Question 1

The You Look Marvelous! cosmetic company is considering building a new shampoo factory.Its accountants and board of directors meet and decide that it is not a good idea to build the factory.If interest rates fall after the meeting

Accepted Answer

A)   the present value of the factory rises.It's more likely the company will build the factory.
B)   the present value of the factory rises.It's less likely the company will build the factory.
C)   the present value of the factory falls.It's more likely the company will build the factory.
D)   the present value of the factory falls.It's less likely the company will build the factory.E) All of the above
F) B) and C)

Question 2

A judge requires Harry to make a payment to Sally.The judge says that Harry can pay her either $10,000 today or $11,000 two years from today.Of the following interest rates,which is the lowest one at which Harry would be better off paying $11,000 two years from today?

Accepted Answer

A)   2 percent
B)   3 percent
C)   4 percent
D)   5 percentE) A) and B)
F) A) and C)

Question 3

If you believe that stock prices follow a random walk,then probably you

Accepted Answer

A)   do not believe that there is positive relationship between risk and return.
B)   do not believe that stock prices reflect all available information.
C)   believe in the validity of the efficient markets hypothesis.
D)   believe that it is a good idea to engage in fundamental analysis.E) A) and B)
F) C) and D)

Question 4

Fundamental analysis is

Accepted Answer

A)   the study of the relation between risk and return of stock portfolios.
B)   the determination of the allocation of savings between stocks and bonds based on a person's degree of risk aversion.
C)   the study of a company's accounting statements and future prospects to determine its value.
D)   a method used to determine how adding stocks to a portfolio will change the risk of the portfolio.E) All of the above
F) B) and D)

Question 5

One way to characterize the difference between compounding and discounting is to say that

Accepted Answer

A)   compounding involves the assumption that the interest rate is zero,whereas discounting does not involve that assumption.
B)   discounting involves the assumption that the interest rate is zero,whereas compounding does not involve that assumption.
C)   the process of compounding produces a future value,whereas the process of discounting produces a present value.
D)   the process of compounding produces a present value,whereas the process of discounting produces a future value.E) A) and D)
F) A) and C)

Question 6

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) None of the above
F) B) and C)

Question 7

A person who believes strongly in the use of fundamental analysis to choose a portfolio of stocks

Accepted Answer

A)   has a better chance of outperforming the market if stock prices follow a random walk than if they do not follow a random walk.
B)   almost always chooses to hold index funds in his or her portfolio rather than actively-managed funds.
C)   is spending his or her time wisely if the efficient markets hypothesis is correct.
D)   is interested in the likely ability of a corporation to pay dividends in the future.E) All of the above
F) A) and B)

Question 8

Scott Adams,creator of the comic strip Dilbert,has a theory that you should

Accepted Answer

A)   buy stock in the companies you love the most.
B)   buy stock in the companies you hate the most.
C)   make use of technical analysis when you are deciding which stocks to buy.
D)   examine companies' track records when you are deciding which stocks to buy.E) C) and D)
F) All of the above

Question 9

Mixster Concrete Company is considering buying a new cement truck.The owners and their accountants decide that this is the profitable thing to do.Before they can buy the truck,the interest rate and price of trucks change.In which case do these changes both make them less likely to buy the truck?

Accepted Answer

A)   Interest rates rise and truck prices rise.
B)   Interest rates fall and truck prices rise.
C)   Interest rates rise and truck prices fall.
D)   Interest rates fall and truck prices fall.E) C) and D)
F) A) and B)

Question 10

A judge requires Harry to make a payment to Sally.The judge says that Harry can pay her either $10,000 today or $12,000 two years from today.Of the following interest rates,which is the highest one at which Harry would be better off paying the money today?

Accepted Answer

A)   4 percent
B)   6 percent
C)   9 percent
D)   11 percentE) B) and D)
F) B) and C)

Question 11

If a savings account pays 5 percent annual interest,then the rule of 70 tells us that the account value will double in approximately 14 years.

Accepted Answer

A) True 
 B)False

Question 12

According to the rule of 70,if the interest rate is 5 percent,how long will it take for the value of a savings account to double?

