Question 1

According to the efficient markets hypothesis,the number of people who think a stock is overvalued exactly balances the number of people who think a stock is undervalued.

Accepted Answer

A) True 
 B)False

Question 2

Figure 14-2.The figure shows a utility function for Mary Ann. 
-Refer to Figure 14-2.Suppose the vertical distance between the points (0,A) and (0,B) is 5.If her wealth increased from $1,050 to $1,350,then

Accepted Answer

A)   Mary Ann's subjective measure of her well-being would increase by less than 5 units.
B)   Mary Ann's subjective measure of her well-being would increase by more than 5 units.
C)   Mary Ann would change from being a risk-averse person into a person who is not risk averse.
D)   Mary Ann would change from being a person who is not risk averse into a risk-averse person.E) C) and D)
F) B) and C)

Question 3

Define the efficient markets hypothesis.

Accepted Answer

The efficient market hypothesi...

Question 4

Angela reads financial advice columns and concludes the following.Which,if any,of her conclusions are incorrect?

Accepted Answer

A)   Higher average returns come at the price of higher risk.
B)   People who are risk averse should never hold stock.
C)   Diversification cannot eliminate all of the risk in stock portfolio.
D)   None of her conclusions are incorrect.E) All of the above
F) None of the above

Question 5

According to the efficient markets hypothesis,what changes the price of a share of a corporation's stock? Make up an example.

Accepted Answer

Only news that changes the pub...

Question 6

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."E) C) and D)
F) All of the above

Question 7

You are expecting to receive $750 at some time in the future.Which of the following would unambiguously decrease the present value of this future payment?

Accepted Answer

A)   Interest rates rise and you get the payment sooner.
B)   Interest rates rise and you have to wait longer for the payment.
C)   Interest rates fall and you get the payment sooner.
D)   Interest rates fall and you have to wait longer to get the payment.E) A) and C)
F) None of the above

Question 8

When the price of an asset rises above what appears to be its fundamental value,the market is said to be experiencing a speculative bubble.

Accepted Answer

A) True 
 B)False

Question 9

If the interest rate is 4.5 percent,what is the present value of a payment of $500 to be made one year from today?

Accepted Answer

A)   $457.14
B)   $468.02
C)   $478.47
D)   None of the above are correct to the nearest cent.E) All of the above
F) A) and D)

Question 10

Risk aversion simply means that people dislike bad things to happen.

Accepted Answer

A) True 
 B)False

Question 11

Suppose the interest rate is 7 percent.Consider four payment options: Option A: $500 today.
Option B: $550 one year from today.
Option C: $575 two years from today.
Option D: $600 three years from today.
Which of the payments has the lowest present value today?

Accepted Answer

A)   Option A
B)   Option B
C)   Option C
D)   Option DE) All of the above
F) A) and D)

Question 12

$360 two years from today. Which of the following is correct?

Accepted Answer

A)   1 has the highest present value and 2 has the lowest.
B)   2 has the highest present value and 3 has the lowest.
C)   3 has the highest present value and 1 has the lowest.
D)   None of the above is correct.E) B) and D)
F) B) and C)

Question 13

Four years ago Ollie deposited some money into an account.He earned 5 percent interest on this account and now it has a balance of $303.88.About how much money did Ollie deposit into his account when he opened it?

Accepted Answer

A)   $210
B)   $220
C)   $240
D)   $250E) A) and D)
F) None of the above

Question 14

La Rossa Pasta Company is considering expanding its factory.In which case would both the change in the cost and the change in the interest rate each make it less likely that La Rossa's would expand?

Accepted Answer

A)   a decrease in the cost of expanding and a decrease in the interest rate.
B)   a decrease in the cost of expanding and an increase in the interest rate.
C)   an increase in the cost of expanding and a decrease in the interest rate.
D)   an increase in the cost of expanding and an increase in the interest rate.E) None of the above
F) B) and D)

Question 15

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) All of the above

Question 16

Figure 14-3.The figure shows a utility function for Rob. 
-Refer to Figure 14-3.From the appearance of Rob's utility function,we know that

Accepted Answer

A)   if Rob owns a house,then he definitely would buy fire insurance provided the cost of the insurance were reasonable.
B)   Rob would voluntarily exchange a portfolio of stocks with a high average return and a high level of risk for a portfolio with a low average return and a low level of risk.
C)   Rob is risk averse.
D)   Rob is not risk averse.E) A) and B)
F) A) and C)

