Question 1

Available evidence indicates that stock prices, even if not exactly a random walk, are very close to a random walk.

Accepted Answer

A) True 
 B)False

Question 2

Figure 27-1. The figure shows a utility function.  
-Refer to Figure 27-1. The utility function that is shown exhibits the property of diminishing

Accepted Answer

A)  wealth. 
B)  utility. 
C)  marginal wealth. 
D)  marginal utility. 
A)  wealth. 
B)  utility. 
C)  marginal wealth. 
D)  marginal utility.

Question 3

Until recently, shares of stock accounted for 40 percent of Jimmy's savings. A few days ago, Jimmy sold some bonds and bought some additional shares of stock. Now shares of stock account for 70 percent of Jimmy's savings. How did this change affect Jimmy's expected retun on his savings? How did it affect the risks he faces?

Accepted Answer

The increased percentage of st

Question 4

Whenever the price of an asset rises above what appears to be its fundamental value, the market is said to be experiencing a

Accepted Answer

A)  conjectural mistake. 
B)  fundamental mishap. 
C)  speculative bubble. 
D)  temporary inefficiency. 
A)  conjectural mistake. 
B)  fundamental mishap. 
C)  speculative bubble. 
D)  temporary inefficiency.

Question 5

Cleo promises to pay Jacques $1,000 two years from today. If the interest rate is 4 percent, then how much is this future payment worth today?

Accepted Answer

A)  $924.56 
B)  $931.44 
C)  $937.87 
D)  None of the above are correct to the nearest cent. 
A)  $924.56 
B)  $931.44 
C)  $937.87 
D)  None of the above are correct to the nearest cent.

Question 6

A scholarship gives you $1,000 today and promises to pay you $1,000 one year from today. What is the present value of these payments?

Accepted Answer

A)  $2,000/1 + r)2. 
B)  $1,000 + $1,000/1 + r) 
C)  $1,000/1 + r) + $1,000/1 + r)2 
D)  $1,0001 + r) + $1,0001 + r)2 
A)  $2,000/1 + r)2. 
B)  $1,000 + $1,000/1 + r) 
C)  $1,000/1 + r) + $1,000/1 + r)2 
D)  $1,0001 + r) + $1,0001 + r)2

Question 7

At which interest rate is the present value of $168.54 two years from today equal to $150 today?

Accepted Answer

A)  4 percent 
B)  5 percent 
C)  6 percent 
D)  None of the above would give a present value within a cent of $162.24. 
A)  4 percent 
B)  5 percent 
C)  6 percent 
D)  None of the above would give a present value within a cent of $162.24.

Question 8

Diversification of a portfolio

Accepted Answer

A)  can eliminate market risk, but it cannot eliminate firm-specific risk. 
B)  can eliminate firm-specific risk, but it cannot eliminate market risk. 
C)  increases the portfolio's standard deviation. 
D)  is not necessary for a person who is risk averse. 
A)  can eliminate market risk, but it cannot eliminate firm-specific risk. 
B)  can eliminate firm-specific risk, but it cannot eliminate market risk. 
C)  increases the portfolio's standard deviation. 
D)  is not necessary for a person who is risk averse.

Question 9

If asset markets are driven by the "animal spirits" of investors, then

Accepted Answer

A)  those markets reflect rational behavior. 
B)  those markets reflect irrational behavior. 
C)  the efficient markets hypothesis is correct. 
D)  the stock market exhibits informational efficiency. 
A)  those markets reflect rational behavior. 
B)  those markets reflect irrational behavior. 
C)  the efficient markets hypothesis is correct. 
D)  the stock market exhibits informational efficiency.

Question 10

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

Accepted Answer

A)  the interest rate is to make sure that the price of bonds increases over time. 
B)  diversification is to eliminate market risk. 
C)  insurance is to reduce the risks inherent in life. 
D)  insurance is to spread risks around more efficiently. 
A)  the interest rate is to make sure that the price of bonds increases over time. 
B)  diversification is to eliminate market risk. 
C)  insurance is to reduce the risks inherent in life. 
D)  insurance is to spread risks around more efficiently.

Question 11

As the interest rate increases, what happens to the present value of a future payment? Explain why changes in the interest rate will lead to changes in the quantity of loanable funds demanded and investment spending.

Accepted Answer

An increase in the interest rate reduces

Question 12

Risk-averse persons will take no risks.

Accepted Answer

A) True 
 B)False

Question 13

Amelia knows that she has about $105 in her bank account. She knows she earned an interest rate of 4 percent, but she doesn't remember how much she opened the account with a year ago. How much did she put in?

Accepted Answer

A)  $98.18 
B)  $100.96 
C)  $102.04 
D)  $103.24 
A)  $98.18 
B)  $100.96 
C)  $102.04 
D)  $103.24

Question 14

Adverse selection is illustrated by people who take greater risks after they purchase insurance.

Accepted Answer

A) True 
 B)False

Question 15

If unexpected news raised people's expectations of a corporation's future dividends and price, then before the price changes this corporation's stock would be

Accepted Answer

A)  overvalued, so its price would rise. 
B)  overvalued, so its price would fall. 
C)  undervalued, so its price would rise. 
D)  undervalued, so its price would fall. 
A)  overvalued, so its price would rise. 
B)  overvalued, so its price would fall. 
C)  undervalued, so its price would rise. 
D)  undervalued, so its price would fall.

