Question 1

The efficient markets hypothesis says that

Accepted Answer

A)   only individual investors can make money in the stock market.
B)   it should be easy to find stocks whose price differs from their fundamental value.
C)   stock prices follow a random walk.
D)   All of the above are correct.E) C) and D)
F) A) and D)

Question 2

According to the efficient market hypothesis,which of the following statements is not correct?

Accepted Answer

A)   Stock market prices tend to rise today if they rose yesterday.
B)   As judged by the typical person in the market,all stocks are fairly valued all the time.
C)   At the market price,the number of shares being offered for sale matches the number of shares people want to buy.
D)   All of the above statements are incorrect.E) B) and C)
F) A) and C)

Question 3

A firm has three different investment options,each costing $10 million.Option A will generate $12 million in revenue at the end of one year.Option B will generate $15 million in revenue at the end of two years.Option C will generate $18 million in revenue at the end of three years.Which option should the firm choose?

Accepted Answer

A)   Option A
B)   Option B
C)   Option C
D)   The answer depends on the rate of interest,which is not specified here.E) A) and D)
F) None of the above

Question 4

The possibility of speculative bubbles in the stock market arises in part because

Accepted Answer

A)   stock prices may not depend at all on psychological factors.
B)   fundamental analysis may be the correct way to evaluate the value of stocks.
C)   future streams of dividend payments are very hard to estimate.
D)   the value of shares of stock depends not only on the future stream of dividend payments but also on the price at which the stock will be sold.E) B) and C)
F) A) and B)

Question 5

April,who currently owns stock in four companies,has decided to expand her portfolio by purchasing stock in virtually every company that sells stock.In doing so,April will

Accepted Answer

A)   increase the risk of her portfolio.
B)   decrease some,but not all,of the risk of her portfolio.
C)   decrease all of the risk of her portfolio.
D)   leave the risk of her portfolio unchanged from its present level.E) B) and D)
F) A) and C)

Question 6

Risk-averse persons will take no risks.

Accepted Answer

A) True 
 B)False

Question 7

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.

Accepted Answer

A) True 
 B)False

Question 8

If a stock or bond is risky

Accepted Answer

A)   risk averse people may be willing to hold it as part of a diversified portfolio.
B)   risk averse people may be willing to hold it if the expected return is high enough.
C)   both A and B are correct.
D)   risk averse people will not hold it.E) A) and D)
F) B) and C)

Question 9

Suppose you will receive $500 at some point in the future.If the annual interest rate is 7.5 percent,then the present value of the $500 is

Accepted Answer

A)   $411.26 if the $500 is to be received in 5 years and $338.95 if the $500 is to be received in 10 years.
B)   $348.28 if the $500 is to be received in 5 years and $242.60 if the $500 is to be received in 10 years.
C)   $291.11 if the $500 is to be received in 5 years and $272.89 if the $500 is to be received in 10 years.
D)   $291.11 if the $500 is to be received in 5 years and $236.49 if the $500 is to be received in 10 years.E) A) and B)
F) B) and D)

Question 10

At an annual interest rate of 14 percent,about how many years will it take $100 to double in value?

Accepted Answer

A)   3
B)   4
C)   5
D)   7E) All of the above
F) None of the above

Question 11

Which of the following is the correct expression for finding the present value of a $1,000 payment one year from today if the interest rate is 6 percent?

Accepted Answer

A)   $1,000(1.06) 
B)   $1,000(1.06) 
C)   $1,000/(1.06) 
D)   None of the above is correct.E) A) and D)
F) B) and D)

Question 12

A payment of $10,000 is to be made in the future.The interest rate 3%.Is this payment worth more if it is paid in 5 years or 10 years? How much more is it worth?

Accepted Answer

It is worth more if it is received in 5 ...

Question 13

If Robert is risk-averse,then he will always

Accepted Answer

A)   choose not to play a game where he has a 50 percent chance of winning $1 and a 50 percent chance of losing $1.
B)   choose not to play a game where he has a 75 percent chance of winning $1 and a 25 percent chance of losing $1.
C)   choose to play a game where he has a 52 percent chance of winning $1 and a 48 percent chance of losing $1.
D)   All of the above are correct.E) All of the above
F) C) and D)

Question 14

Mary talked to several stockbrokers and made the following conclusions.Which,if any,of her conclusions are correct?

Accepted Answer

A)   It is relatively easy to reduce firm-specific risk by increasing the number of companies one holds stock in.
B)   Stock prices,even if not exactly a random walk,are very close to it.
C)   Some people have made a lot of money in the stock market by using insider information,but these cases are not contrary to the efficient markets hypothesis.
D)   All of Mary's conclusions are correct.E) A) and B)
F) A) and C)

Question 15

You have been promised a payment of $250,000 in the future.In which case is the present value of this payment highest?

Accepted Answer

A)   You receive the payment 3 years from now and the interest rate is 8 percent.
B)   You receive the payment 3 years from now and the interest rate is 6 percent.
C)   You receive the payment 2 years from now and the interest rate is 8 percent.
D)   You receive the payment 2 years from now and the interest rate is 6 percent.E) A) and B)
F) A) and C)

Question 16

Suppose you are deciding whether to buy a particular bond.If you buy the bond and hold it for 4 years,then at that time you will receive a payment of $10,000.If the interest rate is 6 percent,you will buy the bond if its price today is no greater than

Accepted Answer

A)   $8,225.06.
B)   $7,920.94.
C)   $7,672.58.
D)   $6,998.98.E) B) and C)
F) C) and D)

Question 17

Kayla faces risks and she pays a fee to ABC Company;in return,ABC Company agrees to accept some or all of Kayla's risks.ABC Company is

