Question 1

At an annual interest rate of 10 percent, about how many years will it take $100 to triple in value?

Accepted Answer

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

Question 2

Diversification cannot reduce market risk.

Accepted Answer

A) True 
 B)False

Question 3

Figure 27-5. The figure shows a utility function for Dexter.  
-Refer to Figure 27-5. From the appearance of the graph, we know that

Accepted Answer

A)  Dexter's level of satisfaction increases by more when his wealth increases from $1,001 to $1,002 than it does when his wealth increases from $1,000 to $1,001. 
B)  Dexter's level of satisfaction increases by less when his wealth increases from $1,001 to $1,002 than it does when his wealth increases from $1,000 to $1,001. 
C)  Dexter's level of satisfaction increases by the same amount when his wealth increases from $1,001 to $1,002 as it does when his wealth increases from $1,000 to $1,001. 
D)  None of the above answers can be inferred from the appearance of the utility function. 
A)  Dexter's level of satisfaction increases by more when his wealth increases from $1,001 to $1,002 than it does when his wealth increases from $1,000 to $1,001. 
B)  Dexter's level of satisfaction increases by less when his wealth increases from $1,001 to $1,002 than it does when his wealth increases from $1,000 to $1,001. 
C)  Dexter's level of satisfaction increases by the same amount when his wealth increases from $1,001 to $1,002 as it does when his wealth increases from $1,000 to $1,001. 
D)  None of the above answers can be inferred from the appearance of the utility function.

Question 4

From the standpoint of the economy as a whole, the role of insurance is to greatly reduce or eliminate the risks inherent in life.

Accepted Answer

A) True 
 B)False

Question 5

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 6

What is meant by an asset bubble?

Accepted Answer

The price of an asse

Question 7

On the Internet you find the following offers for opening an online account. Which of them is the best offer if you have $2,000 to save for two years?

Accepted Answer

A)  an interest rate of 5 percent, with the bank charging you a $15 processing fee at the time you open your account 
B)  an interest rate of 3.5 percent, with the bank giving you a $35 bonus to open your account 
C)  an interest rate of 4 percent, with the bank giving you a $20 bonus at the time you open your account 
D)  an interest rate of 4.5 percent, with no processing fee and no bonus 
A)  an interest rate of 5 percent, with the bank charging you a $15 processing fee at the time you open your account 
B)  an interest rate of 3.5 percent, with the bank giving you a $35 bonus to open your account 
C)  an interest rate of 4 percent, with the bank giving you a $20 bonus at the time you open your account 
D)  an interest rate of 4.5 percent, with no processing fee and no bonus

Question 8

The risk of a portfolio

Accepted Answer

A)  increases as the number of stocks in the portfolio increases. 
B)  is usually measured using a statistic called the standard diversification. 
C)  is positively related to the average return of the portfolio. 
D)  bears no relationship to the average return of the portfolio. 
A)  increases as the number of stocks in the portfolio increases. 
B)  is usually measured using a statistic called the standard diversification. 
C)  is positively related to the average return of the portfolio. 
D)  bears no relationship to the average return of the portfolio.

Question 9

Writing in the Wall Street Journal in 2009, economist Jeremy Siegel argued that, in the years leading up to the financial crisis of 2008-2009,

Accepted Answer

A)  financial firms acted in too risky a fashion. 
B)  the Federal Reserve's efforts to rein in the risky behavior of certain financial firms were inadequate. 
C)  falling house prices "crashed the banks and the economy." 
D)  All of the above are correct. 
A)  financial firms acted in too risky a fashion. 
B)  the Federal Reserve's efforts to rein in the risky behavior of certain financial firms were inadequate. 
C)  falling house prices "crashed the banks and the economy." 
D)  All of the above are correct.

Question 10

If you deposit $900 into an account for two years and the interest rate is 4%, how much do you have at the end of the two years?

Accepted Answer

A)  $972.00 
B)  $973.44 
C)  $974.19 
D)  None of the above is correct. 
A)  $972.00 
B)  $973.44 
C)  $974.19 
D)  None of the above is correct.

Question 11

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 12

The largest reduction in a portfolio's risk is achieved when the number of stocks in the portfolio is increased from

Accepted Answer

A)  80 to 100. 
B)  40 to 80. 
C)  10 to 20. 
D)  1 to 10. 
A)  80 to 100. 
B)  40 to 80. 
C)  10 to 20. 
D)  1 to 10.

Question 13

Suppose you put $350 into a bank account today. Interest is paid annually and the annual interest rate is 6 percent. The future value of the $350 after 4 years is

Accepted Answer

A)  $414.09. 
B)  $434.00. 
C)  $441.87. 
D)  $481.24. 
A)  $414.09. 
B)  $434.00. 
C)  $441.87. 
D)  $481.24.

Question 14

After much anticipation a company releases a new smartphone. The smartphone doesn't work as well as expected and lacks many of the features buyers had been expecting. The unexpectedly negative reaction to the smartphone would

Accepted Answer

A)  raise the present value and the price of the corporation's stock. 
B)  raise the present value and reduce the price of the corporation's stock. 
C)  reduce the present value and the price of the corporation's stock. 
D)  reduce the present value and raise the price of the corporation's stock. 
A)  raise the present value and the price of the corporation's stock. 
B)  raise the present value and reduce the price of the corporation's stock. 
C)  reduce the present value and the price of the corporation's stock. 
D)  reduce the present value and raise the price of the corporation's stock.

Question 15

Which of the following is the correct expression for finding the present value of a $1,000 payment one year from today if the interest rate is 6 percent?

Accepted Answer

A)  $1,000   1.06) 
B)  $1,0001.06) 
C)  $1,000/1.06) 
D)  None of the above is correct. 
A)  $1,000   1.06) 
B)  $1,0001.06) 
C)  $1,000/1.06) 
D)  None of the above is correct.

Question 16

The future value of $500 saved for two years at an interest rate of 5% is

Accepted Answer

A)  $550.25. 
B)  $550.00. 
C)  $551.25. 
D)  None of the above are correct. 
A)  $550.25. 
B)  $550.00. 
C)  $551.25. 
D)  None of the above are correct.

Question 17

For a risk averse person,

Accepted Answer

A)  the pleasure of winning $1,000 on a bet exceeds the pain of losing $1,000 on a bet. 
B)  the pain of losing $1,000 on a bet exceeds the pleasure of winning $1,000 on a bet. 
C)  the utility function exhibits the property of increasing marginal utility. 
D)  the utility function gets steeper as wealth increases. 
A)  the pleasure of winning $1,000 on a bet exceeds the pain of losing $1,000 on a bet. 
B)  the pain of losing $1,000 on a bet exceeds the pleasure of winning $1,000 on a bet. 
C)  the utility function exhibits the property of increasing marginal utility. 
D)  the utility function gets steeper as wealth increases.

Question 18

Ronaldo's Foods considered building a store in a new location. The owners and their accountants decided that this was not the profitable thing to do. However, soon after they made this decision, both the interest rate and the cost of building the store changed. In which case do these changes both make it more likely that they will now build the store?

Accepted Answer

A)  Interest rates rise and the cost of building the store rises. 
B)  Interest rates rise and the cost of building the store falls. 
C)  Interest rates fall and the cost of building the store rises. 
D)  Interest rates fall and the cost of building the store falls. 
A)  Interest rates rise and the cost of building the store rises. 
B)  Interest rates rise and the cost of building the store falls. 
C)  Interest rates fall and the cost of building the store rises. 
D)  Interest rates fall and the cost of building the store falls.

Question 19

Figure 27-5. The figure shows a utility function for Dexter.  
-Refer to Figure 27-5. From the appearance of the utility function, we know that

Accepted Answer

A)  Dexter is risk averse. 
B)  Dexter gains more satisfaction when his wealth increases by X dollars than he loses in satisfaction when his wealth decreases by X dollars. 
C)  the property of decreasing marginal utility applies to Dexter. 
D)  All of the above are correct. 
A)  Dexter is risk averse. 
B)  Dexter gains more satisfaction when his wealth increases by X dollars than he loses in satisfaction when his wealth decreases by X dollars. 
C)  the property of decreasing marginal utility applies to Dexter. 
D)  All of the above are correct.

Question 20

Suppose the interest rate is 5 percent. Consider three payment options: 1. $500 today.
2) $520 one year from today.
3) $550 two years from today.
Which of the following is correct?

Accepted Answer

A)  1 has the lowest present value and 3 has the highest. 
B)  2 has the lowest present value and 1 has the highest. 
C)  3 has the lowest present value and 2 has the highest. 
D)  None of the above is correct. 
A)  1 has the lowest present value and 3 has the highest. 
B)  2 has the lowest present value and 1 has the highest. 
C)  3 has the lowest present value and 2 has the highest. 
D)  None of the above is correct.

Exam 14: The Basic Tools of Finance

At an annual interest rate of 10 percent, about how many years will it take $100 to triple in value?

Diversification cannot reduce market risk.

Figure 27-5. The figure shows a utility function for Dexter. -Refer to Figure 27-5. From the appearance of the graph, we know that

From the standpoint of the economy as a whole, the role of insurance is to greatly reduce or eliminate the risks inherent in life.

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

What is meant by an asset bubble?

On the Internet you find the following offers for opening an online account. Which of them is the best offer if you have $2,000 to save for two years?

The risk of a portfolio

Writing in the Wall Street Journal in 2009, economist Jeremy Siegel argued that, in the years leading up to the financial crisis of 2008-2009,

If you deposit $900 into an account for two years and the interest rate is 4%, how much do you have at the end of the two years?

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

The largest reduction in a portfolio's risk is achieved when the number of stocks in the portfolio is increased from

Suppose you put $350 into a bank account today. Interest is paid annually and the annual interest rate is 6 percent. The future value of the $350 after 4 years is

After much anticipation a company releases a new smartphone. The smartphone doesn't work as well as expected and lacks many of the features buyers had been expecting. The unexpectedly negative reaction to the smartphone would

Which of the following is the correct expression for finding the present value of a $1,000 payment one year from today if the interest rate is 6 percent?

The future value of $500 saved for two years at an interest rate of 5% is

For a risk averse person,

Figure 27-5. The figure shows a utility function for Dexter. -Refer to Figure 27-5. From the appearance of the utility function, we know that

Suppose the interest rate is 5 percent. Consider three payment options: 1. $500 today. 2) $520 one year from today. 3) $550 two years from today. Which of the following is correct?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: the Costs of Taxation

Application: International Trade

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Unemployment

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 Trade-Off Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

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