Question 16

Felix deposited $500 into an account two years ago. The first year he earned 3 percent interest and the second year he earned 5 percent interest. How much money does Felix have in his account now?

Accepted Answer

A)  $540.75 
B)  $540.80 
C)  $540.85 
D)  None of the above are correct to the nearest cent. 
A)  $540.75 
B)  $540.80 
C)  $540.85 
D)  None of the above are correct to the nearest cent.

Question 17

A firm has three different investment options. Option A will give the firm $10 million at the end of one year, $10 million at the end of two years, and $10 million at the end of three years. Option B will give the firm $15 million at the end of one year, $10 million at the end of two years, and $5 million at the end of three years. Option C will give the firm $30 million at the end of one year, and nothing thereafter. Which of these options has the highest present value?

Accepted Answer

A)  Option A 
B)  Option B 
C)  Option C 
D)  The answer depends on the rate of interest, which is not specified here. 
A)  Option A 
B)  Option B 
C)  Option C 
D)  The answer depends on the rate of interest, which is not specified here.

Question 18

The rule of 70 applies to a growing savings account but not to a growing economy.

Accepted Answer

A) True 
 B)False

Question 19

Happy Trails, a bicycle rental company, is considering purchasing three additional bicycles. Each bicycle would cost them $249.66. At the end of the first year the increase to their revenues would be $140 per bicycle. At the end of the second year the increase to their revenues again would be $140 per bicycle. Thereafter, there are no increases to their revenues. At which of the following interest rates is the sum of the present values of the additional revenues closest to the price of a bicycle?

Accepted Answer

A)  5 percent 
B)  6 percent 
C)  7 percent 
D)  8 percent 
A)  5 percent 
B)  6 percent 
C)  7 percent 
D)  8 percent

Question 20

If a person had increasing marginal utility, then the decline in utility from losing $1,000 would be greater than the increase in utility from gaining $1,000.

Accepted Answer

A) True 
 B)False

Available evidence indicates that stock prices, even if not exactly a random walk, are very close to a random walk.

Figure 27-1. The figure shows a utility function. -Refer to Figure 27-1. The utility function that is shown exhibits the property of diminishing

Whenever the price of an asset rises above what appears to be its fundamental value, the market is said to be experiencing a

Cleo promises to pay Jacques $1,000 two years from today. If the interest rate is 4 percent, then how much is this future payment worth today?

A scholarship gives you $1,000 today and promises to pay you $1,000 one year from today. What is the present value of these payments?

At which interest rate is the present value of $168.54 two years from today equal to $150 today?

Diversification of a portfolio

If asset markets are driven by the "animal spirits" of investors, then

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

As the interest rate increases, what happens to the present value of a future payment? Explain why changes in the interest rate will lead to changes in the quantity of loanable funds demanded and investment spending.

Risk-averse persons will take no risks.

Amelia knows that she has about $105 in her bank account. She knows she earned an interest rate of 4 percent, but she doesn't remember how much she opened the account with a year ago. How much did she put in?

Adverse selection is illustrated by people who take greater risks after they purchase insurance.

If unexpected news raised people's expectations of a corporation's future dividends and price, then before the price changes this corporation's stock would be

Felix deposited $500 into an account two years ago. The first year he earned 3 percent interest and the second year he earned 5 percent interest. How much money does Felix have in his account now?

The rule of 70 applies to a growing savings account but not to a growing economy.

If a person had increasing marginal utility, then the decline in utility from losing $1,000 would be greater than the increase in utility from gaining $1,000.

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

Available evidence indicates that stock prices, even if not exactly a random walk, are very close to a random walk.

Figure 27-1. The figure shows a utility function. -Refer to Figure 27-1. The utility function that is shown exhibits the property of diminishing

Whenever the price of an asset rises above what appears to be its fundamental value, the market is said to be experiencing a

Cleo promises to pay Jacques $1,000 two years from today. If the interest rate is 4 percent, then how much is this future payment worth today?

A scholarship gives you $1,000 today and promises to pay you $1,000 one year from today. What is the present value of these payments?

At which interest rate is the present value of $168.54 two years from today equal to $150 today?

Diversification of a portfolio

If asset markets are driven by the "animal spirits" of investors, then

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

As the interest rate increases, what happens to the present value of a future payment? Explain why changes in the interest rate will lead to changes in the quantity of loanable funds demanded and investment spending.

Risk-averse persons will take no risks.

Amelia knows that she has about $105 in her bank account. She knows she earned an interest rate of 4 percent, but she doesn't remember how much she opened the account with a year ago. How much did she put in?

Adverse selection is illustrated by people who take greater risks after they purchase insurance.

If unexpected news raised people's expectations of a corporation's future dividends and price, then before the price changes this corporation's stock would be

Felix deposited $500 into an account two years ago. The first year he earned 3 percent interest and the second year he earned 5 percent interest. How much money does Felix have in his account now?

The rule of 70 applies to a growing savings account but not to a growing economy.

If a person had increasing marginal utility, then the decline in utility from losing $1,000 would be greater than the increase in utility from gaining $1,000.

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