Question 1

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 2

Figure 27-1.The figure shows a utility function. 
-Refer to Figure 27-1.Which distance along the vertical axis represents the marginal utility of an increase in wealth from $600 to $800?

Accepted Answer

A)   the distance between the origin and point B
B)   the distance between the origin and point C
C)   the distance between point A and point C
D)   the distance between point B and point CE) B) and C)
F) A) and D)

Question 3

Sari puts $100 into an account with an interest rate of 10 percent.According to the rule of 70,about how much does she have at the end of 21 years?

Accepted Answer

A)   $210
B)   $300
C)   $800
D)   $1,010E) C) and D)
F) B) and C)

Question 4

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

Question 5

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) All of the above

Question 6

Figure 27-2.On the graph,x represents risk and y represents return. 
-Refer to Figure 27-2.Which of the following statements is correct?

Accepted Answer

A)   At point A the standard deviation of the portfolio is 3.
B)   A risk averse person always will choose to be at point A.
C)   At point D the portfolio consists of about 15 percent stocks and 85 percent safe assets.
D)   The figure shows that the greater the risk,the greater the return.E) A) and D)
F) None of the above

Question 7

According to the efficient markets hypothesis,which of the following would increase the price of stock in the McCloud Corporation?

Accepted Answer

A)   McCloud announces,just as everyone had expected,that it has hired a new highly respected CEO.
B)   McCloud announces that its profits were low,but not as low as the market had expected.
C)   Analysis by a column in a business weekly indicates that McCloud is overvalued.
D)   All of the above would increase the price.E) None of the above
F) B) and D)

Question 8

If you put $125 into an account that paid 3.25 percent interest,then how much money would you have in the account after 20 years?

Accepted Answer

A)   $285.83
B)   $236.98
C)   $202.04
D)   $145.65E) B) and C)
F) A) and D)

Question 9

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

Question 10

According to the rule of 70,if the interest rate is 10 percent,about how long will it take for the value of a savings account to double?

Accepted Answer

A)   about 6.3 years
B)   about 7 years
C)   about 7.7 years
D)   about 10 yearsE) B) and C)
F) None of the above

Question 11

Speculative bubbles may arise in part because the value of the stock to a stockholder depends on the final sale price.

Accepted Answer

A) True 
 B)False

Question 12

You are tearing down a building and find $1 in change that someone lost when working on the building 140 years ago.If,instead of being careless with the $1 in change,this person had deposited it into a bank and earned 2 percent interest every year for 140 years,how much would be in the account today according to the rule of 70?

Accepted Answer

A)   $4
B)   $8
C)   $16
D)   $32E) A) and C)
F) B) and C)

Question 13

The last $200 of Tami's wealth added more to her utility than another $200 would.Based on this information,Tami's utility function

Accepted Answer

A)   and marginal utility function are both upward sloping.
B)   and marginal utility function are both downward sloping.
C)   is upward sloping and her marginal utility function is downward sloping.
D)   is downward sloping and her marginal utility function is upward sloping.E) B) and C)
F) C) and D)

Question 14

If you put $1,000 in the bank today at an interest rate of 6% what is its value in two years?

Accepted Answer

A)   $2,000(1.06) 
B)   $1,000 + $(1.06) 2
C)   $1,000(1.06) 2
D)   None of the above are correct.E) A) and B)
F) A) and C)

Question 15

A measure of the volatility of a variable is its

Accepted Answer

A)   present value.
B)   future value.
C)   return.
D)   standard deviation.E) B) and C)
F) A) and B)

Question 16

Which of the following is correct?

