Question 1

Most financial decisions involve two related elements:

Accepted Answer

A)  advice and consent. 
B)  investment and taxes. 
C)  time and risk. 
D)  saving and consumption. 
A)  advice and consent. 
B)  investment and taxes. 
C)  time and risk. 
D)  saving and consumption.

Question 2

The present value of $100 to be paid in two years is less than the present value of $100 to be paid in three years.

Accepted Answer

A) True 
 B)False

Question 3

Figure 27-5. The figure shows a utility function for Dexter.  
-Refer to Figure 27-5. In what way(s) does the graph differ from the usual case?

Accepted Answer

A)  The utility function shown here is upward-sloping, whereas in the usual case the utility function is downward- sloping. 
B)  The utility function shown here is bowed downward (convex), whereas in the usual case the utility function is bowed upward (concave). 
C)  On the graph shown here, wealth is measured along the horizontal axis, whereas in the usual case saving is measured along the horizontal axis. 
D)  On the graph shown here, utility is measured along the vertical axis, whereas in the usual case satisfaction is measured along the vertical axis. 
A)  The utility function shown here is upward-sloping, whereas in the usual case the utility function is downward- sloping. 
B)  The utility function shown here is bowed downward (convex), whereas in the usual case the utility function is bowed upward (concave). 
C)  On the graph shown here, wealth is measured along the horizontal axis, whereas in the usual case saving is measured along the horizontal axis. 
D)  On the graph shown here, utility is measured along the vertical axis, whereas in the usual case satisfaction is measured along the vertical axis.

Question 4

The efficient markets hypothesis implies

Accepted Answer

A)  that all stocks are fairly valued all the time and that no stock is a better buy than any other. 
B)  that all stocks are fairly valued all the time, but that some stocks may be better buys than other. 
C)  that some stocks may be better buys than others and stock experts can determine which ones. 
D)  that no stock is efficiently valued. 
A)  that all stocks are fairly valued all the time and that no stock is a better buy than any other. 
B)  that all stocks are fairly valued all the time, but that some stocks may be better buys than other. 
C)  that some stocks may be better buys than others and stock experts can determine which ones. 
D)  that no stock is efficiently valued.

Question 5

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 6

PZX Corporation has the opportunity to undertake an investment project that will cost $10,000 today and yield the company $13,310 in 3 years. PZX will forgo the project if the interest rate is higher than 10 percent.

Accepted Answer

A) True 
 B)False

Question 7

Suppose you will receive $500 at some point in the future. If the annual interest rate is 7.5 percent, then the present value of the $500 is

Accepted Answer

A)  $411.26 if the $500 is to be received in 5 years and $338.95 if the $500 is to be received in 10 years. 
B)  $348.28 if the $500 is to be received in 5 years and $242.60 if the $500 is to be received in 10 years. 
C)  $291.11 if the $500 is to be received in 5 years and $272.89 if the $500 is to be received in 10 years. 
D)  $291.11 if the $500 is to be received in 5 years and $236.49 if the $500 is to be received in 10 years. 
A)  $411.26 if the $500 is to be received in 5 years and $338.95 if the $500 is to be received in 10 years. 
B)  $348.28 if the $500 is to be received in 5 years and $242.60 if the $500 is to be received in 10 years. 
C)  $291.11 if the $500 is to be received in 5 years and $272.89 if the $500 is to be received in 10 years. 
D)  $291.11 if the $500 is to be received in 5 years and $236.49 if the $500 is to be received in 10 years.

Question 8

To diversify, a homeowner with a variable-rate mortgage should choose investments that

Accepted Answer

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

Question 9

Suppose you invest $10,000 at 7% interest to be withdrawn by your heirs in 100 years. According to the rule of 70, approximately how much will your heirs be able to withdraw?

Accepted Answer

With a 7% interest rate the rule of 70 i

Question 10

Other things the same, as the stocks of a greater number of corporations are held in a portfolio,

Accepted Answer

A)  risk increases at an increasing rate. 
B)  risk increases at a decreasing rate. 
C)  risk decreases at an increasing rate. 
D)  risk decreases at a decreasing rate. 
A)  risk increases at an increasing rate. 
B)  risk increases at a decreasing rate. 
C)  risk decreases at an increasing rate. 
D)  risk decreases at a decreasing rate.

Question 11

What is the future value of $450 at an interest rate of 9 percent two years from today?

Accepted Answer

A)  $534.65 
B)  $546.35 
C)  $565.18 
D)  $574.13 
A)  $534.65 
B)  $546.35 
C)  $565.18 
D)  $574.13

Question 12

When a person engages in detailed analysis of a company to determine its value, he or she is engaging in

Accepted Answer

A)  standard deviation analysis. 
B)  informational analysis. 
C)  fundamental analysis. 
D)  efficiency analysis. 
A)  standard deviation analysis. 
B)  informational analysis. 
C)  fundamental analysis. 
D)  efficiency analysis.

Question 13

Allen Steel Company is considering whether to build a new mill. If the interest rate rises,

Accepted Answer

A)  the present value of the returns from the mill will fall, so Allen will be less likely to build the mill. 
B)  the present value of the returns from the mill will fall, so Allen will be more likely to build the mill. 
C)  the present value of the returns from the mill will rise, so Allen will be less likely to build the mill. 
D)  the present value of the returns from the mill will rise, so Allen will be more likely to build the mill. 
A)  the present value of the returns from the mill will fall, so Allen will be less likely to build the mill. 
B)  the present value of the returns from the mill will fall, so Allen will be more likely to build the mill. 
C)  the present value of the returns from the mill will rise, so Allen will be less likely to build the mill. 
D)  the present value of the returns from the mill will rise, so Allen will be more likely to build the mill.

