Question 1

The performance of index funds

Accepted Answer

A)   usually falls short of the performance of actively-managed funds.
B)   provides evidence in support of the notion that stock prices do not depend upon supply and demand.
C)   provides evidence in support of the efficient markets hypothesis.
D)   provides evidence in support of the notion that stock-market participants are irrational.E) A) and B)
F) None of the above

Question 2

Give two conditions that are important to the efficient market theory.List one implication of the efficient market theory.

Accepted Answer

Efficient market theory says that it sho...

Question 3

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 more satisfaction when his wealth increases by X dollars than he loses in satisfaction when his wealth decreases by X dollars.
C)   the property of decreasing marginal utility applies to Dexter.
D)   All of the above are correct.E) C) and D)
F) A) and B)

Question 4

Which of the following actions best illustrates moral hazard?

Accepted Answer

A)   A person adds risky stock to his portfolio.
B)   A person who has narrowly avoided many accidents applies for automobile insurance.
C)   A person is unwilling to buy a stock when she believes its price has an equal chance of rising or falling $10.
D)   A person purchases homeowners insurance and then checks his smoke detector batteries less frequently.E) B) and D)
F) C) and D)

Question 5

At about what number of companies does the reduction in risk from adding stocks of more companies to a portfolio do little to reduce risk?

Accepted Answer

The reduct...

Question 6

Which of the following is correct concerning diversification?

Accepted Answer

A)   It only reduces firm-specific risk,but most of the reduction comes from increasing the number of stocks in a portfolio to well above 30.
B)   It only reduces firm-specific risk;much of the reduction comes from increasing the number of stocks in a portfolio from 1 to 30.
C)   It only reduces market risk,but most of the reduction comes from increasing the number of stocks in a portfolio to well above 30.
D)   None of the above is correct.E) All of the above
F) B) and C)

Question 7

Markovich Corporation is considering building a new plant.It will cost $1 million today to build it and it will generate revenues of $1.121 million three years from today.Of the interest rates below,which is the highest interest rate at which Markovich still would be willing to build the plant?

Accepted Answer

A)   3 percent
B)   3.5 percent
C)   4 percent
D)   4.5 percentE) A) and B)
F) B) and C)

Question 8

Mixster Concrete Company is considering buying a new cement truck.The owners and their accountants decide that this is the profitable thing to do.Before they can buy the truck,the interest rate and price of trucks change.In which case do these changes both make them less likely to buy the truck?

Accepted Answer

A)   Interest rates rise and truck prices rise.
B)   Interest rates fall and truck prices rise.
C)   Interest rates rise and truck prices fall.
D)   Interest rates fall and truck prices fall.E) A) and C)
F) None of the above

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

Question 10

Other things the same,as the stocks of a greater number of corporations are held in a portfolio,

Accepted Answer

A)   risk increases at an increasing rate.
B)   risk increases at a decreasing rate.
C)   risk decreases at an increasing rate.
D)   risk decreases at a decreasing rate.E) B) and C)
F) A) and B)

Question 11

Which of the following is the correct way to compute the future value of $X that earns r percent interest for N years?

Accepted Answer

A)   $X(1 + rN) N
B)   $X(1 + r) N
C)   $X(1 + rN) 
D)   $X(1 + r/N) NE) None of the above
F) A) and B)

Question 12

Your accountant tells you that if you can continue to earn the current interest rate on your balance of $500 for ten years,you will have about $983.58.If your accountant is correct,what is the current rate of interest?

Accepted Answer

A)   5 percent
B)   6 percent
C)   7 percent
D)   8 percentE) B) and C)
F) A) and D)

Question 13

The relation between return and risk.

Accepted Answer

The answer of The relation between return and risk....

Question 14

What is the present value of a payment of $2,000 to be received two years from today if the interest rate is 5%?

Accepted Answer

A)   $2205
B)   $2200
C)   $1818.18
D)   $1814.06E) A) and D)
F) None of the above

Question 15

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

Question 16

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

Accepted Answer

A)   Gerhardt announces,just as everyone had expected,that it has hired a new highly respected CEO.
B)   Gerhardt 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 Gerhardt is overvalued.
D)   All of the above would increase the price.E) C) and D)
F) None of the above

Question 17

Figure 14-2.The figure shows a utility function for Mary Ann. 
-Refer to Figure 14-2.From the appearance of the utility function,we know that

Accepted Answer

A)   Mary Ann is risk averse.
B)   Mary Ann gains less satisfaction when her wealth increases by X dollars than she loses in satisfaction when her wealth decreases by X dollars.
C)   the property of diminishing marginal utility applies to Mary Ann.
D)   All of the above are correct.E) C) and D)
F) A) and D)

Question 18

Max says that the present value of $500 to be received one year from today if the interest rate is 8 percent is more than the present value of $500 to be received two years from today if the interest rate is 4 percent.Mitch says that $500 saved for two years at an interest rate of 3 percent has a larger future value than $500 saved for one years at an interest rate of 6 percent.

Accepted Answer

A)   Both Max and Mitch are correct.
B)   Only Max is correct.
C)   Only Mitch is correct.
D)   Neither Max nor Mitch is correct.E) A) and C)
F) None of the above

Question 19

According to the rule of 70,if a person's saving doubles in 10 years,what interest rate were they earning?

Accepted Answer

A)   3.5
B)   7
C)   14
D)   None of the above is correct.E) A) and B)
F) B) and C)

Question 20

If more people think a corporation's stock is overvalued than think it is undervalued then there is a

Accepted Answer

A)   surplus,so its price will rise.
B)   surplus,so its price will fall.
C)   shortage,so its price will rise.
D)   shortage,so its price will fall.E) All of the above
F) A) and B)

Exam 27: The Basic Tools of Finance

Other things the same,as the stocks of a greater number of corporations are held in a portfolio,

Correct Answer
verified

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

Your accountant tells you that if you can continue to earn the current interest rate on your balance of $500 for ten years,you will have about $983.58.If your accountant is correct,what is the current rate of interest?

Correct Answer
verified

Mixster Concrete Company is considering buying a new cement truck.The owners and their accountants decide that this is the profitable thing to do.Before they can buy the truck,the interest rate and price of trucks change.In which case do these changes both make them less likely to buy the truck?

Correct Answer
verified

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 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

At about what number of companies does the reduction in risk from adding stocks of more companies to a portfolio do little to reduce risk?

Correct Answer
verified
The reduct...
View Answer

Figure 14-2.The figure shows a utility function for Mary Ann. -Refer to Figure 14-2.From the appearance of the utility function,we know that

Correct Answer
verified

The performance of index funds

Correct Answer
verified

Which of the following is correct concerning diversification?

Correct Answer
verified

Give two conditions that are important to the efficient market theory.List one implication of the efficient market theory.

Correct Answer
verified
Efficient market theory says that it sho...
View Answer

If more people think a corporation's stock is overvalued than think it is undervalued then there is a

Correct Answer
verified

Correct Answer
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Which of the following is the correct way to compute the future value of $X that earns r percent interest for N years?

Correct Answer
verified

Which of the following actions best illustrates moral hazard?

Correct Answer
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According to the rule of 70,if a person's saving doubles in 10 years,what interest rate were they earning?

Correct Answer
verified

The relation between return and risk.

Correct Answer
verified

Markovich Corporation is considering building a new plant.It will cost $1 million today to build it and it will generate revenues of $1.121 million three years from today.Of the interest rates below,which is the highest interest rate at which Markovich still would be willing to build the plant?

Correct Answer
verified

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

Correct Answer
verified

What is the present value of a payment of $2,000 to be received two years from today if the interest rate is 5%?

Correct Answer
verified

Exam 27: The Basic Tools of Finance

Other things the same,as the stocks of a greater number of corporations are held in a portfolio,

Correct AnswerverifiedShow 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

Your accountant tells you that if you can continue to earn the current interest rate on your balance of $500 for ten years,you will have about $983.58.If your accountant is correct,what is the current rate of interest?

Correct AnswerverifiedShow Answer

Mixster Concrete Company is considering buying a new cement truck.The owners and their accountants decide that this is the profitable thing to do.Before they can buy the truck,the interest rate and price of trucks change.In which case do these changes both make them less likely to buy the truck?

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

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

At about what number of companies does the reduction in risk from adding stocks of more companies to a portfolio do little to reduce risk?

Correct AnswerverifiedThe reduct...View AnswerShow Answer

Figure 14-2.The figure shows a utility function for Mary Ann. -Refer to Figure 14-2.From the appearance of the utility function,we know that

Correct AnswerverifiedShow Answer

The performance of index funds

Correct AnswerverifiedShow Answer

Which of the following is correct concerning diversification?

Correct AnswerverifiedShow Answer

Give two conditions that are important to the efficient market theory.List one implication of the efficient market theory.

Correct AnswerverifiedEfficient market theory says that it sho...View AnswerShow Answer

If more people think a corporation's stock is overvalued than think it is undervalued then there is a

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is the correct way to compute the future value of $X that earns r percent interest for N years?

Correct AnswerverifiedShow Answer

Which of the following actions best illustrates moral hazard?

Correct AnswerverifiedShow Answer

According to the rule of 70,if a person's saving doubles in 10 years,what interest rate were they earning?

Correct AnswerverifiedShow Answer

The relation between return and risk.

Correct AnswerverifiedShow Answer

Markovich Corporation is considering building a new plant.It will cost $1 million today to build it and it will generate revenues of $1.121 million three years from today.Of the interest rates below,which is the highest interest rate at which Markovich still would be willing to build the plant?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

What is the present value of a payment of $2,000 to be received two years from today if the interest rate is 5%?

Correct AnswerverifiedShow Answer

Correct Answer
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The reduct...
View Answer

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Correct Answer
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Correct Answer
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Correct Answer
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Efficient market theory says that it sho...
View 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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