Question 1

On May 25,1975 three pals graduated from high school,pooled together $1000 and put the money into an account promising to pay 8% for the next 30 years.On May 25,2005 they withdrew the money? To the nearest dollar,how much did they withdraw?

Accepted Answer

A)  $2,400
B)  $10,063
C)  $32,400
D)  None of the above are correct to the nearest dollar.E) A) and D)
F) B) and C)

Question 2

According to the efficient markets hypothesis,worse than expected news about a corporation will

Accepted Answer

A)  have no effect on it's stock price.
B)  raise the price of the stock.
C)  lower the price of the stock.
D)  change the price of the stock in a random direction.E) A) and C)
F) All of the above

Question 3

Your rich uncle Earl tells you that he will give you $500 in two years.You could borrow the present value of this $500 and when your uncle sends you the gift have just enough to pay off the loan.About how much can you borrow if the interest rate is 11 percent?

Accepted Answer

A)  $396.05
B)  $402.13
C)  $405.81
D)  $409.84E) All of the above
F) A) and C)

Question 4

According to the efficient markets hypothesis,at any moment in time,the market price is the best estimate of the company's value based on publicly available information.

Accepted Answer

A) True 
 B)False

Question 5

What is the future value of $450 at an interest rate of 11 percent one year from today?

Accepted Answer

A)  $495.00
B)  $495.40
C)  $494.50
D)  $499.50E) A) and B)
F) A) and C)

Question 6

Al,Ralph,and Stan are all intending to retire.Each currently has $1 million in assets.Al will earn 16% interest and retire in two years.Ralph will earn 8% interest and retire in four years.Stan will earn 4% interest and retire in eight years.Who will have the most dollars when he retires?

Accepted Answer

A)  Al
B)  Ralph
C)  Stan
D)  They all retire with the same amount.E) B) and C)
F) A) and D)

Question 7

Dakota rearranges her portfolio so that it has a higher average return.In doing this rearranging,she

Accepted Answer

A)  raised both firm-specific risk and market risk.
B)  raised firm-specific risk, but not market risk.
C)  raised market risk, but not firm-specific risk.
D)  None of the above is correct.E) A) and D)
F) A) and C)

Question 8

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

Question 9

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.E) A) and B)
F) C) and D)

Question 10

What is the present value of a payment of $200 to be made one year from today if the interest rate is 10 percent?

Accepted Answer

A)  $180
B)  $181.82
C)  $220
D)  $222.22E) All of the above
F) A) and B)

Question 11

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

Accepted Answer

A)  the longer a person waits to withdraw the funds.
B)  the lower the interest rate is.
C)  the larger the initial deposit is.
D)  All of the above are correct.E) A) and B)
F) None of the above

Question 12

Heidi deposits $250 in an account and one year later has $270;what was the interest rate?

Accepted Answer

A)  8 percent
B)  9 percent
C)  10 percent
D)  None of the above is correct.E) A) and B)
F) A) and C)

Question 13

Martin put $250 in an account three years ago.The first year he earned 6 percent interest,the second year 7 percent,and the third year 8 percent.About how about much does Martin have in his account now?

Accepted Answer

A)  $302.50
B)  $306.23
C)  $308.67
D)  $309.39E) A) and B)
F) A) and C)

Question 14

What is the future value of $333 at an interest rate of 3 percent one year from today?

Accepted Answer

A)  $337.39
B)  $342.99
C)  $343.09
D)  None of the above are correct to the nearest penny.E) B) and C)
F) B) and D)

Question 15

Risk-averse people will choose different asset portfolios than people who are not risk averse.Over a long period of time,we would expect that

Accepted Answer

A)  every risk-averse person will earn a higher rate of return than every non-risk averse person.
B)  every risk-averse person will earn a lower rate of return than every non-risk averse person.
C)  the average risk-averse person will earn a higher rate of return than the average non-risk averse person.
D)  the average risk-averse person will earn a lower rate of return than the average non-risk averse person.E) A) and B)
F) A) and C)

Question 16

You've been promised a payment of $400 in the future.In which case is the present value of this payment highest?

Accepted Answer

A)  you wait 3 years and the interest rate is 6%
B)  you wait 3 years and the interest rate is 5%
C)  you wait 2 years and the interest rate is 6%
D)  you wait 2 years and the interest rate is 5%E) A) and B)
F) A) and C)

Question 17

Which of the following is adverse selection?

Accepted Answer

A)  the risk associated with selecting stocks in only a few specific companies
B)  the risk that a person will become overconfident in his ability to select stocks
C)  a high-risk person being more likely to apply for insurance
D)  after obtaining insurance a person having less incentive to be carefulE) A) and B)
F) B) and D)

Question 18

Which of the following best illustrates moral hazard?

Accepted Answer

A)  After a person obtains life insurance, she takes up skydiving.
B)  A person obtains insurance knowing he is in poor health.
C)  A person holds stock only in very risky corporations.
D)  A person holds stocks from only a few corporations.E) All of the above
F) C) and D)

Question 19

Fundamental analysis shows that stock in Wallace Electronics Corporation has a present value that is higher than its price.

Accepted Answer

A)  This stock is overvalued; you should consider adding it to your portfolio.
B)  This stock is overvalued; you shouldn't consider adding it to your portfolio.
C)  This stock is undervalued; you should consider adding it to your portfolio.
D)  This stock is undervalued; you shouldn't consider adding it to your portfolio.E) A) and B)
F) A) and C)

Question 20

Which of the following is correct concerning stock market irrationality?