Accepted Answer

A)   a mutual fund.
B)   an insurance company.
C)   a diversified company.
D)   an equity-financed company.E) A) and B)
F) None of the above

Question 18

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

Question 19

Figure 14-4.The figure shows a utility function for Dexter. 
-Refer to Figure 14-4.From the appearance of the utility function,we know that

Accepted Answer

A)   Dexter is risk averse.
B)   Dexter gains less satisfaction when his wealth increases by X dollars than he loses in satisfaction when his wealth decreases by X dollars.
C)   the property of diminishing marginal utility does not apply to Dexter.
D)   All of the above are correct.E) B) and C)
F) B) and D)

Question 20

Imagine that someone offers you $100 today or $200 in 10 years.You would prefer to take the $100 today if the interest rate is

Accepted Answer

A)   4 percent.
B)   6 percent.
C)   8 percent.
D)   All of the above are correct.E) B) and C)
F) A) and B)

Exam 27: The Basic Tools of Finance

Risk-averse persons will take no risks.

Correct Answer
verified

You have been promised a payment of $250,000 in the future.In which case is the present value of this payment highest?

Correct Answer
verified

The efficient markets hypothesis says that

Correct Answer
verified

If a stock or bond is risky

Correct Answer
verified

Mary talked to several stockbrokers and made the following conclusions.Which,if any,of her conclusions are correct?

Correct Answer
verified

The possibility of speculative bubbles in the stock market arises in part because

Correct Answer
verified

Suppose you will receive $500 at some point in the future.If the annual interest rate is 7.5 percent,then the present value of the $500 is

Correct Answer
verified

If Robert is risk-averse,then he will always

Correct Answer
verified

At an annual interest rate of 14 percent,about how many years will it take $100 to double in value?

Correct Answer
verified

April,who currently owns stock in four companies,has decided to expand her portfolio by purchasing stock in virtually every company that sells stock.In doing so,April will

Correct Answer
verified

Kayla faces risks and she pays a fee to ABC Company;in return,ABC Company agrees to accept some or all of Kayla's risks.ABC Company is

Correct Answer
verified

Suppose you are deciding whether to buy a particular bond.If you buy the bond and hold it for 4 years,then at that time you will receive a payment of $10,000.If the interest rate is 6 percent,you will buy the bond if its price today is no greater than

Correct Answer
verified

Which of the following is the correct expression for finding the present value of a $1,000 payment one year from today if the interest rate is 6 percent?

Correct Answer
verified

According to the efficient market hypothesis,which of the following statements is not correct?

Correct Answer
verified

Imagine that someone offers you $100 today or $200 in 10 years.You would prefer to take the $100 today if the interest rate is

Correct Answer
verified

A payment of $10,000 is to be made in the future.The interest rate 3%.Is this payment worth more if it is paid in 5 years or 10 years? How much more is it worth?

Correct Answer
verified
It is worth more if it is received in 5 ...
View Answer

Figure 14-4.The figure shows a utility function for Dexter. -Refer to Figure 14-4.From the appearance of the utility function,we know that

Correct Answer
verified

Correct Answer
verified

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 Answer
verified

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.

Correct Answer
verified

Exam 27: The Basic Tools of Finance

Risk-averse persons will take no risks.

Correct AnswerverifiedShow Answer

You have been promised a payment of $250,000 in the future.In which case is the present value of this payment highest?

Correct AnswerverifiedShow Answer

The efficient markets hypothesis says that

Correct AnswerverifiedShow Answer

If a stock or bond is risky

Correct AnswerverifiedShow Answer

Mary talked to several stockbrokers and made the following conclusions.Which,if any,of her conclusions are correct?

Correct AnswerverifiedShow Answer

The possibility of speculative bubbles in the stock market arises in part because

Correct AnswerverifiedShow Answer

Suppose you will receive $500 at some point in the future.If the annual interest rate is 7.5 percent,then the present value of the $500 is

Correct AnswerverifiedShow Answer

If Robert is risk-averse,then he will always

Correct AnswerverifiedShow Answer

At an annual interest rate of 14 percent,about how many years will it take $100 to double in value?

Correct AnswerverifiedShow Answer

April,who currently owns stock in four companies,has decided to expand her portfolio by purchasing stock in virtually every company that sells stock.In doing so,April will

Correct AnswerverifiedShow Answer

Kayla faces risks and she pays a fee to ABC Company;in return,ABC Company agrees to accept some or all of Kayla's risks.ABC Company is

Correct AnswerverifiedShow Answer

Suppose you are deciding whether to buy a particular bond.If you buy the bond and hold it for 4 years,then at that time you will receive a payment of $10,000.If the interest rate is 6 percent,you will buy the bond if its price today is no greater than

Correct AnswerverifiedShow Answer

Which of the following is the correct expression for finding the present value of a $1,000 payment one year from today if the interest rate is 6 percent?

Correct AnswerverifiedShow Answer

According to the efficient market hypothesis,which of the following statements is not correct?

Correct AnswerverifiedShow Answer

Imagine that someone offers you $100 today or $200 in 10 years.You would prefer to take the $100 today if the interest rate is

Correct AnswerverifiedShow Answer

A payment of $10,000 is to be made in the future.The interest rate 3%.Is this payment worth more if it is paid in 5 years or 10 years? How much more is it worth?

Correct AnswerverifiedIt is worth more if it is received in 5 ...View AnswerShow Answer

Figure 14-4.The figure shows a utility function for Dexter. -Refer to Figure 14-4.From the appearance of the utility function,we know that

Correct AnswerverifiedShow Answer

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

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.

Correct AnswerverifiedShow Answer

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It is worth more if it is received in 5 ...
View Answer

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