Question 1

According to the rule of 70, if the interest rate is 5 percent, how long will it take for the value of a savings account to double?

Accepted Answer

A)  about 3.5 years 
B)  about 6.3 years 
C)  about 12 years 
D)  about 14 years 
A)  about 3.5 years 
B)  about 6.3 years 
C)  about 12 years 
D)  about 14 years

Question 2

Which of the following is the largest?

Accepted Answer

A)  the future value of $250 with 3% interest for 2 years 
B)  the future value of $250 at 2% interest for 3 years 
C)  the present value of $250 to be paid in two years when the interest rate is 3% 
D)  the present value of $250 to be paid in three years when the interest rate is 2% 
A)  the future value of $250 with 3% interest for 2 years 
B)  the future value of $250 at 2% interest for 3 years 
C)  the present value of $250 to be paid in two years when the interest rate is 3% 
D)  the present value of $250 to be paid in three years when the interest rate is 2%

Question 3

At about what number of companies does the reduction in risk from adding stocks of more companies to a portfolio do little to reduce risk?

Accepted Answer

The reduct

Question 4

Suppose interest of 5% for two years can be earned on $1,000 saved today with no risk. What is the least amount a person would need to have a 50% chance of winning to be willing to face a 50% chance of losing $1,000 today and be considered risk averse?

Accepted Answer

A)  $907.03 to be paid in two years 
B)  $1,000.01 to be paid in two years 
C)  $1,100.01 to be paid in two years 
D)  $1,102.51 to be paid in two years 
A)  $907.03 to be paid in two years 
B)  $1,000.01 to be paid in two years 
C)  $1,100.01 to be paid in two years 
D)  $1,102.51 to be paid in two years

Question 5

An automobile manufacturer unexpectedly announces that it has hired a new chief executive officer. It is widely believed that the presence of this individual will raise the profitability of the corporation. At the same time interest rates unexpectedly rise. Which of the above would tend to make the price of the stock rise?

Accepted Answer

A)  the announcement and the rise in interest rates 
B)  the announcement but not the rise in interest rates 
C)  the rise in interest rates, but not the announcement 
D)  neither the announcement nor the rise in interest rates 
A)  the announcement and the rise in interest rates 
B)  the announcement but not the rise in interest rates 
C)  the rise in interest rates, but not the announcement 
D)  neither the announcement nor the rise in interest rates

Question 6

Suppose you are deciding whether to buy a particular bond. If you buy the bond and hold it for 4 years, then at that time you will receive a payment of $10,000. If the interest rate is 6 percent, you will buy the bond if its price today is no greater than

Accepted Answer

A)  $8,225.06. 
B)  $7,920.94. 
C)  $7,672.58. 
D)  $6,998.98. 
A)  $8,225.06. 
B)  $7,920.94. 
C)  $7,672.58. 
D)  $6,998.98.

Question 7

Diminishing marginal utility of wealth implies that the utility function is

Accepted Answer

A)  upward-sloping and has decreasing slope. 
B)  upward-sloping and has increasing slope. 
C)  downward-sloping and has decreasing slope. 
D)  downward-sloping and has increasing slope. 
A)  upward-sloping and has decreasing slope. 
B)  upward-sloping and has increasing slope. 
C)  downward-sloping and has decreasing slope. 
D)  downward-sloping and has increasing slope.

Question 8

You have been promised a payment of $250,000 in the future. In which case is the present value of this payment highest?

Accepted Answer

A)  You receive the payment 3 years from now and the interest rate is 8 percent. 
B)  You receive the payment 3 years from now and the interest rate is 6 percent. 
C)  You receive the payment 2 years from now and the interest rate is 8 percent. 
D)  You receive the payment 2 years from now and the interest rate is 6 percent. 
A)  You receive the payment 3 years from now and the interest rate is 8 percent. 
B)  You receive the payment 3 years from now and the interest rate is 6 percent. 
C)  You receive the payment 2 years from now and the interest rate is 8 percent. 
D)  You receive the payment 2 years from now and the interest rate is 6 percent.

Question 9

People who hold well-diversified portfolios of stocks have greatly reduced or eliminated

Accepted Answer

A)  firm-specific risk, and so they do not need to worry about their wealth decreasing as a result of recessions. 
B)  market risk, and so they do not need to worry about their wealth decreasing as a result of recessions. 
C)  firm-specific risk, but still they have reason to worry about their wealth decreasing as a result of recessions. 
D)  market risk, but still they have reason to worry about their wealth decreasing as a result of recessions. 
A)  firm-specific risk, and so they do not need to worry about their wealth decreasing as a result of recessions. 
B)  market risk, and so they do not need to worry about their wealth decreasing as a result of recessions. 
C)  firm-specific risk, but still they have reason to worry about their wealth decreasing as a result of recessions. 
D)  market risk, but still they have reason to worry about their wealth decreasing as a result of recessions.

