Question 1

Marcus puts a greater proportion of his portfolio into government bonds. Marcus's action

Accepted Answer

A)   increases both risk and the average rate of return.
B)   decreases both risk and the average rate of return.
C)   increases risk, but decreases the average rate of return.
D)   decreases risk, but increases the average rate of return.E) B) and C)
F) None of the above

Question 2

If the efficient market hypothesis is correct, then

Accepted Answer

A)   index funds should typically beat managed funds, and usually do.
B)   index fund should typically beat managed funds, but usually do not.
C)   mutual funds should typically beat index funds, and usually do.
D)   mutual funds should typically beat index funds, but usually do not.E) A) and C)
F) All of the above

Question 3

Felix deposited $500 into an account two years ago. The first year he earned 3 percent interest and the second year he earned 5 percent interest. How much money does Felix have in his account now?

Accepted Answer

A)   $540.75
B)   $540.80
C)   $540.85
D)   None of the above are correct to the nearest cent.E) B) and C)
F) A) and D)

Question 4

Two years ago Darryl put $3,000 into an account paying 3 percent interest. How much does he have in the account today?

Accepted Answer

A)   $3,180.00
B)   $3,182.70
C)   $3,183.62
D)   None of the above are correct to the nearest cent.E) None of the above
F) A) and B)

Question 5

In the 1990s, Fed Chairperson Alan Greenspan questioned whether the stock market

Accepted Answer

A)   boom at that time reflected "irrational exuberance."
B)   decline at that time reflected "irrational funk."
C)   boom at that time reflected "rational exuberance."
D)   decline at that time reflected "rational funk."E) A) and B)
F) A) and C)

Question 6

Imagine that two years ago you inherited $20,000 and put it into an account paying a fixed 8 percent annual interest rate. How much money do you have in your account now?

Accepted Answer

A)   $22,880.00
B)   $23,200.00
C)   $23,232.00
D)   $23,328.00E) All of the above
F) B) and C)

Question 7

Which of the following has a present value of $100?

Accepted Answer

A)   $110 in two years when the interest rate is 5 percent
B)   $112.36 in two years when the interest rate is 6 percent
C)   $117.49 in two years when the interest rate is 7 percent
D)   None of the above are correct to the nearest cent.E) B) and C)
F) A) and D)

Question 8

Demonstrate that whether you would prefer to have $225 today or wait five years for $300 depends on the interest rate. Show your work.

Accepted Answer

For example at 3 percent the p...

Question 9

Which of the following actions best illustrates moral hazard?

Accepted Answer

A)   A person adds risky stock to his portfolio.
B)   A person who has narrowly avoided many accidents applies for automobile insurance.
C)   A person is unwilling to buy a stock when she believes its price has an equal chance of rising or falling $10.
D)   A person purchases homeowners insurance and then checks his smoke detector batteries less frequently.E) B) and C)
F) A) and B)

Question 10

Suppose that interest rates unexpectedly rise and that Carter Corporation announces that revenues from last quarter were down but not as much as the public had anticipated they would be down. According to the efficient markets hypothesis, which of the these things make the price of Carter Corporation Stock fall?

Accepted Answer

A)   both the interest rate rising and the revenue announcement
B)   neither the interest rate rising nor the revenue announcement
C)   only the interest rate rising
D)   only the revenue announcementE) B) and D)
F) B) and C)

Question 11

For a risk averse person,

Accepted Answer

A)   the pleasure of winning $1,000 on a bet exceeds the pain of losing $1,000 on a bet.
B)   the pain of losing $1,000 on a bet exceeds the pleasure of winning $1,000 on a bet.
C)   the utility function exhibits the property of increasing marginal utility.
D)   the utility function gets steeper as wealth increases.E) A) and D)
F) B) and C)

Question 12

The rule of 70 applies to a growing savings account but not to a growing economy.

Accepted Answer

A) True 
 B)False

Question 13

Al, Ralph, and Stan are all intending to retire. Each currently has $1 million in assets. Al will earn 16% interest and retire in two years. Ralph will earn 8% interest and retire in four years. Stan will earn 4% interest and retire in eight years. Who will have the largest sum when he retires?

Accepted Answer

A)   Al
B)   Ralph
C)   Stan
D)   They all retire with the same amount.E) None of the above
F) All of the above

Question 14

At an annual interest rate of 20 percent, about how many years will it take $100 to triple in value?

Accepted Answer

A)   5
B)   6
C)   8
D)   9E) All of the above
F) C) and D)

Question 15

Over the past two centuries, the average annual rates of return were about

Accepted Answer

A)   5 percent for stocks and about 1.5 percent for short-term government bonds.
B)   6 percent for stocks and about 2.5 percent for short-term government bonds.
C)   8 percent for stocks and about 3 percent for short-term government bonds.
D)   None of the above is correct.E) A) and B)
F) A) and D)

Question 16

A person with diminishing marginal utility of wealth is risk averse.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is the largest?

Accepted Answer

A)   the future value of $250 with 3% interest for 2 years
B)   the future value of $250 at 2% interest for 3 years
C)   the present value of $250 to be paid in two years when the interest rate is 3%
D)   the present value of $250 to be paid in three years when the interest rate is 2%E) C) and D)
F) B) and D)

Question 18

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.

Accepted Answer

A) True 
 B)False

Question 19

Fundamental analysis shows that stock in Cedar Valley Furniture Corporation has a price that exceeds its present value.