Accepted Answer

A)   Managed funds typically have a higher return than indexed funds.This tends to refute the efficient market hypothesis.
B)   Managed funds typically have a higher return than indexed funds.This tends to support the efficient market hypothesis.
C)   Index funds typically have a higher rate of return than managed funds.This tends to refute the efficient market hypothesis.
D)   Index funds typically have a higher rate of return than managed funds.This tends to support the efficient market hypothesis.E) C) and D)
F) B) and D)

Question 17

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

Question 18

A risk-averse person

Accepted Answer

A)   has a utility curve where the slope increases with wealth,and might take a bet with a 60 percent chance of wining $100 and a 40 per chance of losing $100.
B)   has a utility curve where the slope increases with wealth,and would never take a bet with a 60 percent chance of wining $100 and a 40 per cent chance of losing $100.
C)   has a utility curve where the slope decreases with wealth,and might take a bet with a 60 percent chance of wining $100 and a 40 per chance of losing $100.
D)   has a utility curve where the slope decreases with wealth,and would never take a bet with a 60 percent chance of wining $100 and a 40 per cent chance of losing $100.E) A) and D)
F) All of the above

Question 19

The future value of a deposit in a savings account will be larger

Accepted Answer

A)   the longer a person waits to withdraw the funds.
B)   the higher the interest rate is.
C)   the larger the initial deposit is.
D)   All of the above are correct.E) A) and B)
F) All of the above

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

Exam 27: The Basic Tools of Finance

A measure of the volatility of a variable is its

Correct Answer
verified

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

Correct Answer
verified

According to the efficient markets hypothesis,which of the following would increase the price of stock in the McCloud Corporation?

Correct Answer
verified

If you put $1,000 in the bank today at an interest rate of 6% what is its value in two years?

Correct Answer
verified

Speculative bubbles may arise in part because the value of the stock to a stockholder depends on the final sale price.

Correct Answer
verified

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

A risk-averse person

Correct Answer
verified

If you put $125 into an account that paid 3.25 percent interest,then how much money would you have in the account after 20 years?

Correct Answer
verified

According to the rule of 70,if the interest rate is 10 percent,about how long will it take for the value of a savings account to double?

Correct Answer
verified

The last $200 of Tami's wealth added more to her utility than another $200 would.Based on this information,Tami's utility function

Correct Answer
verified

Sari puts $100 into an account with an interest rate of 10 percent.According to the rule of 70,about how much does she have at the end of 21 years?

Correct Answer
verified

Correct Answer
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Figure 27-2.On the graph,x represents risk and y represents return. -Refer to Figure 27-2.Which of the following statements is correct?

Correct Answer
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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

The future value of a deposit in a savings account will be larger

Correct Answer
verified

Correct Answer
verified

Figure 27-1.The figure shows a utility function. -Refer to Figure 27-1.Which distance along the vertical axis represents the marginal utility of an increase in wealth from $600 to $800?

Correct Answer
verified

A risk-averse person has

Correct Answer
verified

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

Which of the following is correct?

Correct Answer
verified

Exam 27: The Basic Tools of Finance

A measure of the volatility of a variable is its

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

According to the efficient markets hypothesis,which of the following would increase the price of stock in the McCloud Corporation?

Correct AnswerverifiedShow Answer

If you put $1,000 in the bank today at an interest rate of 6% what is its value in two years?

Correct AnswerverifiedShow Answer

Speculative bubbles may arise in part because the value of the stock to a stockholder depends on the final sale price.

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

A risk-averse person

Correct AnswerverifiedShow Answer

If you put $125 into an account that paid 3.25 percent interest,then how much money would you have in the account after 20 years?

Correct AnswerverifiedShow Answer

According to the rule of 70,if the interest rate is 10 percent,about how long will it take for the value of a savings account to double?

Correct AnswerverifiedShow Answer

The last $200 of Tami's wealth added more to her utility than another $200 would.Based on this information,Tami's utility function

Correct AnswerverifiedShow Answer

Sari puts $100 into an account with an interest rate of 10 percent.According to the rule of 70,about how much does she have at the end of 21 years?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Figure 27-2.On the graph,x represents risk and y represents return. -Refer to Figure 27-2.Which of the following statements is 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

The future value of a deposit in a savings account will be larger

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Figure 27-1.The figure shows a utility function. -Refer to Figure 27-1.Which distance along the vertical axis represents the marginal utility of an increase in wealth from $600 to $800?

Correct AnswerverifiedShow Answer

A risk-averse person has

Correct AnswerverifiedShow 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

Which of the following is correct?

Correct AnswerverifiedShow Answer

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