Question 1

Figure 27-2. The figure shows a utility function for Britney. 
-Refer to Figure 27-2. Suppose Britney begins with $1,050 in wealth. Which of the following coin-flip bets would she definitely not be willing to accept?

Accepted Answer

A)   If it is "heads," she wins $100; if it is tails, she loses $95.
B)   If it is "heads," she wins $150; if it is tails, she loses $150.
C)   If it is "heads," she wins $150; if it is tails, she loses $140.
D)   She definitely would not accept any of these bets.E) B) and D)
F) C) and D)

Question 2

One way to characterize the difference between compounding and discounting is to say that

Accepted Answer

A)   compounding involves the assumption that the interest rate is zero, whereas discounting does not involve that assumption.
B)   discounting involves the assumption that the interest rate is zero, whereas compounding does not involve that assumption.
C)   the process of compounding produces a future value, whereas the process of discounting produces a present value.
D)   the process of compounding produces a present value, whereas the process of discounting produces a future value.E) All of the above
F) A) and B)

Question 3

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 B)
F) A) and C)

Question 4

Imagine that someone offers you $X today or $1,500 in 5 years. If the interest rate is 4 percent, then you would prefer to take the $X today if and only if

Accepted Answer

A)   X > 1,055.56.
B)   X > 1,120.89.
C)   X > 1,232.89.
D)   X > 1,338.26.E) None of the above
F) A) and B)

Question 5

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

Question 6

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) None of the above
F) All of the above

Question 7

A previously well-respected and trusted president of a corporation is accused of fraud. At the same time interest rates unexpectedly fall. Which of the above would tend to make the price of the stock rise?

Accepted Answer

A)   the announcement and the fall in interest rates
B)   the announcement but not the fall in interest rates
C)   the fall in interest rates, but not the announcement
D)   neither the announcement nor the fall in interest ratesE) A) and D)
F) None of the above

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

Question 9

What is the future value of $375 at an interest rate of 3 percent one year from today?

Accepted Answer

A)   $371.75
B)   $386.25
C)   $393.33
D)   None of the above are correct to the nearest cent.E) A) and B)
F) C) and D)

Question 10

A risk-averse person has

Accepted Answer

A)   a utility function whose slope gets flatter as wealth rises. This means they have increasing marginal utility of wealth.
B)   a utility function whose slope gets flatter as wealth rises. This means they have diminishing marginal utility of wealth.
C)   a utility function whose slope gets steeper as wealth rises. This means they have increasing marginal utility of wealth.
D)   a utility function whose slope gets steeper as wealth rises. This means they have diminishing utility of wealth.E) A) and C)
F) All of the above

Question 11

Your boss asks you to do fundamental analysis of a corporation. What value is she asking for and how would you estimate this value?

Accepted Answer

The boss is asking for an estimate of th...

Question 12

A car salesperson gives you four alternative ways to pay for your car. The first is to pay $18,000 today. The second is to pay $19,000 one year from today. The third is to pay $20,300 two years from today. The fourth is to pay $21,500 three years from today. If the interest rate is 6 percent, which payment option has the lowest present value and which has the highest?

Accepted Answer

A)   The first is lowest; the second is highest.
B)   The second is lowest; the third is highest.
C)   The third is lowest; the fourth is highest.
D)   The fourth is lowest; the first is highest.E) A) and B)
F) C) and D)

Question 13

Bert put $75 into an account and one year later had $100. What interest rate was paid on Bert's deposit?

Accepted Answer

A)   20 percent
B)   25 percent
C)   28 percent
D)   None of the above is correct.E) C) and D)
F) None of the above

Question 14

If the interest rate is 4%, in which of the following cases is the future value the largest?

Accepted Answer

A)   An initial value of $1,000 deposited for 5 years.
B)   An initial value of $950 deposited for 6 years.
C)   An initial value of $900 deposited for 7 years.
D)   An initial value of $850 deposited for 8 years.E) All of the above
F) A) and C)

Question 15

Black Oil Company considered building a service station in a new location. The owners and their accountants decided that this was the profitable thing to do. However, soon after they made this decision, both the interest rate and the cost of building the station changed. In which case do these changes both make it less likely that they will now build the station?

Accepted Answer

A)   Interest rates rise and the cost of building the station rises.
B)   Interest rates rise and the cost of building the station falls.
C)   Interest rates fall and the cost of building the station rises.
D)   Interest rates fall and the cost of building the station falls.E) B) and C)
F) A) and B)

Question 16

Jack's Lock and Key is considering remodeling. It estimates that the remodeling will cost $6,000 and that as a result revenues will rise by $3,000 the first year, $2,500 the second year, $1,500 the third year and have no effect after then. If the interest rate is 5%, should Jack's remodel? Defend your answer by showing your work.

Accepted Answer

Jack's should remodel. The pre...

Question 17

How does moral hazard matter in the market for insurance?

Accepted Answer

Once people have ins...

Question 18

You deposit $3,000 into an N-year certificate of deposit that pays 4.5 percent annual interest, and at the end of the N years you have $4,082.59. What is the number of years, N?

Accepted Answer

A)   4
B)   5
C)   6
D)   7E) None of the above
F) C) and D)

Question 19

Which of the following statements best describes the economist's view of finance and the financial system?

Accepted Answer

A)   The financial system is very important to the functioning of the economy, and the tools of finance are often helpful to us as individuals when we find ourselves making certain decisions.
B)   The financial system, while interesting, is not very important to the functioning of the economy; however, the tools of finance are often helpful to us as individuals when we find ourselves making certain decisions.
C)   The financial system is very important to the functioning of the economy; however, the tools of finance are not particularly helpful to us as individuals since we seldom make decisions for which those tools are useful.
D)   The field of finance is intimately concerned with the financial system and the tools of finance, and financial economists see great importance in them; however, the "mainstream" economist sees little value in studying financial markets or the tools of finance.E) All of the above
F) C) and D)

Question 20

You have been promised a payment of $400 in the future. In which of the following cases is the present value of this payment the lowest?

Accepted Answer

A)   You receive the payment 4 years from now and the interest rate is 4 percent.
B)   You receive the payment 4 years from now and the interest rate is 5 percent.
C)   You receive the payment 5 years from now and the interest rate is 4 percent.
D)   You receive the payment 5 years from now and the interest rate is 5 percent.E) A) and B)
F) None of the above

Exam 9: The Basic Tools of Finance

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

Correct Answer
verified

You deposit $3,000 into an N-year certificate of deposit that pays 4.5 percent annual interest, and at the end of the N years you have $4,082.59. What is the number of years, N?

Correct Answer
verified

Imagine that someone offers you $X today or $1,500 in 5 years. If the interest rate is 4 percent, then you would prefer to take the $X today if and only if

Correct Answer
verified

A risk-averse person has

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

Figure 27-2. The figure shows a utility function for Britney. -Refer to Figure 27-2. Suppose Britney begins with $1,050 in wealth. Which of the following coin-flip bets would she definitely not be willing to accept?

Correct Answer
verified

What is the future value of $375 at an interest rate of 3 percent one year from today?

Correct Answer
verified

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

A previously well-respected and trusted president of a corporation is accused of fraud. At the same time interest rates unexpectedly fall. Which of the above would tend to make the price of the stock rise?

Correct Answer
verified

Bert put $75 into an account and one year later had $100. What interest rate was paid on Bert's deposit?

Correct Answer
verified

Diversification reduces

Correct Answer
verified

One way to characterize the difference between compounding and discounting is to say that

Correct Answer
verified

If the interest rate is 4%, in which of the following cases is the future value the largest?

Correct Answer
verified

Correct Answer
verified
Jack's should remodel. The pre...
View Answer

How does moral hazard matter in the market for insurance?

Correct Answer
verified
Once people have ins...
View Answer

Which of the following statements best describes the economist's view of finance and the financial system?

Correct Answer
verified

Your boss asks you to do fundamental analysis of a corporation. What value is she asking for and how would you estimate this value?

Correct Answer
verified
The boss is asking for an estimate of th...
View Answer

You have been promised a payment of $400 in the future. In which of the following cases is the present value of this payment the lowest?

Correct Answer
verified

Correct Answer
verified

Exam 9: The Basic Tools of Finance

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

Correct AnswerverifiedShow Answer

You deposit $3,000 into an N-year certificate of deposit that pays 4.5 percent annual interest, and at the end of the N years you have $4,082.59. What is the number of years, N?

Correct AnswerverifiedShow Answer

Imagine that someone offers you $X today or $1,500 in 5 years. If the interest rate is 4 percent, then you would prefer to take the $X today if and only if

Correct AnswerverifiedShow Answer

A risk-averse person has

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

Figure 27-2. The figure shows a utility function for Britney. -Refer to Figure 27-2. Suppose Britney begins with $1,050 in wealth. Which of the following coin-flip bets would she definitely not be willing to accept?

Correct AnswerverifiedShow Answer

What is the future value of $375 at an interest rate of 3 percent one year from today?

Correct AnswerverifiedShow Answer

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

A previously well-respected and trusted president of a corporation is accused of fraud. At the same time interest rates unexpectedly fall. Which of the above would tend to make the price of the stock rise?

Correct AnswerverifiedShow Answer

Bert put $75 into an account and one year later had $100. What interest rate was paid on Bert's deposit?

Correct AnswerverifiedShow Answer

Diversification reduces

Correct AnswerverifiedShow Answer

One way to characterize the difference between compounding and discounting is to say that

Correct AnswerverifiedShow Answer

If the interest rate is 4%, in which of the following cases is the future value the largest?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedJack's should remodel. The pre...View AnswerShow Answer

How does moral hazard matter in the market for insurance?

Correct AnswerverifiedOnce people have ins...View AnswerShow Answer

Which of the following statements best describes the economist's view of finance and the financial system?

Correct AnswerverifiedShow Answer

Your boss asks you to do fundamental analysis of a corporation. What value is she asking for and how would you estimate this value?

Correct AnswerverifiedThe boss is asking for an estimate of th...View AnswerShow Answer

You have been promised a payment of $400 in the future. In which of the following cases is the present value of this payment the lowest?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Jack's should remodel. The pre...
View Answer

Correct Answer
verified
Once people have ins...
View Answer

Correct Answer
verified

Correct Answer
verified
The boss is asking for an estimate of th...
View Answer

Correct Answer
verified

Correct Answer
verified