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

Question 20

Fundamental analysis shows that Moonlight Company is fairly valued. Then Moonlight Company unexpectedly improves its production techniques and unexpectedly hires a new CEO away from another very successful tea producer. Suppose this has no effect on the price of the stock of Moonlight Company.

Accepted Answer

A)   Fundamental analysis would now show the corporation is overvalued. The fact that the price was unchanged is consistent with the efficient markets hypothesis.
B)   Fundamental analysis would now show the corporation is overvalued. The fact that the price was unchanged is not consistent with the efficient markets hypothesis.
C)   Fundamental analysis would now show the corporation is undervalued. The fact that the price was unchanged is consistent with the efficient markets hypothesis.
D)   Fundamental analysis would now show the corporation is undervalued. The fact that the price was unchanged is not consistent with the efficient markets hypothesis.E) B) and D)
F) B) and C)

Exam 9: The Basic Tools of Finance

Which of the following actions best illustrates moral hazard?

Correct Answer
verified

A person with diminishing marginal utility of wealth is risk averse.

Correct Answer
verified

Al, Ralph, and Stan are all intending to retire. Each currently has $1 million in assets. Al will earn 16% interest and retire in two years. Ralph will earn 8% interest and retire in four years. Stan will earn 4% interest and retire in eight years. Who will have the largest sum when he retires?

Correct Answer
verified

Which of the following is the largest?

Correct Answer
verified

Correct Answer
verified

Demonstrate that whether you would prefer to have $225 today or wait five years for $300 depends on the interest rate. Show your work.

Correct Answer
verified
For example at 3 percent the p...
View Answer

If the efficient market hypothesis is correct, then

Correct Answer
verified

Felix deposited $500 into an account two years ago. The first year he earned 3 percent interest and the second year he earned 5 percent interest. How much money does Felix have in his account now?

Correct Answer
verified

Fundamental analysis shows that Moonlight Company is fairly valued. Then Moonlight Company unexpectedly improves its production techniques and unexpectedly hires a new CEO away from another very successful tea producer. Suppose this has no effect on the price of the stock of Moonlight Company.

Correct Answer
verified

The rule of 70 applies to a growing savings account but not to a growing economy.

Correct Answer
verified

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.

Correct Answer
verified

At an annual interest rate of 20 percent, about how many years will it take $100 to triple in value?

Correct Answer
verified

Two years ago Darryl put $3,000 into an account paying 3 percent interest. How much does he have in the account today?

Correct Answer
verified

Marcus puts a greater proportion of his portfolio into government bonds. Marcus's action

Correct Answer
verified

Over the past two centuries, the average annual rates of return were about

Correct Answer
verified

Which of the following has a present value of $100?

Correct Answer
verified

Imagine that two years ago you inherited $20,000 and put it into an account paying a fixed 8 percent annual interest rate. How much money do you have in your account now?

Correct Answer
verified

Fundamental analysis shows that stock in Cedar Valley Furniture Corporation has a price that exceeds its present value.

Correct Answer
verified

For a risk averse person,

Correct Answer
verified

In the 1990s, Fed Chairperson Alan Greenspan questioned whether the stock market

Correct Answer
verified

Exam 9: The Basic Tools of Finance

Which of the following actions best illustrates moral hazard?

Correct AnswerverifiedShow Answer

A person with diminishing marginal utility of wealth is risk averse.

Correct AnswerverifiedShow Answer

Al, Ralph, and Stan are all intending to retire. Each currently has $1 million in assets. Al will earn 16% interest and retire in two years. Ralph will earn 8% interest and retire in four years. Stan will earn 4% interest and retire in eight years. Who will have the largest sum when he retires?

Correct AnswerverifiedShow Answer

Which of the following is the largest?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Demonstrate that whether you would prefer to have $225 today or wait five years for $300 depends on the interest rate. Show your work.

Correct AnswerverifiedFor example at 3 percent the p...View AnswerShow Answer

If the efficient market hypothesis is correct, then

Correct AnswerverifiedShow Answer

Felix deposited $500 into an account two years ago. The first year he earned 3 percent interest and the second year he earned 5 percent interest. How much money does Felix have in his account now?

Correct AnswerverifiedShow Answer

Fundamental analysis shows that Moonlight Company is fairly valued. Then Moonlight Company unexpectedly improves its production techniques and unexpectedly hires a new CEO away from another very successful tea producer. Suppose this has no effect on the price of the stock of Moonlight Company.

Correct AnswerverifiedShow Answer

The rule of 70 applies to a growing savings account but not to a growing economy.

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

At an annual interest rate of 20 percent, about how many years will it take $100 to triple in value?

Correct AnswerverifiedShow Answer

Two years ago Darryl put $3,000 into an account paying 3 percent interest. How much does he have in the account today?

Correct AnswerverifiedShow Answer

Marcus puts a greater proportion of his portfolio into government bonds. Marcus's action

Correct AnswerverifiedShow Answer

Over the past two centuries, the average annual rates of return were about

Correct AnswerverifiedShow Answer

Which of the following has a present value of $100?

Correct AnswerverifiedShow Answer

Imagine that two years ago you inherited $20,000 and put it into an account paying a fixed 8 percent annual interest rate. How much money do you have in your account now?

Correct AnswerverifiedShow Answer

Fundamental analysis shows that stock in Cedar Valley Furniture Corporation has a price that exceeds its present value.

Correct AnswerverifiedShow Answer

For a risk averse person,

Correct AnswerverifiedShow Answer

In the 1990s, Fed Chairperson Alan Greenspan questioned whether the stock market

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
For example at 3 percent the p...
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

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified