Question 1

Write the formula for finding the future value in n years of $x today.

Accepted Answer

The answer of Write the formula for finding the future...

Question 2

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)   5 percent.
C)   6 percent.
D)   None of the above are correct.E) A) and B)
F) All of the above

Question 3

At which interest rate is the present value of $260.10 two years from today equal to $250 today?

Accepted Answer

A)   2 percent
B)   3 percent
C)   4 percent
D)   5 percentE) A) and D)
F) B) and D)

Question 4

Diversification

Accepted Answer

A)   increases the likely fluctuation in a portfolio's return,but reduces market risk.
B)   increases the likely fluctuation in a portfolio's return,but reduces firm-specific risk..
C)   reduces the likely fluctuation in a portfolio's return and reduces market risk.
D)   reduces the likely fluctuation in a portfolio's return and reduces firm-specific risk.E) A) and D)
F) All of the above

Question 5

A risk-averse person has

Accepted Answer

A)   utility and marginal utility curves that slope upward.
B)   utility and marginal utility curves that slope downward.
C)   a utility curve that slopes down and a marginal utility curve that slopes upward.
D)   a utility curve that slopes upward and a marginal utility curve that slopes downward.E) B) and D)
F) A) and B)

Question 6

Writing in the Wall Street Journal in 2009,economist Jeremy Siegel pointed out that the efficient markets hypothesis

Accepted Answer

A)   was responsible for the financial crisis of 2008-2009.
B)   was responsible for the Great Depression of the 1930s.
C)   claims that prices observed in financial markets are always "right."
D)   claims that prices observed in financial markets are mostly "wrong."E) B) and C)
F) A) and D)

Question 7

Suppose that an increased risk of mortgage defaults lowers the expected profitability of banks.Then we would expect to see

Accepted Answer

A)   the demand for bank stocks rise which would raise the prices of bank stocks.
B)   the demand for bank stocks rise which would reduce the prices of bank stocks.
C)   the demand for bank stocks fall which would raise the prices of bank stocks.
D)   the demand for bank stocks fall which would reduce the prices of bank stocks.E) B) and C)
F) C) and D)

Question 8

Studies find that mutual fund managers who do well in one year are likely to do well the next year.

Accepted Answer

A) True 
 B)False

Question 9

Diminishing marginal utility of wealth implies that the utility function is

Accepted Answer

A)   upward-sloping and has decreasing slope.
B)   upward-sloping and has increasing slope.
C)   downward-sloping and has decreasing slope.
D)   downward-sloping and has increasing slope.E) A) and D)
F) B) and C)

Question 10

Which of the following is correct concerning a risk-averse person?

Accepted Answer

A)   She would not play games where the probability of winning and losing a dollar are the same.
B)   She might not buy health insurance if she thinks her risks are low.
C)   Her marginal utility of wealth decreases as her income increases.
D)   All of the above are correct.E) A) and D)
F) A) and C)

Question 11

If a savings account pays 5 percent annual interest,then the rule of 70 tells us that the account value will double in approximately 14 years.

Accepted Answer

A) True 
 B)False

Question 12

Amanda talks with several different brokers at a social gathering.She hears the following advice from brokers A,B,and C.Which broker,if any,gave her incorrect advice?

Accepted Answer

A)   Broker A: "There are risks in holding stocks,even in a highly diversified portfolio."
B)   Broker B: "Portfolios with smaller standard deviations have lower risk."
C)   Broker C: "Stocks with greater risks offer lower average returns."
D)   They all gave her correct advice.E) B) and D)
F) All of the above

Question 13

Suppose interest of 5% for two years can be earned on $1,000 saved today with no risk.What is the least amount a person would need to have a 50% chance of winning to be willing to face a 50% chance of losing $1,000 today and be considered risk averse?

Accepted Answer

A)   $907.03 to be paid in two years
B)   $1,000.01 to be paid in two years
C)   $1,100.01 to be paid in two years
D)   $1,102.51 to be paid in two yearsE) A) and B)
F) A) and C)

Question 14

A bond promises to pay $500 in one year and $10,500 in two years.What is the correct way to find the present value of this bond?

Accepted Answer

A)   $500(1 + r) + $10,500/(1 + r) 2
B)   $500/(1 + r) + $10,500/(1 + r) 2
C)   $11,000/(1 + r) 2
D)   $500(1 + r) + $10,500(1 + r) 2E) A) and D)
F) A) and C)

Question 15

Demonstrate that whether you would prefer to have $225 today or wait five years for $300 depends on the interest rate.Show your work.

Accepted Answer

For example at 3 percent the p...

Question 16

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

Question 17

Write the rule of 70.Suppose that your great-great-grandmother put $50 in a savings account 100 years ago and the account is now worth $1,600.Use the rule of 70 to determine about what interest rate she earned.

Accepted Answer

$1,600/$50 = 32.The rule of 70 says that...

Question 18

Figure 14-4.The figure shows a utility function for Dexter. 
-Refer to Figure 14-4.In what way(s) does the graph differ from the usual case?

Accepted Answer

A)   The utility function shown here is upward-sloping,whereas in the usual case the utility function is downward-sloping.
B)   The utility function shown here is bowed downward (convex) ,whereas in the usual case the utility function is bowed upward (concave) .
C)   On the graph shown here,wealth is measured along the horizontal axis,whereas in the usual case saving is measured along the horizontal axis.
D)   On the graph shown here,utility is measured along the vertical axis,whereas in the usual case satisfaction is measured along the vertical axis.E) A) and B)
F) B) and D)

Question 19

Alice says that the present value of $700 to be received one year from today if the interest rate is 6 percent is less than the present value of $700 to be received two years from today if the interest rate is 3 percent.Beth says that $700 saved for one year at 6 percent interest has a smaller future value than $700 saved for two years at 3 percent interest.

