Exam 27: The Basic Tools of Finance

A company that produces wallpaper is considering buying some new equipment that it expects will increase future profits. If the interest rate falls, then the present value of these future earnings

Figure 27-1. The figure shows a utility function. -Refer to Figure 27-1. The properties exhibited by this utility function help to explain various things we observe in the economy, including

If you are convinced that stock prices are impossible to predict from available information, then you probably also believe that

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

Which of the following has a present value of $100?

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

If a savings account pays 3.5% interest, then according to the rule of 70 how long will it take for the account balance to double?

According to fundamental analysis, a saver should prefer to buy stocks that are

Halvorson Construction has an investment project that would cost $150,000 today and yield a one-time payoff of $167,000 in three years. What is the highest interest rate at which Halvorson would find this project profitable?

The sooner a payment is received and the higher the interest rate, the greater the present value of a future payment.

Which of the following best illustrates diversification?

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

Fundamental analysis shows that Quadrangle Company is fairly valued. Then Quadrangle Company unexpectedly improves its production techniques and unexpectedly hires a new CEO away from another very successful competitor. Suppose this has no effect on the price of the stock of Quadrangle Company.

A payment of $10,000 is to be made in the future. The interest rate 3%. Is this payment worth more if it is paid in 5 years or 10 years? How much more is it worth?

Zoey wants to have about $750,000 when she retires in 10 years. She has $300,000 to deposit now. At which of the following interest rates would Zoey's deposit come closest to $750,000 after 10 years?

Suppose the interest rate is 10 percent. Which of the following payments has the largest present value?

A company has an investment project that will cost $2 million today and yield a payoff of $3 million in 5 years. If the interest rate is 9%, should the firm undertake the project? Show evidence to support your answer.

Figure 27-1. The figure shows a utility function. -Refer to Figure 27-1. Let 0A represent the distance between the origin and point A; let AB represent the distance between point A and point B; etc. Which of the following ratios best represents the marginal utility per dollar when wealth increases from $400 to $600?

Suppose you win a small lottery and you are given the following choice: You can receive (1) an immediate payment of $5,000 or (2) two annual payments, each in the amount of $2,700, with the first payment coming one year from now, and the second payment coming two years from now. You would choose to take the two annual payments if the interest rate is

Using the rule of 70, about how much would $100 be worth after 50 years if the interest rate were 7 percent?