Question 1

Increasing the number of corporations whose stocks are in your portfolio reduces market risk.

Accepted Answer

A) True 
 B)False

Question 2

Figure 14-4.The figure shows a utility function for Dexter. 
-Refer to Figure 14-4.Suppose Dexter begins with $1,300 in wealth.Starting from there,

Accepted Answer

A)   the pain of losing $500 of his wealth would equal the pleasure of adding $500 to his wealth.
B)   the pain of losing $500 of his wealth would exceed the pleasure of adding $500 to his wealth.
C)   the pleasure of adding $500 to his wealth would exceed the pain of losing $500 of his wealth.
D)   This cannot be determined from the graph.E) A) and B)
F) B) and C)

Question 3

If a person is risk averse,then as wealth increases,total utility of wealth

Accepted Answer

A)   increases at an increasing rate.
B)   increases at a decreasing rate.
C)   decreases at an increasing rate.
D)   decreases at a decreasing rate.E) B) and C)
F) All of the above

Question 4

Veronica deposited $1,000 into an account two years ago.The first year she earned 7 percent interest;the second year she earned 5 percent.How much money does Veronica have in her account today?

Accepted Answer

A)   $1,133.31
B)   $1,120.00
C)   $1,123.50
D)   None of the above are correct to the nearest cent.E) B) and D)
F) None of the above

Question 5

From the standpoint of the economy as a whole,the role of

Accepted Answer

A)   the interest rate is to make sure that the price of bonds increases over time.
B)   diversification is to eliminate market risk.
C)   insurance is to reduce the risks inherent in life.
D)   insurance is to spread risks around more efficiently.E) A) and B)
F) A) and C)

Question 6

Dividends

Accepted Answer

A)   are the rates of return on mutual funds.
B)   are cash payments that companies make to shareholders.
C)   are the difference between the price and present value per share of a stock.
D)   are the rates of return on a company's capital stock.E) A) and D)
F) A) and C)

Question 7

Janelle offers you $1,000 today or $1,500 in 5 years.You would prefer to take the $1,500 in 5 years if the interest rate is

Accepted Answer

A)   8 percent.
B)   9 percent.
C)   10 percent.
D)   All of the above are correct.E) A) and B)
F) A) and C)

Question 8

Which famous person referred to compounding as "the greatest mathematical discovery of all time?"

Accepted Answer

A)   Abraham Lincoln
B)   Thomas Edison
C)   Benjamin Franklin
D)   Albert EinsteinE) C) and D)
F) A) and B)

Question 9

Your financial advisor tells you that if you earn the historical rate of return on a certain mutual fund,then in three years your $20,000 will grow to $23,152.50.What rate of interest does your financial advisor expect you to earn?

Accepted Answer

A)   5 percent
B)   6 percent
C)   7 percent
D)   8 percentE) C) and D)
F) A) and B)

Question 10

A company that produces golf clubs is considering buying some new equipment that it expects will increase future profits.If the interest rate falls the present value of these future earnings

Accepted Answer

A)   rises.The company is more likely to buy the equipment.
B)   rises.The company is less likely to buy the equipment.
C)   falls.The company is more likely to buy the equipment.
D)   falls.The company is less likely to buy the equipment.E) All of the above
F) C) and D)

Question 11

At which interest rate is the present value of $145.80 two years from today equal to $125 today?

Accepted Answer

A)   2 percent
B)   4 percent
C)   6 percent
D)   8 percentE) A) and B)
F) A) and C)

Question 12

You deposit X dollars into a 3-year certificate of deposit that pays 4.75 percent annual interest.At the end of the 3 years you have $4,310.16.What number of dollars,X,did you deposit?

Accepted Answer

A)   $3,680.00
B)   $3,712.77
C)   $3,750.00
D)   $3,772.57E) A) and D)
F) A) and C)

Question 13

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 14

If the interest rate is 8 percent,then the present value of $1,000 to be received in 4 years is $735.03.

Accepted Answer

A) True 
 B)False

Question 15

You put $75 in the bank one year ago and forgot about it.The bank sends you a notice that you now have $81 in your account.What interest rate did you earn?

Accepted Answer

A)   5 percent
B)   6 percent
C)   7 percent
D)   8 percentE) B) and D)
F) B) and C)

Question 16

You are better off choosing $100 today rather than $200 in 9 years if the interest rate is

Accepted Answer

A)   lower than about 8 percent.
B)   higher than about 8 percent.
C)   lower than about 10 percent.
D)   higher than about 10 percent.E) None of the above
F) A) and B)

Question 17

Figure 14-2.The figure shows a utility function for Mary Ann. 
-Refer to Figure 14-2.From the appearance of the utility function,we know that

Accepted Answer

A)   if Mary Ann owns a house,she would not consider buying fire insurance.
B)   Mary Ann would prefer to hold a portfolio of stocks with an average return of 8 percent and a standard deviation of 2 percent to a portfolio of stocks with an average return of 8 percent and a standard deviation of 5 percent.
C)   Mary Ann would prefer to hold a portfolio of stocks with an average return of 8 percent and a standard deviation of 5 percent to a portfolio of stocks with an average return of 6 percent and a standard deviation of 3 percent.
D)   All of the above are correct.E) A) and B)
F) A) and C)

Question 18

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.E) B) and C)
F) A) and D)

Question 19

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

A)   $1(1 + .05) 16
B)   $1(1 + .0516) 16
C)   $1(1 + .0516) 
D)   $1(1 + 16/.05) 16E) A) and B)
F) A) and C)

Question 20

John says that the future value of $250 saved for one year at 6 percent interest is less than the future value of $250 saved for two years at 3 percent interest.George says that the present value of a $250 payment to be received in one year when the interest rate is 6 percent is less than the value of a $250 payment to be received in two years when the interest rate is 3 percent.

