Question 1

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 2

Risk aversion simply means that people dislike bad things to happen.

Accepted Answer

A) True 
 B)False

Question 3

At which interest rate is the present value of $360 three years from today equal to about $310 today?

Accepted Answer

A)   4.7 percent
B)   5.1 percent
C)   5.5 percent
D)   5.9 percentE) C) and D)
F) All of the above

Question 4

Historically the return on stocks has been higher than the return on bonds. In part this reflects the higher risk from holding stock.

Accepted Answer

A) True 
 B)False

Question 5

If you deposit $1,000 into a savings account that pays you 5% interest per year, approximately how long will it take to double your money?

Accepted Answer

A)   8 years
B)   10 years
C)   12 years
D)   14 yearsE) B) and C)
F) A) and D)

Question 6

Which of the following is correct concerning stock market irrationality?

Accepted Answer

A)   Bubbles could arise, in part, because the price that people pay for stock depends on what they think someone else will pay for it in the future.
B)   Economists almost all agree that the evidence for stock market irrationality is convincing and the departures from rational pricing are important.
C)   Some evidence for the existence of market irrationality is that informed and presumably rational managers of mutual funds generally beat the market.
D)   All of the above are correct.E) A) and B)
F) None of the above

Question 7

If the interest rate is r percent, then the rule of 70 says that your savings will double about every

Accepted Answer

A)   70/(1 - r)  years.
B)   70/(1 + r)  years.
C)   70/r years.
D)   70(1 + r) /r years.E) None of the above
F) A) and B)

Question 8

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

Accepted Answer

A)   an increase 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) None of the above
F) B) and C)

Question 9

Which of the following is the correct way to compute the future value of $100 put into an account that earns 4 percent interest for 10 years?

Accepted Answer

A)   $100(1 + .0410) 
B)   $100(1 + .04 10)  
B)   $100(1 + .04   10)  
C)   $100 × 10   (1 + .04)  
D)   $100(1 + .04) 10" class="answers-bank-image d-inline" rel="preload" > 10) 
C)   $100 × 10 10)  
B)   $100(1 + .04   10)  
C)   $100 × 10   (1 + .04)  
D)   $100(1 + .04) 10" class="answers-bank-image d-inline" rel="preload" > (1 + .04) 
D)   $100(1 + .04) 10E) All of the above
F) B) and C)

Question 10

What is the future value of $800 one year from today if the interest rate is 7 percent?

Accepted Answer

A)   $747.66
B)   $756.00
C)   $856.00
D)   None of the above are correct to the nearest cent.E) A) and B)
F) B) and C)

Question 11

What is the present value of a payment of $100 to be made one year from today?

Accepted Answer

A)   $100*(1 + r) 
B)   $100/(1 + r) 
C)   $100 - $100  r
D)   $100 - (1 + r) /$100E) C) and D)
F) All of the above

Question 12

Writing in the Wall Street Journal in 2009, economist Jeremy Siegel argued that, in the years leading up to the financial crisis of 2008-2009,

Accepted Answer

A)   financial firms acted in too risky a fashion.
B)   the Federal Reserve's efforts to rein in the risky behavior of certain financial firms were inadequate.
C)   falling house prices "crashed the banks and the economy."
D)   All of the above are correct.E) None of the above
F) All of the above

Question 13

As the number of stocks in a person's portfolio increases,

Accepted Answer

A)   the risk of the portfolio increases, as indicated by the increasing value of the standard deviation of the portfolio.
B)   the risk of the portfolio increases, as indicated by the decreasing value of the standard deviation of the portfolio.
C)   the risk of the portfolio decreases, as indicated by the increasing value of the standard deviation of the portfolio.
D)   the risk of the portfolio decreases, as indicated by the decreasing value of the standard deviation of the portfolio.E) A) and B)
F) A) and C)

Question 14

Risk-averse persons will take no risks.

Accepted Answer

A) True 
 B)False

Question 15

What is the future value of $500 one year from today if the interest rate is 6 percent?

Accepted Answer

A)   $515
B)   $520
C)   $530
D)   None of the above is correct.E) A) and D)
F) B) and C)

Question 16

Susan put $375 into an account and one year later had $405. What interest rate was paid on Susan's deposit?

Accepted Answer

A)   5 percent
B)   7 percent
C)   8 percent
D)   10 percentE) All of the above
F) B) and C)

Question 17

An increase in the number of corporations in a portfolio from 1 to 10 reduces

Accepted Answer

A)   market risk by more than an increase from 110 to 120.
B)   market risk by less than an increase from 110 to 120.
C)   firm-specific risk by more than an increase from 110 to 120.
D)   firm-specific risk by less than an increase from 110 to 120.E) A) and C)
F) B) and D)

Question 18

List three different ways that a risk-averse person can reduce financial risk.