Question 14

HydroGrow is considering building a new greenhouse in which to grow tomatoes. The board meets and decides that this is the right thing to do. Before they can put their plans into action, the interest rate increases. The present value of the returns from this investment project

Accepted Answer

A)  is now lower than it was before, and so Hydro Grow is less likely to build the building. 
B)  is now lower than it was before, and so HydroGrow is more likely to build the building. 
C)  is now higher than it was before, and so HydroGrow is less likely to build the building. 
D)  is now higher than it was before, and so HydroGrow is more likely to build the building. 
A)  is now lower than it was before, and so Hydro Grow is less likely to build the building. 
B)  is now lower than it was before, and so HydroGrow is more likely to build the building. 
C)  is now higher than it was before, and so HydroGrow is less likely to build the building. 
D)  is now higher than it was before, and so HydroGrow is more likely to build the building.

Question 15

Suppose the interest rate is 4 percent. Which of the following has the greatest present value?

Accepted Answer

A)  $100 today plus $190 one year from today 
B)  $150 today plus $140 one year from today 
C)  $200 today plus $90 one year from today 
D)  $250 today plus $40 one year from today 
A)  $100 today plus $190 one year from today 
B)  $150 today plus $140 one year from today 
C)  $200 today plus $90 one year from today 
D)  $250 today plus $40 one year from today

Question 16

After the 1982 recession, the U.S. and world economies entered into a long period

Accepted Answer

A)  of high unemployment rates. 
B)  high inflation rates. 
C)  that has become known as the "Great Moderation." 
D)  that has become known as the "Great Recession." 
A)  of high unemployment rates. 
B)  high inflation rates. 
C)  that has become known as the "Great Moderation." 
D)  that has become known as the "Great Recession."

Question 17

The available evidence indicates that

Accepted Answer

A)  about one-half of all managers of active mutual funds consistently outperform index funds. 
B)  outperforming the market on a consistent basis is extremely difficult to do. 
C)  there is little truth to the notion that there is a trade-off between risk and return. 
D)  there is little truth to the efficient markets hypothesis. 
A)  about one-half of all managers of active mutual funds consistently outperform index funds. 
B)  outperforming the market on a consistent basis is extremely difficult to do. 
C)  there is little truth to the notion that there is a trade-off between risk and return. 
D)  there is little truth to the efficient markets hypothesis.

Question 18

Samantha holds stocks in four companies. If she adds stocks of several more companies she will decrease

Accepted Answer

A)  firm specific risk and market risk. 
B)  firm specific risk but not market risk. 
C)  market risk but not firm specific risk. 
D)  neither firm specific nor market risk. 
A)  firm specific risk and market risk. 
B)  firm specific risk but not market risk. 
C)  market risk but not firm specific risk. 
D)  neither firm specific nor market risk.

Question 19

Three years ago Dawn put $1,200 into an account paying 2 percent interest. How much is Dawn's account worth today?

Accepted Answer

A)  $1,225.38 
B)  $1,248.48 
C)  $1,264.72 
D)  $1,273.45 
A)  $1,225.38 
B)  $1,248.48 
C)  $1,264.72 
D)  $1,273.45

Question 20

A high-ranking corporate official of a well-known company is unexpectedly sentenced to prison for criminal activity in trading stocks. This should

Accepted Answer

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

Exam 27: The Basic Tools of Finance

Most financial decisions involve two related elements:

The present value of $100 to be paid in two years is less than the present value of $100 to be paid in three years.

Figure 27-5. The figure shows a utility function for Dexter. -Refer to Figure 27-5. In what way(s) does the graph differ from the usual case?

The efficient markets hypothesis implies

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

PZX Corporation has the opportunity to undertake an investment project that will cost $10,000 today and yield the company $13,310 in 3 years. PZX will forgo the project if the interest rate is higher than 10 percent.

Suppose you will receive $500 at some point in the future. If the annual interest rate is 7.5 percent, then the present value of the $500 is

To diversify, a homeowner with a variable-rate mortgage should choose investments that

Suppose you invest $10,000 at 7% interest to be withdrawn by your heirs in 100 years. According to the rule of 70, approximately how much will your heirs be able to withdraw?

Other things the same, as the stocks of a greater number of corporations are held in a portfolio,

What is the future value of $450 at an interest rate of 9 percent two years from today?

When a person engages in detailed analysis of a company to determine its value, he or she is engaging in

Allen Steel Company is considering whether to build a new mill. If the interest rate rises,

HydroGrow is considering building a new greenhouse in which to grow tomatoes. The board meets and decides that this is the right thing to do. Before they can put their plans into action, the interest rate increases. The present value of the returns from this investment project

Suppose the interest rate is 4 percent. Which of the following has the greatest present value?

After the 1982 recession, the U.S. and world economies entered into a long period

The available evidence indicates that

Samantha holds stocks in four companies. If she adds stocks of several more companies she will decrease

Three years ago Dawn put $1,200 into an account paying 2 percent interest. How much is Dawn's account worth today?

A high-ranking corporate official of a well-known company is unexpectedly sentenced to prison for criminal activity in trading stocks. This should

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

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

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