Question 1

When you were 10 years old, your grandparents put $500 into an account for you paying 7 percent interest. Now that you are 18 years old, your grandparents tell you that you can take the money out of the account. What is the balance to the nearest cent?

Accepted Answer

A)  $1,200.00 
B)  $1,111.77 
C)  $983.58 
D)  $859.09

Question 2

Your accountant tells you that if you can continue to earn the current interest rate on your balance of $500 for ten years, you will have about $983.58. If your accountant is correct, what is the current rate of interest?

Accepted Answer

A)  5 percent 
B)  6 percent 
C)  7 percent 
D)  8 percent

Question 3

As the number of stocks in a portfolio rises,

Accepted Answer

A)  both firm-specific risks and market risk fall. 
B)  firm-specific risks fall; market risk does not. 
C)  market risk falls; firm-specific risks do not. 
D)  neither firm-specific risks nor market risk falls.

Question 4

A person's subjective measure of well­being or satisfaction is called aversion.

Accepted Answer

A) True 
 B)False

Question 5

Diversification can reduce firm-specific risk.

Accepted Answer

A) True 
 B)False

Question 6

Markovich Corporation is considering building a new plant. It will cost $1 million today to build it and it will generate revenues of $1.121 million three years from today. Of the interest rates below, which is the highest interest rate at which Markovich still would be willing to build the plant?

Accepted Answer

A)  3 percent 
B)  3.5 percent 
C)  4 percent 
D)  4.5 percent

Question 7

Suppose the Johnson Corporation releases an earnings report that beats the market's expectations. What does the efficient markets hypothesis predict will happen to Johnson's stock price.

Accepted Answer

The answer of Suppose the Johnson Corporation releases an earnings...

Question 8

Suppose you win a small lottery and you are given the following choice: You can receive 1) an immediate payment of $10,000 or 2) two annual payments, each in the amount of $5,200, with the first payment coming one year from now, and the second payment coming two years from now. You would choose to take the immediate payment of $10,000 if the interest rate is

Accepted Answer

A)  2 percent, but not if the interest rate is 1 percent. 
B)  3 percent, but not if the interest rate is 2 percent. 
C)  4 percent, but not if the interest rate is 3 percent. 
D)  5 percent, but not if the interest rate is 4 percent.

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

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.

Question 11

The last $2,000 of Rolanda's wealth adds less to her utility than the previous $2,000. Based on this information, Rolanda has

Accepted Answer

A)  increasing marginal utility of wealth and is risk averse. 
B)  increasing marginal utility of wealth and is not risk averse. 
C)  decreasing marginal utility of wealth and is risk averse. 
D)  decreasing marginal utility of wealth and is not risk averse.

Question 12

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

The answer of Suppose you invest $10,000 at 7% interest...

Question 13

On the Internet you find the following offers for opening an online account. Which of them is the best offer if you have $5,000 to save for two years?

Accepted Answer

A)  an interest rate of 5 percent, with the bank charging you a $50 processing fee at the time you open your account 
B)  an interest rate of 4 percent, with the bank giving you a $65 bonus at the time you open your account 
C)  an interest rate of 3.5 percent, with the bank giving you a $100 bonus to open your account 
D)  an interest rate of 4.5 percent, with no processing fee and no bonus

Question 14

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."

Question 15

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. Suppose Lisa is faced with a choice between two options. With option A Lisa receives a guaranteed $9 million. With option B Lisa faces a lottery that pays $16 million with probability P and pays $4 million with probability 1-P). Given Lisa's utility function, how high does P need to be before Lisa will prefer option B?

Accepted Answer

The answer of Scenario 27-1
Lisa has a utility function ...

Question 16

Jorge deposited $1,000 into an account three years ago. The first two years he earned 5 percent interest; the third year he earned 6 percent interest. How much money does Jorge have in his account today?

Accepted Answer

A)  $1,157.90 
B)  $1,168.65 
C)  $1,176.00 
D)  None of the above are correct to the nearest cent.

Question 17

At an annual interest rate of 14 percent, about how many years will it take $100 to double in value?

Accepted Answer

A)  3 
B)  4 
C)  5 
D)  7

Question 18

Two years ago Lenny put some money into an account. He earned 6 percent interest on this account and now he has about $1,000. About how much did Lenny deposit into his account two years ago?

