Question 1

At which interest rate is the present value of $80.25 one year from today equal to $75 today?

Accepted Answer

A)  4 percent
B)  5 percent
C)  6 percent
D)  7 percentE) None of the above
F) B) and D)

Question 2

If a person is risk averse, then she has

Accepted Answer

A)  diminishing marginal utility of wealth, implying that her utility function gets flatter as wealth increases.
B)  diminishing marginal utility of wealth, implying that her utility function gets steeper as wealth increases.
C)  increasing marginal utility of wealth, implying that her utility function gets flatter as wealth increases.
D)  increasing marginal utility of wealth, implying that her utility function gets steeper as wealth increases.E) A) and D)
F) B) and C)

Question 3

Until recently, shares of stock accounted for 40 percent of Jimmy's savings. A few days ago, Jimmy sold some bonds and bought some additional shares of stock. Now shares of stock account for 70 percent of Jimmy's savings. How did this change affect Jimmy's expected retun on his savings? How did it affect the risks he faces?

Accepted Answer

The increased percentage of st...

Question 4

Phillip is a mortgage broker, who is paid by commission. When interest rates decline, he does a lot of business and earns a lot of money, as more people buy houses or refinance their mortgages. But when interest rates rise, business falls substantially. To diversify, Phillip should choose investments that

Accepted Answer

A)  provide a higher return than the market average.
B)  provide a lower return than the market average.
C)  pay higher returns when interest rates rise and lower returns when interest rates fall.
D)  pay lower returns when interest rates rise and higher returns when interest rates fall.E) All of the above
F) B) and D)

Question 5

If you are faced with the choice of receiving $500 today or $800 6 years from today, you will be indifferent between the two possibilities if the interest rate is 8.148 percent.

Accepted Answer

A) True 
 B)False

Question 6

Clint puts $200 into an account when the interest rate is 8 percent. Later he checks his balance and finds that he has a balance of about $272.10. How many years did Clint wait to check his balance?

Accepted Answer

A)  3 years
B)  3.5 years
C)  4 years
D)  4.5 yearsE) None of the above
F) B) and C)

Question 7

Lori, who currently owns stock in four companies, has decided to expand her portfolio by purchasing stock in virtually every company that sells stock. In doing so, Lori will

Accepted Answer

A)  increase the risk of her portfolio.
B)  decrease some, but not all, of the risk of her portfolio.
C)  decrease all of the risk of her portfolio.
D)  leave the risk of her portfolio unchanged from its present level.E) A) and C)
F) B) and C)

Question 8

Of the following interest rates, which is the highest one at which the present value of $200 ten years from today is greater than $150?

Accepted Answer

A)  2 percent
B)  4 percent
C)  6 percent
D)  8 percentE) All of the above
F) C) and D)

Question 9

Other things the same, an increase in the interest rate makes the quantity of loanable funds demanded

Accepted Answer

A)  rise, and investment spending rise.
B)  rise, and investment spending fall.
C)  fall, and investment spending rise.
D)  fall, and investment spending fall.E) B) and C)
F) C) and D)

Question 10

David recently received an inheritance, and he is planning to invest the inheritance in one of four stock portfolios. Which of these portfolios would you expect to have the highest risk?​

Accepted Answer

A)  ​A portfolio with an average annual rate of return of 5%.
B)  ​​A portfolio with an average annual rate of return of 8%.
C)  ​​A portfolio with an average annual rate of return of 10%.
D)  ​​A portfolio with an average annual rate of return of 14%.E) B) and D)
F) B) and C)

Question 11

Markovich Corporation is considering building a new plant. It will cost $1 million today to build it and it will generate revenues of $1.121 million three years from today. Of the interest rates below, which is the highest interest rate at which Markovich still would be willing to build the plant?

Accepted Answer

A)  3 percent
B)  3.5 percent
C)  4 percent
D)  4.5 percentE) A) and D)
F) A) and B)

Question 12

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 B)

Question 13

From the standpoint of the economy as a whole, the role of insurance is not to eliminate the risks inherent in life. Then what is its purpose?

