Exam 14: The Basic Tools of Finance

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. Is Lisa risk averse? Explain.

When he was 18, Hussam put $100 into an account at an interest rate of 8 percent. He now has $158.69 in this account. For how many years did Hussam leave this money in his account?

The value of a stock is based on the

You are expecting to receive $3,500 at some time in the future. Which of the following would unambiguously increase the present value of this future payment?

You could borrow $2,000 today from Bank A and repay the loan, with interest, by paying Bank A $2,125 one year from today. Or, you could borrow X dollars today from Bank B and repay the loan, with interest, by paying Bank B $2,200 two years from today. In order for the same interest rate to apply to the two loans, X =

If stock prices follow a random walk, it means

Because the statistic called the standard deviation measures the volatility of a variable, it is used to measure the return of a portfolio.

The future value of $1 saved today is $1/1 + r).

If a savings account pays 5 percent annual interest, then the rule of 70 tells us that the account value will double in approximately 14 years.

At which interest rate is the present value of $183.60 two years from today equal to about $173.06 today?

According to the rule of 70, if a person's saving doubles in 10 years, what interest rate were they earning?

At which interest rate is the present value of $360 three years from today equal to about $310 today?

The efficient markets hypothesis implies

Which of the following statements best describes the economist's view of finance and the financial system?

One way to characterize the difference between compounding and discounting is to say that

Which of the following is the correct way to compute the future value of $X that earns r percent interest for N years?

Kayla faces risks and she pays a fee to ABC Company; in return, ABC Company agrees to accept some or all of Kayla's risks. ABC Company is

If you wish to rely on fundamental analysis to choose a portfolio of stocks, then you have no choice but to do all the necessary research yourself.

Of the following interest rates, which is the highest one at which the present value of $200 ten years from today is greater than $150?

Suppose the interest rate is 7 percent. Consider four payment options: Option A: $500 today. Option B: $550 one year from today. Option C: $575 two years from today. Option D: $600 three years from today. Which of the payments has the highest present value today?