Accepted Answer

A)   about 3.5 years
B)   about 6.3 years
C)   about 12 years
D)   about 14 yearsE) A) and D)
F) None of the above

Question 13

If you put $125 into an account that paid 3.25 percent interest,then how much money would you have in the account after 20 years?

Accepted Answer

A)   $285.83
B)   $236.98
C)   $202.04
D)   $145.65E) C) and D)
F) B) and D)

Question 14

The problem of moral hazard arises because

Accepted Answer

A)   life is full of all sorts of risks.
B)   after people buy insurance,they have less incentive to be careful about their risky behavior.
C)   a high-risk person is more likely to apply for insurance than is a low-risk person.
D)   insurance companies go to great effort to avoid paying claims to their policy holders.E) C) and D)
F) None of the above

Question 15

Amanda talks with several different brokers at a social gathering.She hears the following advice from brokers A,B,and C.Which broker,if any,gave her incorrect advice?

Accepted Answer

A)   Broker A: "There are risks in holding stocks,even in a highly diversified portfolio."
B)   Broker B: "Portfolios with smaller standard deviations have lower risk."
C)   Broker C: "Stocks with greater risks offer lower average returns."
D)   They all gave her correct advice.E) B) and C)
F) A) and D)

Question 16

Figure 19-2.The figure shows a utility function for Mary Ann. 
-Refer to Figure 19-2.Suppose Mary Ann begins with $1,050 in wealth.Starting from there,

Accepted Answer

A)   she would be willing to accept a coin-flip bet that would result in her winning $300 if the result was "heads" or losing $300 if the result was "tails."
B)   the pain of losing $300 of her wealth would equal the pleasure of adding $300 to her wealth.
C)   the pain of losing $300 of her wealth would exceed the pleasure of adding $300 to her wealth.
D)   the pleasure of adding $300 to her wealth would exceed the pain of losing $300 of her wealth.E) C) and D)
F) All of the above

Question 17

Suppose you win a small lottery and you are given the following choice: You can receive (1) an immediate payment of $5,000 or (2) two annual payments,each in the amount of $2,700,with the first payment coming one year from now,and the second payment coming two years from now.You would choose to take the two annual payments if the interest rate is

Accepted Answer

A)   2 percent,but not if the interest rate is 3 percent.
B)   3 percent,but not if the interest rate is 4 percent.
C)   4 percent,but not if the interest rate is 5 percent.
D)   5 percent,but not if the interest rate is 6 percent.E) None of the above
F) All of the above

Question 18

Hardwood Furniture Store considered building a store in a new location.The owners and their accountants decided that this was the profitable thing to do.However,soon after they made this decision,both the interest rate and the cost of building the store changed.In which case do these changes both make it less likely that they will now build the store?

Accepted Answer

A)   Interest rates rise and the cost of building the store rises.
B)   Interest rates rise and the cost of building the store falls.
C)   Interest rates fall and the cost of building the store rises.
D)   Interest rates fall and the cost of building the store falls.E) B) and C)
F) All of the above

Question 19

In the 1990s,Fed Chair Alan Greenspan believed that the market was

Accepted Answer

A)   undervalued,and evidence later showed that this was clearly correct.
B)   undervalued,but whether it was remains debatable.
C)   overvalued,and evidence later showed that this was clearly correct.
D)   overvalued,but whether it was remains debatable.E) A) and D)
F) None of the above

Question 20

Speculative bubbles may arise in part because the value of the stock to a stockholder depends on the final sale price.

Accepted Answer

A) True 
 B)False

Exam 19: The Basic Tools of Finance

In the 1990s,Fed Chair Alan Greenspan believed that the market was

Correct Answer
verified

A judge requires Harry to make a payment to Sally.The judge says that Harry can pay her either $10,000 today or $12,000 two years from today.Of the following interest rates,which is the highest one at which Harry would be better off paying the money today?

Correct Answer
verified

A person who believes strongly in the use of fundamental analysis to choose a portfolio of stocks

Correct Answer
verified

If you put $125 into an account that paid 3.25 percent interest,then how much money would you have in the account after 20 years?

Correct Answer
verified

Mixster Concrete Company is considering buying a new cement truck.The owners and their accountants decide that this is the profitable thing to do.Before they can buy the truck,the interest rate and price of trucks change.In which case do these changes both make them less likely to buy the truck?

