Question 1

As the number of stocks in a person's portfolio increases,

Accepted Answer

A)  the risk of the portfolio increases, as indicated by the increasing value of the standard deviation of the portfolio. 
B)  the risk of the portfolio increases, as indicated by the decreasing value of the standard deviation of the portfolio. 
C)  the risk of the portfolio decreases, as indicated by the increasing value of the standard deviation of the portfolio. 
D)  the risk of the portfolio decreases, as indicated by the decreasing value of the standard deviation of the portfolio. 
A)  the risk of the portfolio increases, as indicated by the increasing value of the standard deviation of the portfolio. 
B)  the risk of the portfolio increases, as indicated by the decreasing value of the standard deviation of the portfolio. 
C)  the risk of the portfolio decreases, as indicated by the increasing value of the standard deviation of the portfolio. 
D)  the risk of the portfolio decreases, as indicated by the decreasing value of the standard deviation of the portfolio.

Question 2

Give an example of adverse selection and an example of moral hazard using homeowners insurance.

Accepted Answer

An example of adverse selection is that

Question 3

Which of the following changes would decrease the present value of a future payment?

Accepted Answer

A)  an increase in the size of the payment 
B)  an increase in the time until the payment is made 
C)  a decrease in the interest rate 
D)  All of the above are correct. 
A)  an increase in the size of the payment 
B)  an increase in the time until the payment is made 
C)  a decrease in the interest rate 
D)  All of the above are correct.

Question 4

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

Accepted Answer

A)  4.7 percent 
B)  5.1 percent 
C)  5.5 percent 
D)  5.9 percent 
A)  4.7 percent 
B)  5.1 percent 
C)  5.5 percent 
D)  5.9 percent

Question 5

What is the present value of a payment of $100 to be made one year from today?

Accepted Answer

A)  $100*(1 + r) 
B)  $100/(1 + r) 
C)  $100 - $100   r 
D)  $100 - (1 + r)/$100 
A)  $100*(1 + r) 
B)  $100/(1 + r) 
C)  $100 - $100   r 
D)  $100 - (1 + r)/$100

Question 6

If the interest rate is r percent, then the rule of 70 says that your savings will double about every

Accepted Answer

A)  70/(1 - r) years. 
B)  70/(1 + r) years. 
C)  70/r years. 
D)  70(1 + r)/r years. 
A)  70/(1 - r) years. 
B)  70/(1 + r) years. 
C)  70/r years. 
D)  70(1 + r)/r years.

Question 7

If you deposit $1,000 into a savings account that pays you 5% interest per year, approximately how long will it take to double your money?

Accepted Answer

A)  8 years 
B)  10 years 
C)  12 years 
D)  14 years 
A)  8 years 
B)  10 years 
C)  12 years 
D)  14 years

Question 8

Risk-averse persons will take no risks.

Accepted Answer

A) True 
 B)False

Question 9

Risk aversion simply means that people dislike bad things to happen.

Accepted Answer

A) True 
 B)False

Question 10

Susan put $375 into an account and one year later had $405. What interest rate was paid on Susan's deposit?

Accepted Answer

A)  5 percent 
B)  7 percent 
C)  8 percent 
D)  10 percent 
A)  5 percent 
B)  7 percent 
C)  8 percent 
D)  10 percent

Question 11

Which of the following is correct concerning stock market irrationality?

Accepted Answer

A)  Bubbles could arise, in part, because the price that people pay for stock depends on what they think someone else will pay for it in the future. 
B)  Economists almost all agree that the evidence for stock market irrationality is convincing and the departures from rational pricing are important. 
C)  Some evidence for the existence of market irrationality is that informed and presumably rational managers of mutual funds generally beat the market. 
D)  All of the above are correct. 
A)  Bubbles could arise, in part, because the price that people pay for stock depends on what they think someone else will pay for it in the future. 
B)  Economists almost all agree that the evidence for stock market irrationality is convincing and the departures from rational pricing are important. 
C)  Some evidence for the existence of market irrationality is that informed and presumably rational managers of mutual funds generally beat the market. 
D)  All of the above are correct.

Question 12

Which of the following is the correct way to compute the future value of $100 put into an account that earns 4 percent interest for 10 years?