Accepted Answer

To spread these risk...

Question 14

Suppose the interest rate is 5% and that you are to receive three annual payments of $10,000, with the first payment one year from now, the second payment two years from now, and the third payment three years from now. What is the present value of this stream of payments?

Accepted Answer

The presen...

Question 15

A measure of the volatility of a variable is its

Accepted Answer

A)  present value.
B)  future value.
C)  return.
D)  standard deviation.E) None of the above
F) B) and C)

Question 16

Which of the following is correct concerning diversification?

Accepted Answer

A)  It only reduces firm-specific risk, but most of the reduction comes from increasing the number of stocks in a portfolio to well above 30.
B)  It only reduces firm-specific risk; much of the reduction comes from increasing the number of stocks in a portfolio from 1 to 30.
C)  It only reduces market risk, but most of the reduction comes from increasing the number of stocks in a portfolio to well above 30.
D)  None of the above is correct.E) None of the above
F) B) and D)

Question 17

James offers you $1,000 today or $X in 7 years. If the interest rate is 4.5 percent, then you would prefer to take the $1,000 today if and only if

Accepted Answer

A)  X 
B)  X 
C)  X 
D)  X < 1,360.86.E) B) and C)
F) A) and D)

Question 18

Consider the following two situations. Irene accepts a job where she will be driving in dangerous traffic, so she seeks auto insurance. After Victor buys health insurance, he visits the gym less frequently. Which of these person's actions illustrates moral hazard?

Accepted Answer

A)  both Irene's and Victor's
B)  Irene's but not Victor's
C)  Victor's but not Irene's
D)  neither Victor's nor Irene'sE) A) and B)
F) A) and C)

Question 19

If the interest rate is 6 percent, then the present value of $5,000 received ten years from today is $2,583.34.​

Accepted Answer

A) True 
 B)False

Question 20

An automobile manufacturer unexpectedly announces that it has hired a new chief executive officer. It is widely believed that the presence of this individual will raise the profitability of the corporation. At the same time interest rates unexpectedly rise. Which of the above would tend to make the price of the stock rise?

Accepted Answer

A)  the announcement and the rise in interest rates
B)  the announcement but not the rise in interest rates
C)  the rise in interest rates, but not the announcement
D)  neither the announcement nor the rise in interest ratesE) None of the above
F) A) and B)

Exam 27: Tools of Finance

Correct Answer
verified
The increased percentage of st...
View Answer

Correct Answer
verified

A measure of the volatility of a variable is its

Correct Answer
verified

If a person is risk averse, then she has

Correct Answer
verified

David recently received an inheritance, and he is planning to invest the inheritance in one of four stock portfolios. Which of these portfolios would you expect to have the highest risk?

Correct Answer
verified

Suppose the interest rate is 5% and that you are to receive three annual payments of $10,000, with the first payment one year from now, the second payment two years from now, and the third payment three years from now. What is the present value of this stream of payments?

Correct Answer
verified
The presen...
View Answer

Lori, who currently owns stock in four companies, has decided to expand her portfolio by purchasing stock in virtually every company that sells stock. In doing so, Lori will

Correct Answer
verified

Correct Answer
verified

If the interest rate is 6 percent, then the present value of $5,000 received ten years from today is $2,583.34.

Correct Answer
verified

Of the following interest rates, which is the highest one at which the present value of $200 ten years from today is greater than $150?

Correct Answer
verified

Which of the following is correct concerning diversification?

Correct Answer
verified

From the standpoint of the economy as a whole, the role of insurance is not to eliminate the risks inherent in life. Then what is its purpose?

Correct Answer
verified
To spread these risk...
View Answer

Other things the same, an increase in the interest rate makes the quantity of loanable funds demanded

Correct Answer
verified

Clint puts $200 into an account when the interest rate is 8 percent. Later he checks his balance and finds that he has a balance of about $272.10. How many years did Clint wait to check his balance?

Correct Answer
verified

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 Answer
verified

If you are faced with the choice of receiving $500 today or $800 6 years from today, you will be indifferent between the two possibilities if the interest rate is 8.148 percent.