Correct Answer
verified

A judge requires Harry to make a payment to Sally.The judge says that Harry can pay her either $10,000 today or $11,000 two years from today.Of the following interest rates,which is the lowest one at which Harry would be better off paying $11,000 two years from today?

Correct Answer
verified

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

Correct Answer
verified

According to the rule of 70,if the interest rate is 5 percent,how long will it take for the value of a savings account to double?

Correct Answer
verified

Correct Answer
verified

If a savings account pays 5 percent annual interest,then the rule of 70 tells us that the account value will double in approximately 14 years.

Correct Answer
verified

Speculative bubbles may arise in part because the value of the stock to a stockholder depends on the final sale price.

Correct Answer
verified

The problem of moral hazard arises because

Correct Answer
verified

Figure 19-2.The figure shows a utility function for Mary Ann. -Refer to Figure 19-2.Suppose Mary Ann begins with $1,050 in wealth.Starting from there,

Correct Answer
verified

One way to characterize the difference between compounding and discounting is to say that

Correct Answer
verified

Correct Answer
verified

Amanda talks with several different brokers at a social gathering.She hears the following advice from brokers A,B,and C.Which broker,if any,gave her incorrect advice?

Correct Answer
verified

If you believe that stock prices follow a random walk,then probably you

Correct Answer
verified

The You Look Marvelous! cosmetic company is considering building a new shampoo factory.Its accountants and board of directors meet and decide that it is not a good idea to build the factory.If interest rates fall after the meeting

Correct Answer
verified

Fundamental analysis is

Correct Answer
verified

Scott Adams,creator of the comic strip Dilbert,has a theory that you should

Correct Answer
verified

Exam 19: The Basic Tools of Finance

In the 1990s,Fed Chair Alan Greenspan believed that the market was

Correct AnswerverifiedShow Answer

A judge requires Harry to make a payment to Sally.The judge says that Harry can pay her either $10,000 today or $12,000 two years from today.Of the following interest rates,which is the highest one at which Harry would be better off paying the money today?

Correct AnswerverifiedShow Answer

A person who believes strongly in the use of fundamental analysis to choose a portfolio of stocks

Correct AnswerverifiedShow Answer

If you put $125 into an account that paid 3.25 percent interest,then how much money would you have in the account after 20 years?

Correct AnswerverifiedShow Answer

Mixster Concrete Company is considering buying a new cement truck.The owners and their accountants decide that this is the profitable thing to do.Before they can buy the truck,the interest rate and price of trucks change.In which case do these changes both make them less likely to buy the truck?

Correct AnswerverifiedShow Answer

A judge requires Harry to make a payment to Sally.The judge says that Harry can pay her either $10,000 today or $11,000 two years from today.Of the following interest rates,which is the lowest one at which Harry would be better off paying $11,000 two years from today?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

According to the rule of 70,if the interest rate is 5 percent,how long will it take for the value of a savings account to double?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If a savings account pays 5 percent annual interest,then the rule of 70 tells us that the account value will double in approximately 14 years.

Correct AnswerverifiedShow Answer

Speculative bubbles may arise in part because the value of the stock to a stockholder depends on the final sale price.

Correct AnswerverifiedShow Answer

The problem of moral hazard arises because

Correct AnswerverifiedShow Answer

Figure 19-2.The figure shows a utility function for Mary Ann. -Refer to Figure 19-2.Suppose Mary Ann begins with $1,050 in wealth.Starting from there,

Correct AnswerverifiedShow Answer

One way to characterize the difference between compounding and discounting is to say that

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Amanda talks with several different brokers at a social gathering.She hears the following advice from brokers A,B,and C.Which broker,if any,gave her incorrect advice?

Correct AnswerverifiedShow Answer

If you believe that stock prices follow a random walk,then probably you

Correct AnswerverifiedShow Answer

The You Look Marvelous! cosmetic company is considering building a new shampoo factory.Its accountants and board of directors meet and decide that it is not a good idea to build the factory.If interest rates fall after the meeting

Correct AnswerverifiedShow Answer

Fundamental analysis is

Correct AnswerverifiedShow Answer

Scott Adams,creator of the comic strip Dilbert,has a theory that you should

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified