Question 1

Janelle offers you $1,000 today or $1,500 in 5 years.You would prefer to take the $1,500 in 5 years if the interest rate is

Accepted Answer

A)   8 percent.
B)   9 percent.
C)   10 percent.
D)   All of the above are correct.E) B) and C)
F) B) and D)

Question 2

Suppose you win a small lottery and you are given the following choice: You can receive (1) an immediate payment of $10,000 or (2) two annual payments,each in the amount of $5,200,with the first payment coming one year from now,and the second payment coming two years from now.You would choose to take the immediate payment of $10,000 if the interest rate is

Accepted Answer

A)   2 percent,but not if the interest rate is 1 percent.
B)   3 percent,but not if the interest rate is 2 percent.
C)   4 percent,but not if the interest rate is 3 percent.
D)   5 percent,but not if the interest rate is 4 percent.E) A) and B)
F) B) and C)

Question 3

You want to have $100,000 in five years.If the interest rate is 8 percent,about how much do you need to have today?

Accepted Answer

A)   $66,225.25
B)   $67,556.42
C)   $68,058.32
D)   $71,428.57E) A) and B)
F) All of the above

Question 4

If you presently have $50,000 saved and earn 15 percent interest per year,about how many years will it take for your investment to triple?

Accepted Answer

A)   6
B)   8
C)   10
D)   12E) B) and C)
F) A) and D)

Question 5

You could borrow $1,000 today from Bank A and repay the loan,with interest,by paying Bank A $1,060 one year from today.Or,you could borrow $1,500 today from Bank B and repay the loan,with interest,by paying Bank B $1,600 one year from today.Which of the following statements is correct?

Accepted Answer

A)   The interest rate on the loan from Bank A is higher than the interest rate on the loan from Bank B.
B)   The interest rate on the loan from Bank A is lower than the interest rate on the loan from Bank B.
C)   The interest rates on the two loans are the same.
D)   There is not enough information to determine which loan has the higher interest rate.E) B) and D)
F) A) and D)

Question 6

In answering which of the following questions would you find it necessary to calculate a future value?

Accepted Answer

A)   If Jill puts $5,000 today into a bank account that pays 3 percent interest,then how much will she have in the account after 2 years?
B)   Should ABC Corporation buy a factory today for $2 million,knowing that the factory will yield the corporation $3 million after 5 years?
C)   As the winner of a lottery,should Michael choose an immediate payment of $250,000 or should he choose annual payments of $30,000 for each of the next 10 years?
D)   You would find it necessary to calculate a future value in order to answer all of these questions.E) A) and B)
F) B) and C)

Question 7

A firm has three different investment options.Option A will give the firm $10 million at the end of one year,$10 million at the end of two years,and $10 million at the end of three years.Option B will give the firm $15 million at the end of one year,$10 million at the end of two years,and $5 million at the end of three years.Option C will give the firm $30 million at the end of one year,and nothing thereafter.Which of these options has the highest present value?

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 B)
F) A) and C)

Question 8

If you deposit $900 into an account for two years and the interest rate is 4%,how much do you have at the end of the two years?

Accepted Answer

A)   $972.00
B)   $973.44
C)   $974.19
D)   None of the above is correct.E) A) and D)
F) A) and C)

Question 9

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

Question 10

On the Internet you find the following offers for opening an online account.Which of them is the best offer if you have $2,000 to save for two years?

Accepted Answer

A)   an interest rate of 5 percent,with the bank charging you a $15 processing fee at the time you open your account
B)   an interest rate of 3.5 percent,with the bank giving you a $35 bonus to open your account
C)   an interest rate of 4 percent,with the bank giving you a $20 bonus at the time you open your account
D)   an interest rate of 4.5 percent,with no processing fee and no bonusE) B) and C)
F) A) and D)

Question 11

Risk aversion helps to explain various things we observe in the economy,including

Accepted Answer

A)   adherence to the old adage,"Don't put all your eggs in one basket."
B)   insurance.
C)   the risk-return trade-off.
D)   All of the above are correct.E) C) and D)
F) A) and B)

