Question 1

If you are convinced that stock prices are impossible to predict from available information,then you probably also believe that

Accepted Answer

A)   the efficient markets hypothesis is not a correct hypothesis.
B)   the stock market is informationally efficient.
C)   the stock market is informationally inefficient.
D)   there is no reason to establish a diversified portfolio of stocks.E) None of the above
F) All of the above

Question 2

Nancy would like to double the money in her retirement account in five years.According to the rule of 70,what rate of interest would she need to earn to attain her objective?

Accepted Answer

A)   5 percent
B)   7 percent
C)   10 percent
D)   14 percentE) None of the above
F) C) and D)

Question 3

Over the past two centuries,the average annual rates of return were about

Accepted Answer

A)   5 percent for stocks and about 1.5 percent for short-term government bonds.
B)   6 percent for stocks and about 2.5 percent for short-term government bonds.
C)   8 percent for stocks and about 3 percent for short-term government bonds.
D)   None of the above is correct.E) None of the above
F) B) and C)

Question 4

Which of the following terms is used to describe a situation in which the price of an asset rises above what appears to be its fundamental value?

Accepted Answer

A)   "random walk"
B)   "random bubble"
C)   "speculative bubble"
D)   "speculative hedge"E) C) and D)
F) B) and D)

Question 5

Two years ago Darryl put $3,000 into an account paying 3 percent interest.How much does he have in the account today?

Accepted Answer

A)   $3,180.00
B)   $3,182.70
C)   $3,183.62
D)   None of the above are correct to the nearest cent.E) None of the above
F) B) and D)

Question 6

The concept of present value helps explain why the quantity of loanable funds demanded decreases when the interest rate increases.

Accepted Answer

A) True 
 B)False

Question 7

Suppose that fundamental analysis indicates a particular company's stock is overvalued.

Accepted Answer

A)   This means its present value is less than its price.You should consider adding the stock to your portfolio.
B)   This means its present value is less than its price.You shouldn't consider adding the stock to your portfolio.
C)   This means its present value is more than its price.You should consider adding the stock to your portfolio.
D)   This means its present value is more than its price.You shouldn't consider adding the stock to your portfolio.E) A) and B)
F) C) and D)

Question 8

What's the difference between firm-specific risk and market risk? Will diversification eliminate one or both? Explain.

Accepted Answer

Market risk refers to economywide risk c...

Question 9

No particular stock is a better buy than any other stock if

Accepted Answer

A)   stock prices are driven by investors' "animal spirits."
B)   the random-walk theory of stock prices is incorrect.
C)   the efficient markets hypothesis is correct.
D)   actively managed mutual funds always outperform index funds.E) C) and D)
F) None of the above

Question 10

The rule of 70 applies to a growing savings account but not to a growing economy.

Accepted Answer

A) True 
 B)False

Question 11

Some people claim that stocks follow a random walk.What does this mean?

Accepted Answer

A)   The price of stock one day is about what it was on the previous day.
B)   Changes in stock prices cannot be predicted from available information.
C)   Stock prices are not determined by market fundamentals such as supply and demand.
D)   Prices of stocks of different firms in the same industry show no or little tendency to move together.E) B) and D)
F) A) and D)

Question 12

If you put $250 into an account with a 4 percent interest rate,how many years would you have to wait to have $432.92?

Accepted Answer

A)   10
B)   14
C)   17
D)   20E) A) and B)
F) None of the above

Question 13

Suppose that interest rates unexpectedly rise and that Carter Corporation announces that revenues from last quarter were down but not as much as the public had anticipated they would be down.According to the efficient markets hypothesis,which of the these things make the price of Carter Corporation Stock fall?

Accepted Answer

A)   both the interest rate rising and the revenue announcement
B)   neither the interest rate rising nor the revenue announcement
C)   only the interest rate rising
D)   only the revenue announcementE) A) and D)
F) A) and B)

Question 14

According to the efficient markets hypothesis,worse-than-expected news about a corporation will

Accepted Answer

A)   have no effect on its stock price.
B)   raise the price of the stock.
C)   lower the price of the stock.
D)   change the price of the stock in a random direction.E) A) and B)
F) C) and D)

Question 15

The K-Nine dog food company is considering the purchase of additional canning equipment.They expect that adding the equipment will yield $200,000 at the end of the first year and $250,000 at the end of the second year and then nothing after that.At which of the following prices and interest rates would K-Nine buy the equipment?

Accepted Answer

A)   $415,000 if the interest rate is 5%
B)   $419,000 if the interest rate is 4%
C)   K-Nine would buy the equipment in both cases.
D)   K-Nine would not buy the equipment in either case.E) All of the above
F) A) and C)

Question 16

Diminishing marginal utility of wealth implies that the utility function

Accepted Answer

A)   has increasing slope and a person is risk averse.
B)   has increasing slope and a person is not risk averse.
C)   has decreasing slope and a person is risk averse
D)   has decreasing slope and a person is not risk averse.E) A) and D)
F) A) and C)

Question 17

Figure 14-2.The figure shows a utility function for Mary Ann. 
-Refer to Figure 14-2.Suppose Mary Ann begins with $1,050 in wealth.Which of the following coin-flip bets would she definitely not be willing to accept?