Question 17

Given that Tamar is a risk-averse person,she might accept a bet with a 50 percent chance of losing $100 today if she had a 50 percent

Accepted Answer

A)   chance of winning $120 in two years and the interest rate was 11%.
B)   chance of winning $114 in two years and the interest rate was 7%.
C)   chance of winning $110 in two years and the interest rate was 3%.
D)   None of the above are correct;a risk averse person would not accept any of the above bets.E) A) and B)
F) A) and C)

Question 18

Anna deposited $10,000 into an account three years ago.The first year she earned 12 percent interest,the second year she earned 8 percent interest,and the third year she earned 4 percent interest.How much money does she have in her account today?

Accepted Answer

A)   $12,579.84
B)   $12,596.80
C)   $12,597.12
D)   None of the above are correct to the nearest cent.E) A) and D)
F) A) and C)

Question 19

What is the present value of a payment of $100 to be made one year from today if the interest rate is 5 percent?

Accepted Answer

A)   $105.26
B)   $105.00
C)   $95.24
D)   $95.00E) None of the above
F) A) and D)

Question 20

The future value of a deposit in a savings account will be larger

Accepted Answer

A)   the longer a person waits to withdraw the funds.
B)   the higher the interest rate is.
C)   the larger the initial deposit is.
D)   All of the above are correct.E) A) and B)
F) All of the above

Exam 27: The Basic Tools of Finance

La Rossa Pasta Company is considering expanding its factory.In which case would both the change in the cost and the change in the interest rate each make it less likely that La Rossa's would expand?

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

Suppose the interest rate is 7 percent.Consider four payment options: Option A: $500 today. Option B: $550 one year from today. Option C: $575 two years from today. Option D: $600 three years from today. Which of the payments has the lowest present value today?

Correct AnswerverifiedShow Answer

According to the efficient markets hypothesis,what changes the price of a share of a corporation's stock? Make up an example.

Correct AnswerverifiedOnly news that changes the pub...View AnswerShow Answer

Given that Tamar is a risk-averse person,she might accept a bet with a 50 percent chance of losing $100 today if she had a 50 percent

Correct AnswerverifiedShow Answer

Risk aversion simply means that people dislike bad things to happen.

Correct AnswerverifiedShow Answer

Define the efficient markets hypothesis.

Correct AnswerverifiedThe efficient market hypothesi...View AnswerShow Answer

Angela reads financial advice columns and concludes the following.Which,if any,of her conclusions are incorrect?

Correct AnswerverifiedShow Answer

$360 two years from today. Which of the following is correct?

Correct AnswerverifiedShow Answer

When the price of an asset rises above what appears to be its fundamental value,the market is said to be experiencing a speculative bubble.

Correct AnswerverifiedShow Answer

You are expecting to receive $750 at some time in the future.Which of the following would unambiguously decrease the present value of this future payment?

Correct AnswerverifiedShow Answer

Anna deposited $10,000 into an account three years ago.The first year she earned 12 percent interest,the second year she earned 8 percent interest,and the third year she earned 4 percent interest.How much money does she have in her account today?

Correct AnswerverifiedShow Answer

Four years ago Ollie deposited some money into an account.He earned 5 percent interest on this account and now it has a balance of $303.88.About how much money did Ollie deposit into his account when he opened it?

Correct AnswerverifiedShow Answer

The future value of a deposit in a savings account will be larger

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Figure 14-3.The figure shows a utility function for Rob. -Refer to Figure 14-3.From the appearance of Rob's utility function,we know that

Correct AnswerverifiedShow Answer

If the interest rate is 4.5 percent,what is the present value of a payment of $500 to be made one year from today?

Correct AnswerverifiedShow Answer

What is the present value of a payment of $100 to be made one year from today if the interest rate is 5 percent?

Correct AnswerverifiedShow Answer

According to the efficient markets hypothesis,the number of people who think a stock is overvalued exactly balances the number of people who think a stock is undervalued.

Correct AnswerverifiedShow Answer

Figure 14-2.The figure shows a utility function for Mary Ann. -Refer to Figure 14-2.Suppose the vertical distance between the points (0,A) and (0,B) is 5.If her wealth increased from $1,050 to $1,350,then

Correct AnswerverifiedShow Answer

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Only news that changes the pub...
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The efficient market hypothesi...
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