Accepted Answer

A)  about $860 
B)  about $870 
C)  about $880 
D)  about $890

Question 19

Suppose the interest rate is 3% and that you are to receive three annual payments of $1,000, with the first payment today, the second payment one year from now, and the third payment two years from now. What is the present value of this stream of payments?

Accepted Answer

The answer of Suppose the interest rate is 3% and...

Question 20

Kyle puts a greater proportion of his portfolio into government bonds. Kyle's action

Accepted Answer

A)  increases both risk and the average rate of return. 
B)  decreases both risk and the average rate of return. 
C)  increases risk, but decreases the average rate of return. 
D)  decreases risk, but increases the average rate of return.

Exam 14: The Basic Tools of Finance

When you were 10 years old, your grandparents put $500 into an account for you paying 7 percent interest. Now that you are 18 years old, your grandparents tell you that you can take the money out of the account. What is the balance to the nearest cent?

Your accountant tells you that if you can continue to earn the current interest rate on your balance of $500 for ten years, you will have about $983.58. If your accountant is correct, what is the current rate of interest?

As the number of stocks in a portfolio rises,

A person's subjective measure of wellbeing or satisfaction is called aversion.

Diversification can reduce firm-specific risk.

Markovich Corporation is considering building a new plant. It will cost $1 million today to build it and it will generate revenues of $1.121 million three years from today. Of the interest rates below, which is the highest interest rate at which Markovich still would be willing to build the plant?

Suppose the Johnson Corporation releases an earnings report that beats the market's expectations. What does the efficient markets hypothesis predict will happen to Johnson's stock price.

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

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

The last $2,000 of Rolanda's wealth adds less to her utility than the previous $2,000. Based on this information, Rolanda has

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?

On the Internet you find the following offers for opening an online account. Which of them is the best offer if you have $5,000 to save for two years?

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

Jorge deposited $1,000 into an account three years ago. The first two years he earned 5 percent interest; the third year he earned 6 percent interest. How much money does Jorge have in his account today?

At an annual interest rate of 14 percent, about how many years will it take $100 to double in value?

Two years ago Lenny put some money into an account. He earned 6 percent interest on this account and now he has about $1,000. About how much did Lenny deposit into his account two years ago?

Suppose the interest rate is 3% and that you are to receive three annual payments of $1,000, with the first payment today, the second payment one year from now, and the third payment two years from now. What is the present value of this stream of payments?

Kyle puts a greater proportion of his portfolio into government bonds. Kyle's action

Exam 14: The Basic Tools of Finance

When you were 10 years old, your grandparents put $500 into an account for you paying 7 percent interest. Now that you are 18 years old, your grandparents tell you that you can take the money out of the account. What is the balance to the nearest cent?

Your accountant tells you that if you can continue to earn the current interest rate on your balance of $500 for ten years, you will have about $983.58. If your accountant is correct, what is the current rate of interest?

As the number of stocks in a portfolio rises,

A person's subjective measure of well­being or satisfaction is called aversion.

Diversification can reduce firm-specific risk.

Markovich Corporation is considering building a new plant. It will cost $1 million today to build it and it will generate revenues of $1.121 million three years from today. Of the interest rates below, which is the highest interest rate at which Markovich still would be willing to build the plant?

Suppose the Johnson Corporation releases an earnings report that beats the market's expectations. What does the efficient markets hypothesis predict will happen to Johnson's stock price.

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

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

The last $2,000 of Rolanda's wealth adds less to her utility than the previous $2,000. Based on this information, Rolanda has

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?

On the Internet you find the following offers for opening an online account. Which of them is the best offer if you have $5,000 to save for two years?

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

Jorge deposited $1,000 into an account three years ago. The first two years he earned 5 percent interest; the third year he earned 6 percent interest. How much money does Jorge have in his account today?

At an annual interest rate of 14 percent, about how many years will it take $100 to double in value?

Two years ago Lenny put some money into an account. He earned 6 percent interest on this account and now he has about $1,000. About how much did Lenny deposit into his account two years ago?

Suppose the interest rate is 3% and that you are to receive three annual payments of $1,000, with the first payment today, the second payment one year from now, and the third payment two years from now. What is the present value of this stream of payments?

Kyle puts a greater proportion of his portfolio into government bonds. Kyle's action

A person's subjective measure of wellbeing or satisfaction is called aversion.