­being or satisfaction is called aversion.

Diversification can reduce firm-specific risk.

Markovich Corporation is considering building a new plant. It will cost $1 million today to build it and it will generate revenues of $1.121 million three years from today. Of the interest rates below, which is the highest interest rate at which Markovich still would be willing to build the plant?

Suppose the Johnson Corporation releases an earnings report that beats the market's expectations. What does the efficient markets hypothesis predict will happen to Johnson's stock price.

Suppose you win a small lottery and you are given the following choice: You can receive 1) an immediate payment of $10,000 or 2) two annual payments, each in the amount of $5,200, with the first payment coming one year from now, and the second payment coming two years from now. You would choose to take the immediate payment of $10,000 if the interest rate is

If you believe the stock market is informationally efficient, then it is a waste of time to engage in fundamental analysis.

Allen Steel Company is considering whether to build a new mill. If the interest rate rises,

The last $2,000 of Rolanda's wealth adds less to her utility than the previous $2,000. Based on this information, Rolanda has

Suppose you invest $10,000 at 7% interest to be withdrawn by your heirs in 100 years. According to the rule of 70, approximately how much will your heirs be able to withdraw?

On the Internet you find the following offers for opening an online account. Which of them is the best offer if you have $5,000 to save for two years?

After the 1982 recession, the U.S. and world economies entered into a long period

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. Suppose Lisa is faced with a choice between two options. With option A Lisa receives a guaranteed $9 million. With option B Lisa faces a lottery that pays $16 million with probability P and pays $4 million with probability 1-P). Given Lisa's utility function, how high does P need to be before Lisa will prefer option B?

Jorge deposited $1,000 into an account three years ago. The first two years he earned 5 percent interest; the third year he earned 6 percent interest. How much money does Jorge have in his account today?

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

Two years ago Lenny put some money into an account. He earned 6 percent interest on this account and now he has about $1,000. About how much did Lenny deposit into his account two years ago?

Suppose the interest rate is 3% and that you are to receive three annual payments of $1,000, with the first payment today, the second payment one year from now, and the third payment two years from now. What is the present value of this stream of payments?

Kyle puts a greater proportion of his portfolio into government bonds. Kyle's action