Question 1

Which of the following has the highest future value?

Accepted Answer

A)   $100 saved for 2 years at 10 percent interest
B)   $110 saved for 2 years at 9 percent interest
C)   $120 saved for 2 years at 8 percent interest
D)   $130 saved for 2 years at 7 percent interestE) B) and C)
F) A) and D)

Question 2

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) None of the above
F) C) and D)

Question 3

The present value of a payment of $500 to be made two years from today is greater if the interest rate is 7% than if it is 6%.

Accepted Answer

A) True 
 B)False

Question 4

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) B) and D)
F) B) and C)

Question 5

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) All of the above
F) A) and B)

Question 6

Increasing the number of corporations whose stocks are in your portfolio reduces market risk.

Accepted Answer

A) True 
 B)False

Question 7

You are better off choosing $400 in 4 years rather than $300 today if the interest rate is

Accepted Answer

A)   lower than about 5.5 percent.
B)   higher than about 5.5 percent.
C)   lower than about 7.5 percent.
D)   higher than about 7.5 percent.E) A) and D)
F) A) 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) All of the above
F) A) and C)

Question 9

Tami knows that people in her family die young,and so she buys life insurance.Preston knows he is a reckless driver and so he applies for automobile insurance.

Accepted Answer

A)   These are both examples of adverse selection.
B)   These are both examples of moral hazard.
C)   The first example illustrates adverse selection,and the second illustrates moral hazard.
D)   The first example illustrates moral hazard,and the second illustrates adverse selection.E) B) and D)
F) None of the above

Question 10

Suppose you will receive $800 in two years.If the interest rate is 5 percent,then the present value of this future payment is

Accepted Answer

A)   $725.62.It would be higher if the interest rate were higher.
B)   $727.28.It would be higher if the interest rate were higher.
C)   $725.62.It would be lower if the interest rate were higher.
D)   $727.28.It would be lower if the interest rate were higher.E) C) and D)
F) None of the above

Question 11

An increase in the number of corporations in a portfolio from 110 to 120 reduces

Accepted Answer

A)   market risk by more than an increase from 1 to 10.
B)   market risk by less than an increase from 1 to 10.
C)   firm-specific risk by more than an increase from 1 to 10.
D)   firm-specific risk by less than an increase from 1 to 10.E) All of the above
F) A) and B)

Question 12

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

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) None of the above
F) All of the above

Question 13

Economists have developed models of risk aversion using the concept of

Accepted Answer

A)   utility and the associated assumption of diminishing marginal utility.
B)   utility and the associated assumption of increasing marginal utility.
C)   income and the associated assumption of diminishing marginal wealth.
D)   income and the associated assumption of increasing marginal wealth.E) A) and B)
F) A) and C)

Question 14

Abby buys health insurance because she knows that she has health risks that wouldn't be obvious to an insurance company.Brad buys home owners insurance and then is less careful to make sure he's put out his cigarettes.The example with Abby

Accepted Answer

A)   and the example with Brad illustrate adverse selection.
B)   and the example with Brad illustrate moral hazard.
C)   illustrates adverse selection; the example with Brad illustrates moral hazard.
D)   illustrates moral hazard; the example with Brad illustrates adverse selection.E) None of the above
F) C) and D)

Question 15

Figure 19-5.On the graph,x represents risk and y represents return. 
-Refer to Figure 19-5.Point A represents a situation in which

Accepted Answer

A)   all of a person's savings are allocated to a class of safe assets.
B)   the person knows with certainty that his or her return will be 3 percent.
C)   the standard deviation of the person's portfolio is zero.
D)   All of the above are correct.E) B) and C)
F) All of the above

Question 16

Risk-averse persons will take no risks.

Accepted Answer

A) True 
 B)False

Question 17

Marcia has four savings accounts.Which account has the largest balance?

Accepted Answer

A)   $100 deposited 1 year ago at an 8 percent interest rate
B)   $100 deposited 2 years ago at a 4 percent interest rate
C)   $100 deposited 4 years ago at a 2 percent interest rate
D)   $100 deposited 8 years ago at a 1 percent interest rateE) C) and D)
F) B) and D)

Question 18

Most financial decisions involve two related elements:

Accepted Answer

A)   advice and consent.
B)   investment and taxes.
C)   time and risk.
D)   saving and consumption.E) C) and D)
F) B) and C)

Question 19

PZX Corporation has the opportunity to undertake an investment project that will cost $10,000 today and yield the company $13,310 in 3 years.PZX will forgo the project if the interest rate is higher than 10 percent.

Accepted Answer

A) True 
 B)False

Question 20

Historically,stocks have offered higher rates of return than bonds.

Accepted Answer

A) True 
 B)False

Exam 19: The Basic Tools of Finance

Suppose you will receive $800 in two years.If the interest rate is 5 percent,then the present value of this future payment is

Correct AnswerverifiedShow Answer

Diversification reduces

Correct AnswerverifiedShow Answer

Historically,stocks have offered higher rates of return than bonds.

Correct AnswerverifiedShow Answer

Most financial decisions involve two related elements:

Correct AnswerverifiedShow Answer

PZX Corporation has the opportunity to undertake an investment project that will cost $10,000 today and yield the company $13,310 in 3 years.PZX will forgo the project if the interest rate is higher than 10 percent.

Correct AnswerverifiedShow Answer

Tami knows that people in her family die young,and so she buys life insurance.Preston knows he is a reckless driver and so he applies for automobile insurance.

Correct AnswerverifiedShow Answer

An increase in the number of corporations in a portfolio from 110 to 120 reduces

Correct AnswerverifiedShow Answer

Marcia has four savings accounts.Which account has the largest balance?

Correct AnswerverifiedShow Answer

Figure 19-5.On the graph,x represents risk and y represents return. -Refer to Figure 19-5.Point A represents a situation in which

Correct AnswerverifiedShow Answer

The present value of a payment of $500 to be made two years from today is greater if the interest rate is 7% than if it is 6%.

Correct AnswerverifiedShow Answer

Which of the following has the highest future value?

Correct AnswerverifiedShow Answer

Economists have developed models of risk aversion using the concept of

Correct AnswerverifiedShow Answer

Increasing the number of corporations whose stocks are in your portfolio reduces market risk.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Risk-averse persons will take no risks.

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

You are better off choosing $400 in 4 years rather than $300 today if the interest rate is

Correct AnswerverifiedShow Answer

Abby buys health insurance because she knows that she has health risks that wouldn't be obvious to an insurance company.Brad buys home owners insurance and then is less careful to make sure he's put out his cigarettes.The example with Abby

Correct AnswerverifiedShow Answer

Fundamental analysis determines the value of a stock based on

Correct AnswerverifiedShow Answer

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

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

Correct Answer
verified

Correct Answer
verified