Question 1

A cheerleader-turned-pop-vocalist is offered a choice by her producer of either a lump sum of $20 million for all future work or a stipend of $1 million per year, payable to her and her heirs forever.She should choose the $1 million

Accepted Answer

A) no matter what the interest rate is 
B) if the interest rate is greater than 20 percent 
C) if the interest rate is less than 20 percent 
D) if the interest rate is greater than 5 percent 
E) if the interest rate is less than 5 percent

Question 2

Exhibit 13-6  In Exhibit 13-6, the marginal revenue product of the

Accepted Answer

A) second sewing machine is $20 
B) fourth sewing machine is $80 
C) first sewing machine is $30 
D) third sewing machine is $72 
E) fifth sewing machine is $40

Question 3

Most securities traded in the United States are

Accepted Answer

A) secondhand securities bought by individuals 
B) secondhand securities bought by institutional investors 
C) new securities bought by institutional investors 
D) new securities bought by banks and insurance companies 
E) new securities bought by individuals

Question 4

As large-scale production became more profitable during the Industrial Revolution, the easiest way to finance the required factories and heavy machinery was

Accepted Answer

A) sole proprietorships 
B) limited liability partnerships 
C) letting government take over 
D) the corporate structure 
E) family businesses

Question 5

As defined by economists, interest is

Accepted Answer

A) only the amount earned by productive capital as a resource 
B) only the amount earned by land as a resource 
C) only the amount earned by lending money 
D) both the amount earned by productive capital as a resource and the amount earned by lending money 
E) both the amount earned by land as a resource and the amount earned by lending money

Question 6

If people have a positive rate of time preference, they

Accepted Answer

A) must be rewarded for saving 
B) are willing to pay more for a good that saves them money if they hold on to it a long time 
C) prefer to consume in the future when things are cheaper 
D) prefer time deposits to savings accounts 
E) prefer leisure over labor

Question 7

Which of the following would cause a rightward shift of the demand for loanable funds curve?

Accepted Answer

A) a fall in the marginal rate of return on investment 
B) a fall in the value of the marginal product of capital 
C) a rise in the marginal product of capital 
D) a fall in the investment demand curve 
E) a fall in the price of the product capital produces

Question 8

For a firm that is a price taker in the product market, all of the following are true except one.Which one is the exception?

Accepted Answer

A) Marginal revenue product can be found by multiplying price by marginal product. 
B) Marginal revenue product is the change in total revenue that results from increasing the use of a resource by one unit, other things constant. 
C) Marginal revenue product is constant at the prevailing price. 
D) Increased output by the firm has no impact on the price of the product. 
E) The marginal revenue product curve declines because of diminishing marginal returns.

Question 9

Exhibit 13-4  Exhibit 13-4 shows data gathered by Memo Co.as it prepares to purchase personal computers for its sales offices.Assume that the personal computers are expected to last indefinitely, that operating expenses are negligible, and that the price of Memo's product is expected to remain constant in the future.The marginal rate of return on 60 personal computers is closest to

Accepted Answer

A) 19 percent 
B) 24 percent 
C) 30 percent 
D) 52 percent 
E) 520 percent

Question 10

Each firm has a downward-sloping demand curve for loanable funds because its

Accepted Answer

A) marginal resource cost curve slopes downward 
B) marginal revenue product curve slopes upward 
C) marginal rate of return on investment curve slopes downward 
D) marginal resource cost slopes upward 
E) marginal rate of return on investment curve slopes upward

Question 11

Exhibit 13-7  In Exhibit 13-7, if the interest rate is 5 percent, investment will equal approximately

Accepted Answer

A) $1, 500, 000 
B) $700, 000 
C) $1, 000, 000 
D) $950, 000 
E) $1, 250, 000

Question 12

If the annual interest rate is 5 percent,

Accepted Answer

A) $100 saved today will be worth $105 after one year 
B) $90 saved today will be worth $100 after one year 
C) $100 saved today will be worth $5 after one year 
D) $99 saved today will be worth $100 after one year 
E) $100 saved today will be worth $1, 000 after one year

Question 13

The present value of receiving $200 one year from now when the prevailing rate of interest is 8 percent is less than the present value of receiving $200 one year from today when the prevailing rate of interest is 10%

Accepted Answer

A) True 
 B)False

Question 14

The Internet has created some special problems of intellectual property.One problem is that the

Accepted Answer

A) Internet is a monopoly, so the price of intellectual property exceeds marginal cost 
B) Internet market has not yet reached equilibrium 
C) property that can be downloaded, modified, and then re-sold 
D) marginal cost of enforcing property rights exceeds the marginal benefit 
E) price of intellectual property usually exceeds the marginal benefit

Question 15

Exhibit 13-4  Exhibit 13-4 shows data gathered by Memo Co.as it prepares to purchase personal computers for its sales offices.Given the data in Exhibit 13-4, the price of personal computers must be

Accepted Answer

A) $5, 000 each 
B) $500 each 
C) $250 each 
D) $200 each 
E) increasing as Memo Co.purchases more personal computers

Question 16

Which of the following is the best description of the risks of corporate bonds?

Accepted Answer

A) the firm declines to pay dividends 
B) both bankruptcy and higher market interest rates 
C) only bankruptcy 
D) lower market interest rates 
E) both the firm declines to pay dividends and higher market interest rates

Question 17

Exhibit 13-4  Exhibit 13-4 shows data gathered by Memo Co.as it prepares to purchase personal computers for its sales offices.Assume that the personal computers are expected to last indefinitely, that operating expenses are negligible, and that the price of Memo's product is expected to remain constant in the future.Given the rate of interest, how many personal computers will Memo Co.select?

Accepted Answer

A) 40 
B) 60 
C) 80 
D) 100 
E) 120

Question 18

If you own a perpetuity of $100 and if the discount rate is 5 percent, then its present value

Accepted Answer

A) cannot be determined unless we know the number of years 
B) is $95.21 
C) is $105 
D) is $2, 000 
E) is infinite

Question 19

The difference between income and consumption is

Accepted Answer

A) rent 
B) profit 
C) saving 
D) opportunity cost 
E) roundabout consumption

Question 20

The patent and copyright systems

Accepted Answer

A) reduce the cost of duplicating intellectual property 
B) help make the market for intellectual property more competitive 
C) are forms of intellectual property 
D) help increase the incentives to create new intellectual property 
E) help reduce the incentives to create new intellectual property

Exam 13: Capital, Interest, and Corporate Finance