Accepted Answer

A risk-averse person can reduce risk by ...

Question 19

Accepted Answer

Which of the following is the correct way to compute the future value of $1 put into an account that earns 5 percent interest for 16 years?  ) undefined
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Question 20

Of the following interest rates, which is the highest one at which you would prefer to have $170 ten years from today instead of $100 today?

Accepted Answer

A)   3 percent
B)   5 percent
C)   7 percent
D)   9 percentE) A) and C)
F) A) and B)

Exam 27: The Basic Tools of Finance

Which of the following is correct concerning stock market irrationality?

Correct Answer
verified

What is the future value of $800 one year from today if the interest rate is 7 percent?

Correct Answer
verified

At which interest rate is the present value of $360 three years from today equal to about $310 today?

Correct Answer
verified

What is the present value of a payment of $100 to be made one year from today?

Correct Answer
verified

As the number of stocks in a person's portfolio increases,

Correct Answer
verified

Of the following interest rates, which is the highest one at which you would prefer to have $170 ten years from today instead of $100 today?

Correct Answer
verified

List three different ways that a risk-averse person can reduce financial risk.

Correct Answer
verified
A risk-averse person can reduce risk by ...
View Answer

Writing in the Wall Street Journal in 2009, economist Jeremy Siegel argued that, in the years leading up to the financial crisis of 2008-2009,

Correct Answer
verified

Risk aversion simply means that people dislike bad things to happen.

Correct Answer
verified

What is the future value of $500 one year from today if the interest rate is 6 percent?

Correct Answer
verified

If you deposit $1,000 into a savings account that pays you 5% interest per year, approximately how long will it take to double your money?

Correct Answer
verified

Risk-averse persons will take no risks.

Correct Answer
verified

An increase in the number of corporations in a portfolio from 1 to 10 reduces

Correct Answer
verified

Which of the following changes would decrease 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

Historically the return on stocks has been higher than the return on bonds. In part this reflects the higher risk from holding stock.

Correct Answer
verified

Correct Answer
verified

Susan put $375 into an account and one year later had $405. What interest rate was paid on Susan's deposit?

Correct Answer
verified

If the interest rate is r percent, then the rule of 70 says that your savings will double about every

Correct Answer
verified

Which of the following is the correct way to compute the future value of $100 put into an account that earns 4 percent interest for 10 years?

Correct Answer
verified

Exam 27: The Basic Tools of Finance

Which of the following is correct concerning stock market irrationality?

Correct AnswerverifiedShow Answer

What is the future value of $800 one year from today if the interest rate is 7 percent?

Correct AnswerverifiedShow Answer

At which interest rate is the present value of $360 three years from today equal to about $310 today?

Correct AnswerverifiedShow Answer

What is the present value of a payment of $100 to be made one year from today?

Correct AnswerverifiedShow Answer

As the number of stocks in a person's portfolio increases,

Correct AnswerverifiedShow Answer

Of the following interest rates, which is the highest one at which you would prefer to have $170 ten years from today instead of $100 today?

Correct AnswerverifiedShow Answer

List three different ways that a risk-averse person can reduce financial risk.

Correct AnswerverifiedA risk-averse person can reduce risk by ...View AnswerShow Answer

Writing in the Wall Street Journal in 2009, economist Jeremy Siegel argued that, in the years leading up to the financial crisis of 2008-2009,

Correct AnswerverifiedShow Answer

Risk aversion simply means that people dislike bad things to happen.

Correct AnswerverifiedShow Answer

What is the future value of $500 one year from today if the interest rate is 6 percent?

Correct AnswerverifiedShow Answer

If you deposit $1,000 into a savings account that pays you 5% interest per year, approximately how long will it take to double your money?

Correct AnswerverifiedShow Answer

Risk-averse persons will take no risks.

Correct AnswerverifiedShow Answer

An increase in the number of corporations in a portfolio from 1 to 10 reduces

Correct AnswerverifiedShow Answer

Which of the following changes would decrease 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

Historically the return on stocks has been higher than the return on bonds. In part this reflects the higher risk from holding stock.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Susan put $375 into an account and one year later had $405. What interest rate was paid on Susan's deposit?

Correct AnswerverifiedShow Answer

If the interest rate is r percent, then the rule of 70 says that your savings will double about every

Correct AnswerverifiedShow Answer

Which of the following is the correct way to compute the future value of $100 put into an account that earns 4 percent interest for 10 years?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
A risk-averse person can reduce risk by ...
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
An example of adverse selection is that ...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
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