Accepted Answer

A)   If it is "heads," she wins $100;if it is tails,she loses $95.
B)   If it is "heads," she wins $150;if it is tails,she loses $150.
C)   If it is "heads," she wins $150;if it is tails,she loses $140.
D)   She definitely would not accept any of these bets.E) None of the above
F) B) and C)

Question 18

Diversifying

Accepted Answer

A)   increases the standard deviation of the value of a portfolio indicating its risk has increased.
B)   increases the standard deviation of the value of a portfolio indicating its risk has decreased.
C)   decreases the standard deviation of the value of a portfolio indicating its risk has increased.
D)   decreases the standard deviation of the value of a portfolio indicating its risk has decreased.E) B) and C)
F) All of the above

Question 19

A risk-averse person

Accepted Answer

A)   has a utility curve where the slope increases with wealth,and might take a bet with a 70 percent chance of wining $400 and a 30 per chance of losing $400.
B)   has a utility curve where the slope increases with wealth,and would never take a bet with a 70 percent chance of wining $400 and a 30 per cent chance of losing $400.
C)   has a utility curve where the slope decreases with wealth,and might take a bet with a 70 percent chance of wining $400 and a 30 per chance of losing $400.
D)   has a utility curve where the slope decreases with wealth,and would never take a bet with a 70 percent chance of wining $400 and a 30 per cent chance of losing $400.E) None of the above
F) A) and C)

Question 20

George has $300 in a bank account.Some years ago he put $213.20 into this account,and it has earned 5 percent interest every year since then.How many years ago did he open his account?

Accepted Answer

A)   4 years
B)   5 years
C)   6 years
D)   7 yearsE) A) and B)
F) None of the above

Exam 27: The Basic Tools of Finance

George has $300 in a bank account.Some years ago he put $213.20 into this account,and it has earned 5 percent interest every year since then.How many years ago did he open his account?

Correct Answer
verified

The concept of present value helps explain why the quantity of loanable funds demanded decreases when the interest rate increases.

Correct Answer
verified

Which of the following terms is used to describe a situation in which the price of an asset rises above what appears to be its fundamental value?

Correct Answer
verified

Nancy would like to double the money in her retirement account in five years.According to the rule of 70,what rate of interest would she need to earn to attain her objective?

Correct Answer
verified

According to the efficient markets hypothesis,worse-than-expected news about a corporation will

Correct Answer
verified

Over the past two centuries,the average annual rates of return were about

Correct Answer
verified

Suppose that fundamental analysis indicates a particular company's stock is overvalued.

Correct Answer
verified

Two years ago Darryl put $3,000 into an account paying 3 percent interest.How much does he have in the account today?

Correct Answer
verified

Diversifying

Correct Answer
verified

What's the difference between firm-specific risk and market risk? Will diversification eliminate one or both? Explain.

Correct Answer
verified
Market risk refers to economywide risk c...
View Answer

If you put $250 into an account with a 4 percent interest rate,how many years would you have to wait to have $432.92?

Correct Answer
verified

Correct Answer
verified

Some people claim that stocks follow a random walk.What does this mean?

Correct Answer
verified

If you are convinced that stock prices are impossible to predict from available information,then you probably also believe that

Correct Answer
verified

Figure 14-2.The figure shows a utility function for Mary Ann. -Refer to Figure 14-2.Suppose Mary Ann begins with $1,050 in wealth.Which of the following coin-flip bets would she definitely not be willing to accept?

Correct Answer
verified

Correct Answer
verified

The rule of 70 applies to a growing savings account but not to a growing economy.

Correct Answer
verified

A risk-averse person

Correct Answer
verified

Diminishing marginal utility of wealth implies that the utility function

Correct Answer
verified

No particular stock is a better buy than any other stock if

Correct Answer
verified

Exam 27: The Basic Tools of Finance

George has $300 in a bank account.Some years ago he put $213.20 into this account,and it has earned 5 percent interest every year since then.How many years ago did he open his account?

Correct AnswerverifiedShow Answer

The concept of present value helps explain why the quantity of loanable funds demanded decreases when the interest rate increases.

Correct AnswerverifiedShow Answer

Which of the following terms is used to describe a situation in which the price of an asset rises above what appears to be its fundamental value?

Correct AnswerverifiedShow Answer

Nancy would like to double the money in her retirement account in five years.According to the rule of 70,what rate of interest would she need to earn to attain her objective?

Correct AnswerverifiedShow Answer

According to the efficient markets hypothesis,worse-than-expected news about a corporation will

Correct AnswerverifiedShow Answer

Over the past two centuries,the average annual rates of return were about

Correct AnswerverifiedShow Answer

Suppose that fundamental analysis indicates a particular company's stock is overvalued.

Correct AnswerverifiedShow Answer

Two years ago Darryl put $3,000 into an account paying 3 percent interest.How much does he have in the account today?

Correct AnswerverifiedShow Answer

Diversifying

Correct AnswerverifiedShow Answer

What's the difference between firm-specific risk and market risk? Will diversification eliminate one or both? Explain.

Correct AnswerverifiedMarket risk refers to economywide risk c...View AnswerShow Answer

If you put $250 into an account with a 4 percent interest rate,how many years would you have to wait to have $432.92?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Some people claim that stocks follow a random walk.What does this mean?

Correct AnswerverifiedShow Answer

If you are convinced that stock prices are impossible to predict from available information,then you probably also believe that

Correct AnswerverifiedShow Answer

Figure 14-2.The figure shows a utility function for Mary Ann. -Refer to Figure 14-2.Suppose Mary Ann begins with $1,050 in wealth.Which of the following coin-flip bets would she definitely not be willing to accept?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The rule of 70 applies to a growing savings account but not to a growing economy.

Correct AnswerverifiedShow Answer

A risk-averse person

Correct AnswerverifiedShow Answer

Diminishing marginal utility of wealth implies that the utility function

Correct AnswerverifiedShow Answer

No particular stock is a better buy than any other stock if

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Market risk refers to economywide risk c...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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