Accepted Answer

A)   Both Alice and Beth are correct.
B)   Both Alice and Beth are incorrect.
C)   Only Alice is correct.
D)   Only Beth is correct.E) B) and D)
F) B) and C)

Question 20

David's Utility Function  If David's current wealth is $61,000,then

Accepted Answer

A)   his gain in utility from gaining $1,000 is less than his loss in utility from losing $1,000.David is risk averse.
B)   his gain in utility from gaining $1,000 is less than his loss in utility from losing $1,000.David is not risk averse.
C)   his gain in utility from gaining $1,000 is greater than his loss in utility from losing $1,000.David is risk averse.
D)   his gain in utility from gaining $1,000 is greater than his loss in utility from losing $1,000.David is not risk averse.E) None of the above
F) All of the above

Exam 27: The Basic Tools of Finance

Writing in the Wall Street Journal in 2009,economist Jeremy Siegel pointed out that the efficient markets hypothesis

Correct Answer
verified

If a savings account pays 5 percent annual interest,then the rule of 70 tells us that the account value will double in approximately 14 years.

Correct Answer
verified

Diversification

Correct Answer
verified

Diminishing marginal utility of wealth implies that the utility function is

Correct Answer
verified

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 Answer
verified

Write the rule of 70.Suppose that your great-great-grandmother put $50 in a savings account 100 years ago and the account is now worth $1,600.Use the rule of 70 to determine about what interest rate she earned.

Correct Answer
verified
$1,600/$50 = 32.The rule of 70 says that...
View Answer

Studies find that mutual fund managers who do well in one year are likely to do well the next year.

Correct Answer
verified

Demonstrate that whether you would prefer to have $225 today or wait five years for $300 depends on the interest rate.Show your work.

Correct Answer
verified
For example at 3 percent the p...
View Answer

Suppose that an increased risk of mortgage defaults lowers the expected profitability of banks.Then we would expect to see

Correct Answer
verified

Amanda talks with several different brokers at a social gathering.She hears the following advice from brokers A,B,and C.Which broker,if any,gave her incorrect advice?

Correct Answer
verified

Write the formula for finding the future value in n years of $x today.

Correct Answer
verified

Which of the following is correct concerning a risk-averse person?

Correct Answer
verified

Suppose interest of 5% for two years can be earned on $1,000 saved today with no risk.What is the least amount a person would need to have a 50% chance of winning to be willing to face a 50% chance of losing $1,000 today and be considered risk averse?

Correct Answer
verified

Correct Answer
verified

A bond promises to pay $500 in one year and $10,500 in two years.What is the correct way to find the present value of this bond?

Correct Answer
verified

At which interest rate is the present value of $260.10 two years from today equal to $250 today?

Correct Answer
verified

Figure 14-4.The figure shows a utility function for Dexter. -Refer to Figure 14-4.In what way(s) does the graph differ from the usual case?

Correct Answer
verified

A risk-averse person has

Correct Answer
verified

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

David's Utility Function If David's current wealth is $61,000,then

Correct Answer
verified

Exam 27: The Basic Tools of Finance

Writing in the Wall Street Journal in 2009,economist Jeremy Siegel pointed out that the efficient markets hypothesis

Correct AnswerverifiedShow Answer

If a savings account pays 5 percent annual interest,then the rule of 70 tells us that the account value will double in approximately 14 years.

Correct AnswerverifiedShow Answer

Diversification

Correct AnswerverifiedShow Answer

Diminishing marginal utility of wealth implies that the utility function is

Correct AnswerverifiedShow Answer

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

Write the rule of 70.Suppose that your great-great-grandmother put $50 in a savings account 100 years ago and the account is now worth $1,600.Use the rule of 70 to determine about what interest rate she earned.

Correct Answerverified$1,600/$50 = 32.The rule of 70 says that...View AnswerShow Answer

Studies find that mutual fund managers who do well in one year are likely to do well the next year.

Correct AnswerverifiedShow Answer

Demonstrate that whether you would prefer to have $225 today or wait five years for $300 depends on the interest rate.Show your work.

Correct AnswerverifiedFor example at 3 percent the p...View AnswerShow Answer

Suppose that an increased risk of mortgage defaults lowers the expected profitability of banks.Then we would expect to see

Correct AnswerverifiedShow Answer

Amanda talks with several different brokers at a social gathering.She hears the following advice from brokers A,B,and C.Which broker,if any,gave her incorrect advice?

Correct AnswerverifiedShow Answer

Write the formula for finding the future value in n years of $x today.

Correct AnswerverifiedShow Answer

Which of the following is correct concerning a risk-averse person?

Correct AnswerverifiedShow Answer

Suppose interest of 5% for two years can be earned on $1,000 saved today with no risk.What is the least amount a person would need to have a 50% chance of winning to be willing to face a 50% chance of losing $1,000 today and be considered risk averse?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A bond promises to pay $500 in one year and $10,500 in two years.What is the correct way to find the present value of this bond?

Correct AnswerverifiedShow Answer

At which interest rate is the present value of $260.10 two years from today equal to $250 today?

Correct AnswerverifiedShow Answer

Figure 14-4.The figure shows a utility function for Dexter. -Refer to Figure 14-4.In what way(s) does the graph differ from the usual case?

Correct AnswerverifiedShow Answer

A risk-averse person has

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

David's Utility Function If David's current wealth is $61,000,then

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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$1,600/$50 = 32.The rule of 70 says that...
View Answer

Correct Answer
verified

Correct Answer
verified
For example at 3 percent the p...
View Answer

Correct Answer
verified

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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