Accepted Answer

A)  Bubbles could arise, in part, because the price that people pay for stock depends on what they think someone else will pay for it in the future.
B)  Economists almost all agree that the evidence for stock market irrationality is convincing and the departures from rational pricing are important.
C)  Some evidence for the existence of market irrationality is that informed and presumably rational managers of mutual funds generally beat the market.
D)  All of the above are correct.E) C) and D)
F) All of the above

Exam 27: The Basic Tools of Finance

On May 25,1975 three pals graduated from high school,pooled together $1000 and put the money into an account promising to pay 8% for the next 30 years.On May 25,2005 they withdrew the money? To the nearest dollar,how much did they withdraw?

Correct Answer
verified

Martin put $250 in an account three years ago.The first year he earned 6 percent interest,the second year 7 percent,and the third year 8 percent.About how about much does Martin have in his account now?

Correct Answer
verified

You've been promised a payment of $400 in the future.In which case is the present value of this payment highest?

Correct Answer
verified

Al,Ralph,and Stan are all intending to retire.Each currently has $1 million in assets.Al will earn 16% interest and retire in two years.Ralph will earn 8% interest and retire in four years.Stan will earn 4% interest and retire in eight years.Who will have the most dollars when he retires?

Correct Answer
verified

Correct Answer
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Which of the following best illustrates moral hazard?

Correct Answer
verified

Which of the following is adverse selection?

Correct Answer
verified

Dakota rearranges her portfolio so that it has a higher average return.In doing this rearranging,she

Correct Answer
verified

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

Correct Answer
verified

Which of the following is correct concerning stock market irrationality?

Correct Answer
verified

What is the future value of $450 at an interest rate of 11 percent one year from today?

Correct Answer
verified

Your rich uncle Earl tells you that he will give you $500 in two years.You could borrow the present value of this $500 and when your uncle sends you the gift have just enough to pay off the loan.About how much can you borrow if the interest rate is 11 percent?

Correct Answer
verified

Heidi deposits $250 in an account and one year later has $270;what was the interest rate?

Correct Answer
verified

What is the present value of a payment of $200 to be made one year from today if the interest rate is 10 percent?

Correct Answer
verified

According to the efficient markets hypothesis,at any moment in time,the market price is the best estimate of the company's value based on publicly available information.

Correct Answer
verified

According to the efficient markets hypothesis,worse than expected news about a corporation will

Correct Answer
verified

Risk-averse people will choose different asset portfolios than people who are not risk averse.Over a long period of time,we would expect that

Correct Answer
verified

What is the future value of $333 at an interest rate of 3 percent one year from today?

Correct Answer
verified

Fundamental analysis shows that stock in Wallace Electronics Corporation has a present value that is higher than its price.

Correct Answer
verified

Diversification reduces

Correct Answer
verified

Exam 27: The Basic Tools of Finance

On May 25,1975 three pals graduated from high school,pooled together $1000 and put the money into an account promising to pay 8% for the next 30 years.On May 25,2005 they withdrew the money? To the nearest dollar,how much did they withdraw?

Correct AnswerverifiedShow Answer

Martin put $250 in an account three years ago.The first year he earned 6 percent interest,the second year 7 percent,and the third year 8 percent.About how about much does Martin have in his account now?

Correct AnswerverifiedShow Answer

You've been promised a payment of $400 in the future.In which case is the present value of this payment highest?

Correct AnswerverifiedShow Answer

Al,Ralph,and Stan are all intending to retire.Each currently has $1 million in assets.Al will earn 16% interest and retire in two years.Ralph will earn 8% interest and retire in four years.Stan will earn 4% interest and retire in eight years.Who will have the most dollars when he retires?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following best illustrates moral hazard?

Correct AnswerverifiedShow Answer

Which of the following is adverse selection?

Correct AnswerverifiedShow Answer

Dakota rearranges her portfolio so that it has a higher average return.In doing this rearranging,she

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following is correct concerning stock market irrationality?

Correct AnswerverifiedShow Answer

What is the future value of $450 at an interest rate of 11 percent one year from today?

Correct AnswerverifiedShow Answer

Your rich uncle Earl tells you that he will give you $500 in two years.You could borrow the present value of this $500 and when your uncle sends you the gift have just enough to pay off the loan.About how much can you borrow if the interest rate is 11 percent?

Correct AnswerverifiedShow Answer

Heidi deposits $250 in an account and one year later has $270;what was the interest rate?

Correct AnswerverifiedShow Answer

What is the present value of a payment of $200 to be made one year from today if the interest rate is 10 percent?

Correct AnswerverifiedShow Answer

According to the efficient markets hypothesis,at any moment in time,the market price is the best estimate of the company's value based on publicly available information.

Correct AnswerverifiedShow Answer

According to the efficient markets hypothesis,worse than expected news about a corporation will

Correct AnswerverifiedShow Answer

Risk-averse people will choose different asset portfolios than people who are not risk averse.Over a long period of time,we would expect that

Correct AnswerverifiedShow Answer

What is the future value of $333 at an interest rate of 3 percent one year from today?

Correct AnswerverifiedShow Answer

Fundamental analysis shows that stock in Wallace Electronics Corporation has a present value that is higher than its price.

Correct AnswerverifiedShow Answer

Diversification reduces

Correct AnswerverifiedShow Answer

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