Question 1

If you believe that stock prices follow a random walk,then probably you

Accepted Answer

A)   do not believe that there is positive relationship between risk and return.
B)   do not believe that stock prices reflect all available information.
C)   believe in the validity of the efficient markets hypothesis.
D)   believe that it is a good idea to engage in fundamental analysis.E) A) and D)
F) B) and D)

Question 2

The possibility of speculative bubbles in the stock market arises in part because

Accepted Answer

A)   stock prices may not depend at all on psychological factors.
B)   fundamental analysis may be the correct way to evaluate the value of stocks.
C)   future streams of dividend payments are very hard to estimate.
D)   the value of shares of stock depends not only on the future stream of dividend payments but also on the price at which the stock will be sold.E) B) and C)
F) C) and D)

Question 3

An increase in the number of corporations in a portfolio from 1 to 10 reduces

Accepted Answer

A)   market risk by more than an increase from 110 to 120.
B)   market risk by less than an increase from 110 to 120.
C)   firm-specific risk by more than an increase from 110 to 120.
D)   firm-specific risk by less than an increase from 110 to 120.E) B) and C)
F) A) and D)

Question 4

A soup manufacturer unexpectedly announces that it has hired a new manager.It is widely believed that this manager will raise the profitability of the corporation.At the same time interest rates unexpectedly rise.Which of the above would tend to make the price of the stock rise?

Accepted Answer

A)   the announcement and the rise in interest rates
B)   the announcement but not the rise in interest rates
C)   the rise in interest rates,but not the announcement
D)   neither the announcement nor the rise in interest ratesE) All of the above
F) C) and D)

Question 5

Three years ago Heidi put $1,200 into an account paying 2 percent interest.How much is the account worth today?

Accepted Answer

A)   $1,225.38
B)   $1,248.48
C)   $1,264.72
D)   $1,273.45E) None of the above
F) All of the above

Question 6

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) A) and C)

Question 7

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 B)

Question 8

Manufacturers of Weightbegone are concerned that genetic advances in weight control might reduce the demand for their diet snacks.This is an example of

Accepted Answer

A)   firm-specific risk,which will likely raise shareholders' demand for higher return.
B)   firm-specific risk,which will likely not likely raise shareholders' demand for higher return.
C)   market risk,which will likely raise shareholders' demand for higher return.
D)   market risk,which will likely not raise shareholders' demand for higher return.E) A) and C)
F) A) and B)

Question 9

Of the following interest rates,which is the highest one at which you would prefer to have $200 ten years from today instead of $100 today?

Accepted Answer

A)   2 percent
B)   4 percent
C)   6 percent
D)   8 percentE) A) and D)
F) None of the above

Question 10

Rosie is risk averse and has $1,000 with which to make a financial investment.She has three options.Option A is a risk-free government bond that pays 5 percent interest each year for two years.Option B is a low-risk stock that analysts expect to be worth about $1,102.50 in two years.Option C is a high-risk stock that is expected to be worth about $1,200 in four years.Rosie should choose

Accepted Answer

A)   option A.
B)   option B.
C)   option C.
D)   either option A or option B because Rosie is indifferent between those two options and they are superior to option C.E) C) and D)
F) B) and C)

Question 11

Suppose that fundamental analysis indicates a particular company's stock is overvalued.

Accepted Answer

A)   This means its present value is less than its price.You should consider adding the stock to your portfolio.
B)   This means its present value is less than its price.You shouldn't consider adding the stock to your portfolio.
C)   This means its present value is more than its price.You should consider adding the stock to your portfolio.
D)   This means its present value is more than its price.You shouldn't consider adding the stock to your portfolio.E) A) and B)
F) A) and C)

Question 12

A high ranking corporate official of a well-known company is unexpectedly sentenced to prison for criminal activity in trading stocks.This should

Accepted Answer

A)   raise the price and raise the present value of the corporation's stock.
B)   raise the price and lower the present value of the corporation's stock.
C)   lower the price and raise the present value of the corporation's stock.
D)   lower the price and lower the present value of the corporation's stock.E) C) and D)
F) A) and B)

Question 13

Bo knows that he has about $95 in his bank account.He knows he earned an interest rate of 4 percent,but he doesn't remember how much he opened the account with a year ago.How much did he put in?

Accepted Answer

A)   $91.00
B)   $91.20
C)   $91.27
D)   $91.35E) A) and D)
F) A) and C)

Question 14

Fundamental analysis shows that Green Leaf Tea Company is fairly valued.Then Green Leaf Tea Company unexpectedly improves its production techniques and unexpectedly hires a new CEO away from another very successful tea producer.Suppose this has no effect on the price of the stock of Green Leaf Tea Company.

Accepted Answer

A)   Fundamental analysis would now show the corporation is overvalued.The fact that the price was unchanged is consistent with the efficient markets hypothesis.
B)   Fundamental analysis would now show the corporation is overvalued.The fact that the price was unchanged is not consistent with the efficient markets hypothesis.
C)   Fundamental analysis would now show the corporation is undervalued.The fact that the price was unchanged is consistent with the efficient markets hypothesis.
D)   Fundamental analysis would now show the corporation is undervalued.The fact that the price was unchanged is not consistent with the efficient markets hypothesis.E) A) and B)
F) None of the above

Question 15

Brittany wants to have about $500,000 when she retires in 10 years.She has $200,000 to deposit now.At which of the following interest rates would her deposit come closest to $500,000 after 10 years?