Accepted Answer

A)  $100(1 + .0410) 
B)  $100(1 + .04   10) 
C)  $100 × 10   (1 + .04) 
D)  $100(1 + .04)10 
A)  $100(1 + .0410) 
B)  $100(1 + .04   10) 
C)  $100 × 10   (1 + .04) 
D)  $100(1 + .04)10

Question 13

List three different ways that a risk-averse person can reduce financial risk.

Accepted Answer

A risk-averse person can reduce risk by

Question 14

What is the future value of $500 one year from today if the interest rate is 6 percent?

Accepted Answer

A)  $515 
B)  $520 
C)  $530 
D)  None of the above is correct. 
A)  $515 
B)  $520 
C)  $530 
D)  None of the above is correct.

Question 15

Historically the return on stocks has been higher than the return on bonds. In part this reflects the higher risk from holding stock.

Accepted Answer

A) True 
 B)False

Question 16

What is the future value of $800 one year from today if the interest rate is 7 percent?

Accepted Answer

A)  $747.66 
B)  $756.00 
C)  $856.00 
D)  None of the above are correct to the nearest cent. 
A)  $747.66 
B)  $756.00 
C)  $856.00 
D)  None of the above are correct to the nearest cent.

Question 17

Of the following interest rates, which is the highest one at which you would prefer to have $170 ten years from today instead of $100 today?

Accepted Answer

A)  3 percent 
B)  5 percent 
C)  7 percent 
D)  9 percent 
A)  3 percent 
B)  5 percent 
C)  7 percent 
D)  9 percent

Question 18

An increase in the number of corporations in a portfolio from 1 to 10 reduces

Accepted Answer

A)  market risk by more than an increase from 110 to 120. 
B)  market risk by less than an increase from 110 to 120. 
C)  firm-specific risk by more than an increase from 110 to 120. 
D)  firm-specific risk by less than an increase from 110 to 120. 
A)  market risk by more than an increase from 110 to 120. 
B)  market risk by less than an increase from 110 to 120. 
C)  firm-specific risk by more than an increase from 110 to 120. 
D)  firm-specific risk by less than an increase from 110 to 120.

Question 19

Writing in the Wall Street Journal in 2009, economist Jeremy Siegel argued that, in the years leading up to the financial crisis of 2008-2009,

Accepted Answer

A)  financial firms acted in too risky a fashion. 
B)  the Federal Reserve's efforts to rein in the risky behavior of certain financial firms were inadequate. 
C)  falling house prices "crashed the banks and the economy." 
D)  All of the above are correct. 
A)  financial firms acted in too risky a fashion. 
B)  the Federal Reserve's efforts to rein in the risky behavior of certain financial firms were inadequate. 
C)  falling house prices "crashed the banks and the economy." 
D)  All of the above are correct.

Question 20

Which of the following is the correct way to compute the future value of $1 put into an account that earns 5 percent interest for 16 years?

Accepted Answer

Exam 27: The Basic Tools of Finance

As the number of stocks in a person's portfolio increases,

Give an example of adverse selection and an example of moral hazard using homeowners insurance.

Which of the following changes would decrease the present value of a future payment?

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

What is the present value of a payment of $100 to be made one year from today?

If the interest rate is r percent, then the rule of 70 says that your savings will double about every

If you deposit $1,000 into a savings account that pays you 5% interest per year, approximately how long will it take to double your money?

Risk-averse persons will take no risks.

Risk aversion simply means that people dislike bad things to happen.

Susan put $375 into an account and one year later had $405. What interest rate was paid on Susan's deposit?

Which of the following is correct concerning stock market irrationality?

Which of the following is the correct way to compute the future value of $100 put into an account that earns 4 percent interest for 10 years?

List three different ways that a risk-averse person can reduce financial risk.

What is the future value of $500 one year from today if the interest rate is 6 percent?

Historically the return on stocks has been higher than the return on bonds. In part this reflects the higher risk from holding stock.

What is the future value of $800 one year from today if the interest rate is 7 percent?

Of the following interest rates, which is the highest one at which you would prefer to have $170 ten years from today instead of $100 today?

An increase in the number of corporations in a portfolio from 1 to 10 reduces

Writing in the Wall Street Journal in 2009, economist Jeremy Siegel argued that, in the years leading up to the financial crisis of 2008-2009,

Which of the following is the correct way to compute the future value of $1 put into an account that earns 5 percent interest for 16 years?

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

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