Question 12

Given that Tamar is a risk-averse person,she might accept a bet with a 50 percent chance of losing $100 today if she had a 50 percent

Accepted Answer

A)   chance of winning $120 in two years and the interest rate was 11%.
B)   chance of winning $114 in two years and the interest rate was 7%.
C)   chance of winning $110 in two years and the interest rate was 3%.
D)   None of the above are correct; a risk averse person would not accept any of the above bets.E) A) and B)
F) C) and D)

Question 13

Four years ago Ollie deposited some money into an account.He earned 5 percent interest on this account and now it has a balance of $303.88.About how much money did Ollie deposit into his account when he opened it?

Accepted Answer

A)   $210
B)   $220
C)   $240
D)   $250E) B) and D)
F) A) and D)

Question 14

A company that produces computer peripherals is considering buying some new equipment that it expects will increase future profits.If the interest rate rises,the present value of these future earnings

Accepted Answer

A)   rises.The company is more likely to buy the equipment.
B)   rises.The company is less likely to buy the equipment.
C)   falls.The company is more likely to buy the equipment.
D)   falls.The company is less likely to buy the equipment.E) A) and B)
F) A) and D)

Question 15

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

Accepted Answer

A)   a decrease in the size of the payment
B)   a decrease in the time until the payment is made
C)   an increase in the interest rate
D)   All of the above are correct.E) B) and D)
F) None of the above

Question 16

Suppose you put $500 into a bank account today.Interest is paid annually and the annual interest rate is 5.5 percent.The future value of the $500 is

Accepted Answer

A)   $637.50 after 5 years and $822.09 after 10 years.
B)   $637.50 after 5 years and $775.00 after 10 years.
C)   $653.48 after 5 years and $854.07 after 10 years.
D)   $688.36 after 5 years and $915.56 after 10 years.E) A) and B)
F) A) and C)

Question 17

When you rent a car,you might treat it with less care than you would if it were your own.This is an example of

Accepted Answer

A)   market risk.
B)   moral hazard.
C)   adverse selection.
D)   risk aversion.E) A) and D)
F) A) and C)

Question 18

Which of the following is the correct expression for finding the present value of a $500 payment two years from today if the interest rate is 4 percent?

Accepted Answer

A)   $500/(1.04) 2
B)   $500 - 500(1.04) 2
C)   $500 - $500/(.04) 2
D)   None of the above is correct.E) B) and C)
F) All of the above

Question 19

Suppose you win a small lottery and you are given the following choice: You can (1) receive an immediate payment of $10,000 or (2) three annual payments,each in the amount of $3,600,with the first payment coming one year from now,the second two years from now,and the third three years from now.You would choose to take the three annual payments if the interest rate is

Accepted Answer

A)   2 percent,but not if the interest rate is 3 percent.
B)   3 percent,but not if the interest rate is 4 percent.
C)   4 percent,but not if the interest rate is 5 percent.
D)   5 percent,but not if the interest rate is 6 percent.E) All of the above
F) A) and D)

Question 20

According to the efficient market hypothesis

Accepted Answer

A)   changes in the prices of stocks are predictable.Evidence shows that managed funds typically do better than indexed funds.
B)   changes in the prices of stocks are predictable.Evidence shows that indexed funds typically do better than managed funds.
C)   changes in the prices of stocks are not predictable.Evidence shows that managed funds typically do better than indexed funds.
D)   changes in the prices of stocks are not predictable.Evidence shows that indexed funds typically do better than managed funds.E) A) and B)
F) C) and D)

Exam 19: The Basic Tools of Finance

In answering which of the following questions would you find it necessary to calculate a future value?

Correct Answer
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Correct Answer
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If you presently have $50,000 saved and earn 15 percent interest per year,about how many years will it take for your investment to triple?

Correct Answer
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Which of the following changes would increase the present value of a future payment?