Accepted Answer

A)   9.6 percent
B)   9.8 percent
C)   10 percent
D)   10.2 percentE) None of the above
F) A) and C)

Question 16

What is the present value of a payment of $100 to be made one year from today?

Accepted Answer

A)   $100*(1 + r) 
B)   $100/(1 + r) 
C)   $100 - $100r
D)   $100 - (1 + r) /$100E) A) and B)
F) A) and C)

Question 17

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

Question 18

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

Question 19

A company that can build a project that will cost $50,000,but returns $52,000 in one year would make a good decision by turning this project down if the interest rate were 3 percent.

Accepted Answer

A) True 
 B)False

Question 20

What is the future value of $500 one year from today if the interest rate is 4 percent?

Accepted Answer

A)   $515
B)   $520
C)   $530
D)   None of the above is correct.E) A) and D)
F) C) and D)

Exam 27: The Basic Tools of Finance

A company that can build a project that will cost $50,000,but returns $52,000 in one year would make a good decision by turning this project down if the interest rate were 3 percent.

Correct Answer
verified

Correct Answer
verified

Three years ago Heidi put $1,200 into an account paying 2 percent interest.How much is the account worth today?

Correct Answer
verified

What is the present value of a payment of $100 to be made one year from today?

Correct Answer
verified

Brittany wants to have about $500,000 when she retires in 10 years.She has $200,000 to deposit now.At which of the following interest rates would her deposit come closest to $500,000 after 10 years?

Correct Answer
verified

What is the future value of $500 one year from today if the interest rate is 4 percent?

Correct Answer
verified

Which of the following is correct concerning stock market irrationality?

Correct Answer
verified

If you believe that stock prices follow a random walk,then probably you

Correct Answer
verified

Of the following interest rates,which is the highest one at which you would prefer to have $200 ten years from today instead of $100 today?

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 soup manufacturer unexpectedly announces that it has hired a new manager.It is widely believed that this manager will raise the profitability of the corporation.At the same time interest rates unexpectedly rise.Which of the above would tend to make the price of the stock rise?

Correct Answer
verified

An increase in the number of corporations in a portfolio from 1 to 10 reduces

Correct Answer
verified

Manufacturers of Weightbegone are concerned that genetic advances in weight control might reduce the demand for their diet snacks.This is an example of

Correct Answer
verified

Correct Answer
verified

The possibility of speculative bubbles in the stock market arises in part because

Correct Answer
verified

Bo knows that he has about $95 in his bank account.He knows he earned an interest rate of 4 percent,but he doesn't remember how much he opened the account with a year ago.How much did he put in?

Correct Answer
verified

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

Correct Answer
verified

A high ranking corporate official of a well-known company is unexpectedly sentenced to prison for criminal activity in trading stocks.This should

Correct Answer
verified

Correct Answer
verified

Suppose that fundamental analysis indicates a particular company's stock is overvalued.

Correct Answer
verified

Exam 27: The Basic Tools of Finance

A company that can build a project that will cost $50,000,but returns $52,000 in one year would make a good decision by turning this project down if the interest rate were 3 percent.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Three years ago Heidi put $1,200 into an account paying 2 percent interest.How much is the account worth today?

Correct AnswerverifiedShow Answer

What is the present value of a payment of $100 to be made one year from today?

Correct AnswerverifiedShow Answer

Brittany wants to have about $500,000 when she retires in 10 years.She has $200,000 to deposit now.At which of the following interest rates would her deposit come closest to $500,000 after 10 years?

Correct AnswerverifiedShow Answer

What is the future value of $500 one year from today if the interest rate is 4 percent?

Correct AnswerverifiedShow Answer

Which of the following is correct concerning stock market irrationality?

Correct AnswerverifiedShow Answer

If you believe that stock prices follow a random walk,then probably you

Correct AnswerverifiedShow Answer

Of the following interest rates,which is the highest one at which you would prefer to have $200 ten years from today instead of $100 today?

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 soup manufacturer unexpectedly announces that it has hired a new manager.It is widely believed that this manager will raise the profitability of the corporation.At the same time interest rates unexpectedly rise.Which of the above would tend to make the price of the stock rise?

Correct AnswerverifiedShow Answer

An increase in the number of corporations in a portfolio from 1 to 10 reduces

Correct AnswerverifiedShow Answer

Manufacturers of Weightbegone are concerned that genetic advances in weight control might reduce the demand for their diet snacks.This is an example of

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The possibility of speculative bubbles in the stock market arises in part because

Correct AnswerverifiedShow Answer

Bo knows that he has about $95 in his bank account.He knows he earned an interest rate of 4 percent,but he doesn't remember how much he opened the account with a year ago.How much did he put in?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A high ranking corporate official of a well-known company is unexpectedly sentenced to prison for criminal activity in trading stocks.This should

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Suppose that fundamental analysis indicates a particular company's stock is overvalued.

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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