Question 1

According to fundamental analysis, when choosing stocks for your portfolio, you should prefer undervalued stocks.

Accepted Answer

A) True 
 B)False

Question 2

Fundamental analysis shows that stock in Garske Software Corporation has a present value that is higher than its price.

Accepted Answer

A)  This stock is overvalued; you should consider adding it to your portfolio.
B)  This stock is overvalued; you shouldn't consider adding it to your portfolio.
C)  This stock is undervalued; you should consider adding it to your portfolio.
D)  This stock is undervalued; you shouldn't consider adding it to your portfolio.E) None of the above
F) B) and D)

Question 3

Write the formula for finding the future value of $1,000 today in 10 years if the interest rate is 4 percent.

Accepted Answer

The answer of Write the formula for finding the future...

Question 4

Figure 27-1. The figure shows a utility function. 
-Refer to Figure 27-1. The properties exhibited by this utility function help to explain various things we observe in the economy, including

Accepted Answer

A)  the risk-return tradeoff.
B)  insurance.
C)  diversification.
D)  All of the above are correct.E) A) and D)
F) B) and C)

Question 5

If Joanna is risk averse, then

Accepted Answer

A)  her utility function exhibits the property of decreasing utility.
B)  her utility function exhibits the property of increasing marginal utility.
C)  she dislikes bad things more than she likes comparable good things.
D)  she is unlike most people, because most people are not risk averse.E) B) and C)
F) A) and D)

Question 6

Which, if any, of the present values below are computed correctly?

Accepted Answer

A)  A payment of $100 to be received one year from today, with a 2 percent interest rate, has a present value of $98.81.
B)  A payment of $200 to be received two years from today, with a 3 percent interest rate, has a present value of $188.52.
C)  A payment of $300 to be received three years from today, with a 4 percent interest rate, has a present value of $234.34.
D)  None of the above are correct to the nearest cent.E) B) and D)
F) A) and B)

Question 7

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) All of the above
F) A) and D)

Question 8

A risk-averse person has

Accepted Answer

A)  a utility function whose slope gets flatter as wealth rises. This means they have increasing marginal utility of wealth.
B)  a utility function whose slope gets flatter as wealth rises. This means they have diminishing marginal utility of wealth.
C)  a utility function whose slope gets steeper as wealth rises. This means they have increasing marginal utility of wealth.
D)  a utility function whose slope gets steeper as wealth rises. This means they have diminishing utility of wealth.E) A) and D)
F) None of the above

Question 9

Economists disagree as to whether

Accepted Answer

A)  the stock price of a company should reflect the company's expected profitability.
B)  the basic tools of finance reflect valid ideas.
C)  stock prices reflect rational estimates of a company's true worth.
D)  there is any relationship between stock market fluctuations and fluctuations in the economy more broadly.E) A) and B)
F) C) and D)

Question 10

The value of a stock is based on the

Accepted Answer

A)  present values of the dividend stream and final price. As a result, the value of a stock rises when interest rates rise.
B)  present values of the dividend stream and final price. As a result, the value of a stock falls when interest rates rise.
C)  future values of the dividend stream and final price. As a result, the value of a stock rises when interest rates rises.
D)  future values of the dividend stream and final price. As a result, the value of a stock falls when interest rates rise.E) B) and C)
F) B) and D)

Question 11

Give an example of adverse selection and an example of moral hazard using homeowners insurance.

Accepted Answer

An example of adverse selection is that ...

Question 12

As the interest rate increases, what happens to the present value of a future payment? Explain why changes in the interest rate will lead to changes in the quantity of loanable funds demanded and investment spending.

Accepted Answer

An increase in the interest rate reduces...

Question 13

Ellen deposited $500 into an account and two years later she had $561.80 in the account. What interest rate was paid on Ellen's deposit?

Accepted Answer

A)  4.88 percent
B)  6.00 percent
C)  12.36 percent
D)  None of the above is correct.E) A) and B)
F) B) and C)

Question 14

Suppose Dave drives more recklessly when he has car insurance than when he does not have car insurance. This is an example of the moral hazard problem associated with insurance.​

Accepted Answer

A) True 
 B)False

Question 15

Which of the following changes would increase the present value of a future payment?

Accepted Answer

A)  a decrease in the size of the payment
B)  an increase in the time until the payment is made
C)  a decrease in the interest rate
D)  All of the above are correct.E) A) and B)
F) A) and C)

Question 16

What is the future value of $450 at an interest rate of 9 percent two years from today?

Accepted Answer

A)  $534.65
B)  $546.35
C)  $565.18
D)  $574.13E) B) and C)
F) A) and C)

Question 17

Should a person who is risk averse hold a portfolio with no stock and only bonds?
Explain.

Accepted Answer

Not necessarily. Historically bonds have...

Question 18

Laura says that the present value of $700 to be received one year from today if the interest rate is 6 percent is less than the present value of $700 to be received two years from today if the interest rate is 3 percent. Cassie says that $700 saved for one year at 6 percent interest has a smaller future value than $700 saved for two years at 3 percent interest.

Accepted Answer

A)  Both Laura and Cassie are correct.
B)  Both Laura and Cassie are incorrect.
C)  Only Laura is correct.
D)  Only Cassie is correct.E) A) and D)
F) All of the above

Question 19

On the Internet you find the following offers for opening an online account. Which of them is the best offer if you have $5,000 to save for two years?