Accepted Answer

A)   John and George are both correct.
B)   John and George are both incorrect.
C)   Only John is correct.
D)   Only George is correct.E) None of the above
F) A) and B)

Exam 27: The Basic Tools of Finance

You are better off choosing $100 today rather than $200 in 9 years if the interest rate is

Correct Answer
verified

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

Correct Answer
verified

Which famous person referred to compounding as "the greatest mathematical discovery of all time?"

Correct Answer
verified

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?

Correct Answer
verified

A company that produces golf clubs is considering buying some new equipment that it expects will increase future profits.If the interest rate falls the present value of these future earnings

Correct Answer
verified

Figure 14-4.The figure shows a utility function for Dexter. -Refer to Figure 14-4.Suppose Dexter begins with $1,300 in wealth.Starting from there,

Correct Answer
verified

Your financial advisor tells you that if you earn the historical rate of return on a certain mutual fund,then in three years your $20,000 will grow to $23,152.50.What rate of interest does your financial advisor expect you to earn?

Correct Answer
verified

You put $75 in the bank one year ago and forgot about it.The bank sends you a notice that you now have $81 in your account.What interest rate did you earn?

Correct Answer
verified

At which interest rate is the present value of $145.80 two years from today equal to $125 today?

Correct Answer
verified

If a person is risk averse,then as wealth increases,total utility of wealth

Correct Answer
verified

You deposit X dollars into a 3-year certificate of deposit that pays 4.75 percent annual interest.At the end of the 3 years you have $4,310.16.What number of dollars,X,did you deposit?

Correct Answer
verified

Figure 14-2.The figure shows a utility function for Mary Ann. -Refer to Figure 14-2.From the appearance of the utility function,we know that

Correct Answer
verified

Dividends

Correct Answer
verified

From the standpoint of the economy as a whole,the role of

Correct Answer
verified

Increasing the number of corporations whose stocks are in your portfolio reduces market risk.

Correct Answer
verified

Janelle offers you $1,000 today or $1,500 in 5 years.You would prefer to take the $1,500 in 5 years if the interest rate is

Correct Answer
verified

If the interest rate is 8 percent,then the present value of $1,000 to be received in 4 years is $735.03.

Correct Answer
verified

Veronica deposited $1,000 into an account two years ago.The first year she earned 7 percent interest;the second year she earned 5 percent.How much money does Veronica have in her account today?

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

Exam 27: The Basic Tools of Finance

You are better off choosing $100 today rather than $200 in 9 years if the interest rate is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which famous person referred to compounding as "the greatest mathematical discovery of all time?"

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

A company that produces golf clubs is considering buying some new equipment that it expects will increase future profits.If the interest rate falls the present value of these future earnings

Correct AnswerverifiedShow Answer

Figure 14-4.The figure shows a utility function for Dexter. -Refer to Figure 14-4.Suppose Dexter begins with $1,300 in wealth.Starting from there,

Correct AnswerverifiedShow Answer

Your financial advisor tells you that if you earn the historical rate of return on a certain mutual fund,then in three years your $20,000 will grow to $23,152.50.What rate of interest does your financial advisor expect you to earn?

Correct AnswerverifiedShow Answer

You put $75 in the bank one year ago and forgot about it.The bank sends you a notice that you now have $81 in your account.What interest rate did you earn?

Correct AnswerverifiedShow Answer

At which interest rate is the present value of $145.80 two years from today equal to $125 today?

Correct AnswerverifiedShow Answer

If a person is risk averse,then as wealth increases,total utility of wealth

Correct AnswerverifiedShow Answer

You deposit X dollars into a 3-year certificate of deposit that pays 4.75 percent annual interest.At the end of the 3 years you have $4,310.16.What number of dollars,X,did you deposit?

Correct AnswerverifiedShow Answer

Figure 14-2.The figure shows a utility function for Mary Ann. -Refer to Figure 14-2.From the appearance of the utility function,we know that

Correct AnswerverifiedShow Answer

Dividends

Correct AnswerverifiedShow Answer

From the standpoint of the economy as a whole,the role of

Correct AnswerverifiedShow Answer

Increasing the number of corporations whose stocks are in your portfolio reduces market risk.

Correct AnswerverifiedShow Answer

Janelle offers you $1,000 today or $1,500 in 5 years.You would prefer to take the $1,500 in 5 years if the interest rate is

Correct AnswerverifiedShow Answer

If the interest rate is 8 percent,then the present value of $1,000 to be received in 4 years is $735.03.

Correct AnswerverifiedShow Answer

Veronica deposited $1,000 into an account two years ago.The first year she earned 7 percent interest;the second year she earned 5 percent.How much money does Veronica have in her account today?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
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