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Exam 27: Tools of Finance

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Question 101

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According to the efficient markets hypothesis, stocks follow a random walk so that stocks that increase in price one year are more likely to increase than decrease in the next year.

A) True
B) False

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Question 102

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If the interest rate is 8 percent, then what is the present value of $5,000 to be received in ten years?

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Question 103

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Xavier puts $7,000 into each of two different assets. The first asset pays 14 percent interest and the second pays 7 percent. According to the rule of 70, what is the approximate difference in the value of the two assets after 10 years?

A bond promises to pay $500 in one year and $10,500 in two years. What is the correct way to find the present value of this bond?

At an annual interest rate of 10 percent, about how many years will it take $100 to double in value?

Suppose you place $1,000 into a savings account that will pay you 4% interest per year. What will be the future value of the savings account in 10 years?

When you were 10 years old, your grandparents put $500 into an account for you paying 7 percent interest. Now that you are 18 years old, your grandparents tell you that you can take the money out of the account. What is the balance to the nearest cent?

ZZL Corporation has the opportunity to undertake an investment project that will cost $20,000 today. If the interest rate is 20 percent and if the project will yield the company $30,000 in 3 years, then ZZL will undertake the project.

According to the Rule of 70, it takes 70 years for a sum of money to double in value when the interest rate is 5 percent.​

A person's subjective measure of well-being or satisfaction is called aversion.

A company that can build a project that will cost $50,000, but returns $52,000 in one year would make a good decision by turning this project down if the interest rate were 3 percent.

If the interest rate is 4 percent, then you would be equally happy if you received a gift of either $100 today or a gift of

The present value of any future sum of money is the amount that would be needed today, at current interest rates, to produce that future sum.

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

If the interest rate is 8 percent, then the present value of $1,000 to be received in 4 years is $735.03.

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

A company has an investment project that will cost $2 million today and yield a payoff of $3 million in 5 years. If the interest rate is 9%, should the firm undertake the project? Show evidence to support your answer.

Sari puts $100 into an account with an interest rate of 10 percent. According to the rule of 70, about how much does she have at the end of 21 years?