Question 1

The present value of a payment to be made in the future falls as

Accepted Answer

A)   the interest rate rises and the time until the payment is made increases.
B)   the interest rate rises and the time until the payment is made decreases.
C)   the interest rate falls and the time until the payment is made increases.
D)   the interest rate falls and the time until the payment is made decreases.E) A) and B)
F) A) and C)

Question 2

What is the future value of $750 one year from today if the interest rate is 3 percent?

Accepted Answer

A)   772.73
B)   772.50
C)   773.33
D)   None of the above are correct to the nearest cent.E) None of the above
F) All of the above

Question 3

Dobson Construction has an investment project that would cost $150,000 today and yield a one-time payoff of $167,000 in two years.Among the following interest rates,which is the highest one at which Dobson would find this project profitable?

Accepted Answer

A)   7%
B)   6%
C)   5%
D)   4%E) C) and D)
F) B) and C)

Question 4

Risk-averse people will choose different asset portfolios than people who are not risk averse.Over a long period of time,we would expect that

Accepted Answer

A)   every risk-averse person will earn a higher rate of return than every non-risk averse person.
B)   every risk-averse person will earn a lower rate of return than every non-risk averse person.
C)   the average risk-averse person will earn a higher rate of return than the average non-risk averse person.
D)   the average risk-averse person will earn a lower rate of return than the average non-risk averse person.E) A) and C)
F) B) and C)

Question 5

Risk-averse persons will take no risks.

Accepted Answer

A) True 
 B)False

Question 6

Kastle 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 Kastle would still be willing to build the plant?

Accepted Answer

A)   3 percent
B)   3.5 percent
C)   4 percent
D)   4.5 percentE) B) and C)
F) None of the above

Question 7

Diversification reduces

Accepted Answer

A)   only market risk.
B)   only firm-specific risk.
C)   neither market or firm-specific risk.
D)   both market and firm-specific risk.E) All of the above
F) B) and C)

Question 8

Suppose the interest rate is 4 percent.Which of the following has the greatest present value?

Accepted Answer

A)   $100 today plus $190 one year from today
B)   $150 today plus $140 one year from today
C)   $200 today plus $90 one year from today
D)   $250 today plus $40 one year from todayE) A) and B)
F) B) and C)

Question 9

Fundamental analysis determines the value of a stock based on

Accepted Answer

A)   dividends.
B)   the expected final sale price.
C)   the ability of the corporation to earn profits.
D)   All of the above are correct.E) None of the above
F) B) and C)

Question 10

What is the present value of a payment of $1,000 two years from now if the interest rate is 6%?

Accepted Answer

A)   $2,000/1.06
B)   $1000/(1.06) 2
C)   $1000/(1 + 0.062) 
D)   None of the above are correct.E) A) and C)
F) C) and D)

Question 11

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) A) and B)
F) A) and D)

Question 12

Robert put $15,000 into an account with a fixed interest rate two years ago and now the account balance is $16,695.38.What rate of interest did Robert earn?

Accepted Answer

A)   4.5 percent
B)   5.5 percent
C)   6.5 percent
D)   8.0 percentE) B) and D)
F) C) and D)

Question 13

If the interest rate is 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)   $475.00
C)   $480.77
D)   None of the above are correct to the nearest cent.E) B) and C)
F) None of the above

Question 14

Your accountant tells you that if you can continue to earn the current interest rate on your balance of $750 for the next three years,you will have $998.25 in your account.If your accountant is correct,what is the current interest rate?

Accepted Answer

A)   9 percent
B)   10 percent
C)   11 percent
D)   12 percentE) None of the above
F) B) and C)

Question 15

Write the rule of 70.Suppose that your great-great-grandmother put $50 in a savings account 100 years ago and the account is now worth $1,600.Use the rule of 70 to determine about what interest rate she earned.

Accepted Answer

$1,600/$50 = 32.The rule of 70 says that...