Correct Answer
verified

James offers you $1,000 today or $X in 7 years. If the interest rate is 4.5 percent, then you would prefer to take the $1,000 today if and only if

Correct Answer
verified

Consider the following two situations. Irene accepts a job where she will be driving in dangerous traffic, so she seeks auto insurance. After Victor buys health insurance, he visits the gym less frequently. Which of these person's actions illustrates moral hazard?

Correct Answer
verified

Markovich Corporation is considering building a new plant. It will cost $1 million today to build it and it will generate revenues of $1.121 million three years from today. Of the interest rates below, which is the highest interest rate at which Markovich still would be willing to build the plant?

Correct Answer
verified

At which interest rate is the present value of $80.25 one year from today equal to $75 today?

Correct Answer
verified

Exam 27: Tools of Finance

Correct AnswerverifiedThe increased percentage of st...View AnswerShow Answer

Correct AnswerverifiedShow Answer

A measure of the volatility of a variable is its

Correct AnswerverifiedShow Answer

If a person is risk averse, then she has

Correct AnswerverifiedShow Answer

David recently received an inheritance, and he is planning to invest the inheritance in one of four stock portfolios. Which of these portfolios would you expect to have the highest risk?​

Correct AnswerverifiedShow Answer

Suppose the interest rate is 5% and that you are to receive three annual payments of $10,000, with the first payment one year from now, the second payment two years from now, and the third payment three years from now. What is the present value of this stream of payments?

Correct AnswerverifiedThe presen...View AnswerShow Answer

Lori, who currently owns stock in four companies, has decided to expand her portfolio by purchasing stock in virtually every company that sells stock. In doing so, Lori will

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If the interest rate is 6 percent, then the present value of $5,000 received ten years from today is $2,583.34.​

Correct AnswerverifiedShow Answer

Of the following interest rates, which is the highest one at which the present value of $200 ten years from today is greater than $150?

Correct AnswerverifiedShow Answer

Which of the following is correct concerning diversification?

Correct AnswerverifiedShow Answer

From the standpoint of the economy as a whole, the role of insurance is not to eliminate the risks inherent in life. Then what is its purpose?

Correct AnswerverifiedTo spread these risk...View AnswerShow Answer

Other things the same, an increase in the interest rate makes the quantity of loanable funds demanded

Correct AnswerverifiedShow Answer

Clint puts $200 into an account when the interest rate is 8 percent. Later he checks his balance and finds that he has a balance of about $272.10. How many years did Clint wait to check his balance?

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

If you are faced with the choice of receiving $500 today or $800 6 years from today, you will be indifferent between the two possibilities if the interest rate is 8.148 percent.

Correct AnswerverifiedShow Answer

James offers you $1,000 today or $X in 7 years. If the interest rate is 4.5 percent, then you would prefer to take the $1,000 today if and only if

Correct AnswerverifiedShow Answer

Consider the following two situations. Irene accepts a job where she will be driving in dangerous traffic, so she seeks auto insurance. After Victor buys health insurance, he visits the gym less frequently. Which of these person's actions illustrates moral hazard?

Correct AnswerverifiedShow Answer

Markovich Corporation is considering building a new plant. It will cost $1 million today to build it and it will generate revenues of $1.121 million three years from today. Of the interest rates below, which is the highest interest rate at which Markovich still would be willing to build the plant?

Correct AnswerverifiedShow Answer

At which interest rate is the present value of $80.25 one year from today equal to $75 today?

Correct AnswerverifiedShow Answer

Correct Answer
verified
The increased percentage of st...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

David recently received an inheritance, and he is planning to invest the inheritance in one of four stock portfolios. Which of these portfolios would you expect to have the highest risk?

Correct Answer
verified

Correct Answer
verified
The presen...
View Answer

Correct Answer
verified

Correct Answer
verified

If the interest rate is 6 percent, then the present value of $5,000 received ten years from today is $2,583.34.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
To spread these risk...
View 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