Accepted Answer

A)  an interest rate of 5 percent, with the bank charging you a $50 processing fee at the time you open your account
B)  an interest rate of 4 percent, with the bank giving you a $65 bonus at the time you open your account
C)  an interest rate of 3.5 percent, with the bank giving you a $100 bonus to open your account
D)  an interest rate of 4.5 percent, with no processing fee and no bonusE) A) and C)
F) B) and C)

Question 20

At which interest rate is the present value of $168.54 two years from today equal to $150 today?

Accepted Answer

A)  4 percent
B)  5 percent
C)  6 percent
D)  None of the above would give a present value within a cent of $162.24.E) A) and D)
F) B) and C)

Exam 27: Tools of Finance

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

As the interest rate increases, what happens to the present value of a future payment? Explain why changes in the interest rate will lead to changes in the quantity of loanable funds demanded and investment spending.

Correct Answer
verified
An increase in the interest rate reduces...
View Answer

Fundamental analysis shows that stock in Garske Software Corporation has a present value that is higher than its price.

Correct Answer
verified

On the Internet you find the following offers for opening an online account. Which of them is the best offer if you have $5,000 to save for two years?

Correct Answer
verified

Write the formula for finding the future value of $1,000 today in 10 years if the interest rate is 4 percent.

Correct Answer
verified

If Joanna is risk averse, then

Correct Answer
verified

Suppose Dave drives more recklessly when he has car insurance than when he does not have car insurance. This is an example of the moral hazard problem associated with insurance.

Correct Answer
verified

A risk-averse person has

Correct Answer
verified

Which, if any, of the present values below are computed correctly?

Correct Answer
verified

Figure 27-1. The figure shows a utility function. -Refer to Figure 27-1. The properties exhibited by this utility function help to explain various things we observe in the economy, including

Correct Answer
verified

Ellen deposited $500 into an account and two years later she had $561.80 in the account. What interest rate was paid on Ellen's deposit?

Correct Answer
verified

Correct Answer
verified

According to fundamental analysis, when choosing stocks for your portfolio, you should prefer undervalued stocks.

Correct Answer
verified

At which interest rate is the present value of $168.54 two years from today equal to $150 today?

Correct Answer
verified

What is the future value of $450 at an interest rate of 9 percent two years from today?

Correct Answer
verified

The value of a stock is based on the

Correct Answer
verified

Which of the following changes would increase the present value of a future payment?

Correct Answer
verified

Give an example of adverse selection and an example of moral hazard using homeowners insurance.

Correct Answer
verified
An example of adverse selection is that ...
View Answer

Economists disagree as to whether

Correct Answer
verified

Should a person who is risk averse hold a portfolio with no stock and only bonds? Explain.

Correct Answer
verified
Not necessarily. Historically bonds have...
View Answer

Exam 27: Tools of Finance

Correct AnswerverifiedShow Answer

As the interest rate increases, what happens to the present value of a future payment? Explain why changes in the interest rate will lead to changes in the quantity of loanable funds demanded and investment spending.

Correct AnswerverifiedAn increase in the interest rate reduces...View AnswerShow Answer

Fundamental analysis shows that stock in Garske Software Corporation has a present value that is higher than its price.

Correct AnswerverifiedShow Answer

On the Internet you find the following offers for opening an online account. Which of them is the best offer if you have $5,000 to save for two years?

Correct AnswerverifiedShow Answer

Write the formula for finding the future value of $1,000 today in 10 years if the interest rate is 4 percent.

Correct AnswerverifiedShow Answer

If Joanna is risk averse, then

Correct AnswerverifiedShow Answer

Suppose Dave drives more recklessly when he has car insurance than when he does not have car insurance. This is an example of the moral hazard problem associated with insurance.​

Correct AnswerverifiedShow Answer

A risk-averse person has

Correct AnswerverifiedShow Answer

Which, if any, of the present values below are computed correctly?

Correct AnswerverifiedShow Answer

Figure 27-1. The figure shows a utility function. -Refer to Figure 27-1. The properties exhibited by this utility function help to explain various things we observe in the economy, including

Correct AnswerverifiedShow Answer

Ellen deposited $500 into an account and two years later she had $561.80 in the account. What interest rate was paid on Ellen's deposit?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

According to fundamental analysis, when choosing stocks for your portfolio, you should prefer undervalued stocks.

Correct AnswerverifiedShow Answer

At which interest rate is the present value of $168.54 two years from today equal to $150 today?

Correct AnswerverifiedShow Answer

What is the future value of $450 at an interest rate of 9 percent two years from today?

Correct AnswerverifiedShow Answer

The value of a stock is based on the

Correct AnswerverifiedShow Answer

Which of the following changes would increase the present value of a future payment?

Correct AnswerverifiedShow Answer

Give an example of adverse selection and an example of moral hazard using homeowners insurance.

Correct AnswerverifiedAn example of adverse selection is that ...View AnswerShow Answer

Economists disagree as to whether

Correct AnswerverifiedShow Answer

Should a person who is risk averse hold a portfolio with no stock and only bonds? Explain.

Correct AnswerverifiedNot necessarily. Historically bonds have...View AnswerShow Answer

Correct Answer
verified

Correct Answer
verified
An increase in the interest rate reduces...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Suppose Dave drives more recklessly when he has car insurance than when he does not have car insurance. This is an example of the moral hazard problem associated with insurance.

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
An example of adverse selection is that ...
View Answer

Correct Answer
verified

Correct Answer
verified
Not necessarily. Historically bonds have...
View Answer