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Exam 17: Part C: Financial Economics

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Question 91

Multiple Choice

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$500 invested at an annual interest rate of 8 percent will be worth how much at the end of one year?

A) $504
B) $508
C) $540
D) $580

E) B) and D)
F) A) and D)

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Question 92

True/False

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You deposit $5,000 into a 10-year bank CD that pays a 6.5 percent annual compound interest rate.When the CD matures in 10 years, you will get more than $9,000 from it.

A) True
B) False

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Question 93

Multiple Choice

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Kelly buys a share of stock for $20 that she sells a year later for $15.Kelly's rate of return is

^{Joseph is considering purchasing a condo. He has the option of buying one in Midtown with a present value of $150,000 or one in downtown with a future value of $200,000. If the current market interest rate is 5 percent and he wants to buy the home with the highest future value in 5 years, he should} buy the condo in downtown.

What are the two most important factors influencing investor preferences?

If stockholders sell their shares for more than they paid for those shares, the stockholders

Which of the following statements is true?

Arbitrage activities will make the price of the asset with the higher initial return increase, while the price of the asset with the lower return will decrease.

Investment risks vary across different countries.The International Country Risk Guide in 2015 ranked which of the following countries to have the least composite risk?

Indy owns 100 shares of stock in Pet Mart Corporation that he purchased for $20 per share.Every year he has received, from company profits, $1 for each share he owns.If Indy holds his shares for five years, he

A manufacturing firm takes out a $500,000 loan to expand its plant.The loan has an annual interest rate of 7 percent.What would be the total compounded interest on the loan at the end of five years, excluding the principal?

The so-called risk-free rate in financial markets is indicated by the rate of return on short-term U.S.government bonds.

Compound interest describes increases in value when interest is paid, or compounded, on

The type of risk that pushes the returns from all investment in the same direction at the same time is

^{Roger has the opportunity to invest $100,000 in two different assets. The investment in Asset #1 will have a present value of $120,000. The investment in Asset #2 is expected to have a future value of $140,000 in four years. If the market interest rate is 5 percent a year, which one would be the better} investment?

If an investment is equally likely to return 10 percent per year or 15 percent a year, then its average expected rate of return is

The market portfolio, by definition, has a beta = 0.

$200 invested in a savings account paying an annual interest rate of 5 percent will be worth how much at the end of five years, assuming all interest earned remains in the account?

A bond pays a coupon (or interest) rate of 5 percent each year for five years, with a future (face) value of $200.If the bond were sold today, what would be the present value of the bond?

^{Xavier is a baseball player negotiating a contract to play for a team for one year. He is usually paid $10 million a year for playing, but the salary cap for his team means that he will have to be paid $5 million this year and the remainder next year. If the interest rate is 8 percent, how much should that} remaining amount be next year?