Question 10

Which of the following has the highest future value?

Accepted Answer

A)  $100 saved for 2 years at 10 percent interest 
B)  $110 saved for 2 years at 9 percent interest 
C)  $120 saved for 2 years at 8 percent interest 
D)  $130 saved for 2 years at 7 percent interest 
A)  $100 saved for 2 years at 10 percent interest 
B)  $110 saved for 2 years at 9 percent interest 
C)  $120 saved for 2 years at 8 percent interest 
D)  $130 saved for 2 years at 7 percent interest

Question 11

Phillip is a mortgage broker, who is paid by commission. When interest rates decline, he does a lot of business and earns a lot of money, as more people buy houses or refinance their mortgages. But when interest rates rise, business falls substantially. To diversify, Phillip should choose investments that

Accepted Answer

A)  provide a higher return than the market average. 
B)  provide a lower return than the market average. 
C)  pay higher returns when interest rates rise and lower returns when interest rates fall. 
D)  pay lower returns when interest rates rise and higher returns when interest rates fall. 
A)  provide a higher return than the market average. 
B)  provide a lower return than the market average. 
C)  pay higher returns when interest rates rise and lower returns when interest rates fall. 
D)  pay lower returns when interest rates rise and higher returns when interest rates fall.

Question 12

Economists disagree as to whether

Accepted Answer

A)  the stock price of a company should reflect the company's expected profitability. 
B)  the basic tools of finance reflect valid ideas. 
C)  stock prices reflect rational estimates of a company's true worth. 
D)  there is any relationship between stock market fluctuations and fluctuations in the economy more broadly. 
A)  the stock price of a company should reflect the company's expected profitability. 
B)  the basic tools of finance reflect valid ideas. 
C)  stock prices reflect rational estimates of a company's true worth. 
D)  there is any relationship between stock market fluctuations and fluctuations in the economy more broadly.

Question 13

From the standpoint of the economy as a whole, the role of insurance is

Accepted Answer

A)  to entice risk-loving people to become risk averse. 
B)  to promote the phenomenon of adverse selection. 
C)  not to eliminate the risks inherent in life, but to spread them around more efficiently. 
D)  not to spread risks, but to eliminate them for individual policy holders. 
A)  to entice risk-loving people to become risk averse. 
B)  to promote the phenomenon of adverse selection. 
C)  not to eliminate the risks inherent in life, but to spread them around more efficiently. 
D)  not to spread risks, but to eliminate them for individual policy holders.

According to the rule of 70, if the interest rate is 5 percent, how long will it take for the value of a savings account to double?

Which of the following is the largest?

At about what number of companies does the reduction in risk from adding stocks of more companies to a portfolio do little to reduce risk?

Suppose interest of 5% for two years can be earned on $1,000 saved today with no risk. What is the least amount a person would need to have a 50% chance of winning to be willing to face a 50% chance of losing $1,000 today and be considered risk averse?

Suppose you are deciding whether to buy a particular bond. If you buy the bond and hold it for 4 years, then at that time you will receive a payment of $10,000. If the interest rate is 6 percent, you will buy the bond if its price today is no greater than

Diminishing marginal utility of wealth implies that the utility function is

You have been promised a payment of $250,000 in the future. In which case is the present value of this payment highest?

People who hold well-diversified portfolios of stocks have greatly reduced or eliminated

Which of the following has the highest future value?

Economists disagree as to whether

From the standpoint of the economy as a whole, the role of insurance is

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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Exam 14: The Basic Tools of Finance

According to the rule of 70, if the interest rate is 5 percent, how long will it take for the value of a savings account to double?

Which of the following is the largest?

At about what number of companies does the reduction in risk from adding stocks of more companies to a portfolio do little to reduce risk?

Suppose interest of 5% for two years can be earned on $1,000 saved today with no risk. What is the least amount a person would need to have a 50% chance of winning to be willing to face a 50% chance of losing $1,000 today and be considered risk averse?

Suppose you are deciding whether to buy a particular bond. If you buy the bond and hold it for 4 years, then at that time you will receive a payment of $10,000. If the interest rate is 6 percent, you will buy the bond if its price today is no greater than

Diminishing marginal utility of wealth implies that the utility function is

You have been promised a payment of $250,000 in the future. In which case is the present value of this payment highest?

People who hold well-diversified portfolios of stocks have greatly reduced or eliminated

Which of the following has the highest future value?

Economists disagree as to whether

From the standpoint of the economy as a whole, the role of insurance is

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

Filters