Question 16

When a person engages in detailed analysis of a company to determine its value,he or she is engaging in

Accepted Answer

A)   standard deviation analysis.
B)   informational analysis.
C)   fundamental analysis.
D)   efficiency analysis.E) B) and D)
F) None of the above

Question 17

Compounding refers directly to

Accepted Answer

A)   finding the present value of a future sum of money.
B)   finding the future value of a present sum of money.
C)   changes in the interest rate over time on a bank account or a similar savings vehicle.
D)   interest being earned on previously-earned interest.E) All of the above
F) None of the above

Question 18

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) A) and B)
F) A) and C)

Question 19

In 2005,the Wall Street Journal reported that researchers in an interdisciplinary field called neuroeconomics had concluded a study that suggests that

Accepted Answer

A)   biology plays no role in economic decision-making.
B)   psychotherapy directed at improving economic decision-making can produce beneficial results.
C)   people who are very emotional may make better financial decisions than other people.
D)   people with certain kinds of brain disorders may make better financial decisions than other people.E) A) and C)
F) A) and D)

Question 20

You may be unwilling to buy a used car because you suspect the last owner found out the car was a lemon.You may treat a car you rented with a little less care than you'd use on your own car.

Accepted Answer

A)   Both examples primarily illustrate adverse selection.
B)   Both examples primarily illustrate moral hazard.
C)   The first example primarily illustrates adverse selection;the second primarily illustrates moral hazard.
D)   The first example primarily illustrates moral hazard;the second primarily illustrates adverse selection.E) All of the above
F) A) and B)

Exam 27: The Basic Tools of Finance

Risk-averse people will choose different asset portfolios than people who are not risk averse.Over a long period of time,we would expect that

Correct AnswerverifiedShow Answer

Compounding refers directly to

Correct AnswerverifiedShow Answer

Dobson Construction has an investment project that would cost $150,000 today and yield a one-time payoff of $167,000 in two years.Among the following interest rates,which is the highest one at which Dobson would find this project profitable?

Correct AnswerverifiedShow Answer

The present value of a payment to be made in the future falls as

Correct AnswerverifiedShow Answer

Kastle 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 Kastle would still be willing to build the plant?

Correct AnswerverifiedShow Answer

When a person engages in detailed analysis of a company to determine its value,he or she is engaging in

Correct AnswerverifiedShow Answer

Your accountant tells you that if you can continue to earn the current interest rate on your balance of $750 for the next three years,you will have $998.25 in your account.If your accountant is correct,what is the current interest rate?

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

You may be unwilling to buy a used car because you suspect the last owner found out the car was a lemon.You may treat a car you rented with a little less care than you'd use on your own car.

Correct AnswerverifiedShow Answer

What is the future value of $750 one year from today if the interest rate is 3 percent?

Correct AnswerverifiedShow Answer

Robert put $15,000 into an account with a fixed interest rate two years ago and now the account balance is $16,695.38.What rate of interest did Robert earn?

Correct AnswerverifiedShow Answer

What is the present value of a payment of $1,000 two years from now if the interest rate is 6%?

Correct AnswerverifiedShow Answer

Diversification reduces

Correct AnswerverifiedShow Answer

Suppose the interest rate is 4 percent.Which of the following has the greatest present value?

Correct AnswerverifiedShow Answer

If the interest rate is 5 percent,what is the present value of a payment of $500 to be made one year from today?

Correct AnswerverifiedShow Answer

In 2005,the Wall Street Journal reported that researchers in an interdisciplinary field called neuroeconomics had concluded a study that suggests that

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Write the rule of 70.Suppose that your great-great-grandmother put $50 in a savings account 100 years ago and the account is now worth $1,600.Use the rule of 70 to determine about what interest rate she earned.

Correct Answerverified$1,600/$50 = 32.The rule of 70 says that...View AnswerShow Answer

Risk-averse persons will take no risks.

Correct AnswerverifiedShow Answer

Fundamental analysis determines the value of a stock based on

Correct AnswerverifiedShow 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

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
$1,600/$50 = 32.The rule of 70 says that...
View Answer

Correct Answer
verified

Correct Answer
verified