Correct Answer
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Given that Tamar is a risk-averse person,she might accept a bet with a 50 percent chance of losing $100 today if she had a 50 percent

Correct Answer
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You could borrow $1,000 today from Bank A and repay the loan,with interest,by paying Bank A $1,060 one year from today.Or,you could borrow $1,500 today from Bank B and repay the loan,with interest,by paying Bank B $1,600 one year from today.Which of the following statements is correct?

Correct Answer
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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

Four years ago Ollie deposited some money into an account.He earned 5 percent interest on this account and now it has a balance of $303.88.About how much money did Ollie deposit into his account when he opened it?

Correct Answer
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When you rent a car,you might treat it with less care than you would if it were your own.This is an example of

Correct Answer
verified

Suppose you put $500 into a bank account today.Interest is paid annually and the annual interest rate is 5.5 percent.The future value of the $500 is

Correct Answer
verified

If you deposit $900 into an account for two years and the interest rate is 4%,how much do you have at the end of the two years?

Correct Answer
verified

Correct Answer
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On the Internet you find the following offers for opening an online account.Which of them is the best offer if you have $2,000 to save for two years?

Correct Answer
verified

Risk aversion helps to explain various things we observe in the economy,including

Correct Answer
verified

According to the efficient market hypothesis

Correct Answer
verified

A company that produces computer peripherals is considering buying some new equipment that it expects will increase future profits.If the interest rate rises,the present value of these future earnings

Correct Answer
verified

Which of the following is the correct expression for finding the present value of a $500 payment two years from today if the interest rate is 4 percent?

Correct Answer
verified

Janelle offers you $1,000 today or $1,500 in 5 years.You would prefer to take the $1,500 in 5 years if the interest rate is

Correct Answer
verified

Correct Answer
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You want to have $100,000 in five years.If the interest rate is 8 percent,about how much do you need to have today?

Correct Answer
verified

Exam 19: The Basic Tools of Finance

In answering which of the following questions would you find it necessary to calculate a future value?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If you presently have $50,000 saved and earn 15 percent interest per year,about how many years will it take for your investment to triple?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Given that Tamar is a risk-averse person,she might accept a bet with a 50 percent chance of losing $100 today if she had a 50 percent

Correct AnswerverifiedShow Answer

You could borrow $1,000 today from Bank A and repay the loan,with interest,by paying Bank A $1,060 one year from today.Or,you could borrow $1,500 today from Bank B and repay the loan,with interest,by paying Bank B $1,600 one year from today.Which of the following statements is correct?

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

Four years ago Ollie deposited some money into an account.He earned 5 percent interest on this account and now it has a balance of $303.88.About how much money did Ollie deposit into his account when he opened it?

Correct AnswerverifiedShow Answer

When you rent a car,you might treat it with less care than you would if it were your own.This is an example of

Correct AnswerverifiedShow Answer

Suppose you put $500 into a bank account today.Interest is paid annually and the annual interest rate is 5.5 percent.The future value of the $500 is

Correct AnswerverifiedShow Answer

If you deposit $900 into an account for two years and the interest rate is 4%,how much do you have at the end of the two years?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

On the Internet you find the following offers for opening an online account.Which of them is the best offer if you have $2,000 to save for two years?

Correct AnswerverifiedShow Answer

Risk aversion helps to explain various things we observe in the economy,including

Correct AnswerverifiedShow Answer

According to the efficient market hypothesis

Correct AnswerverifiedShow Answer

A company that produces computer peripherals is considering buying some new equipment that it expects will increase future profits.If the interest rate rises,the present value of these future earnings

Correct AnswerverifiedShow Answer

Which of the following is the correct expression for finding the present value of a $500 payment two years from today if the interest rate is 4 percent?

Correct AnswerverifiedShow Answer

Janelle offers you $1,000 today or $1,500 in 5 years.You would prefer to take the $1,500 in 5 years if the interest rate is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

You want to have $100,000 in five years.If the interest rate is 8 percent,about how much do you need to have today?

Correct AnswerverifiedShow Answer

Correct Answer
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