Question 1

Which of the following changes would increase the present value of a future payment?

Accepted Answer

A)  a decrease in the size of the payment
B)  a decrease in the time until the payment is made
C)  an increase in the interest rate
D)  All of the above are correct.

Question 2

At which interest rate is the present value of $183.60 two years from today equal to about $173.06 today?

Accepted Answer

A)  2 percent
B)  3 percent
C)  4 percent
D)  5 percent

Question 3

Felix deposited $500 into an account two years ago. The first year he earned 3 percent interest and the second year he earned 5 percent interest. How much money does Felix have in his account now?

Accepted Answer

A)  $540.75
B)  $540.80
C)  $540.85
D)  None of the above are correct to the nearest cent.

Question 4

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.

Question 5

The field of finance primarily studies

Accepted Answer

A)  how society manages its scarce resources.
B)  the implications of time and risk for allocating resources over time.
C)  firms' decisions concerning how much to produce and what price to charge.
D)  how society can reduce market risk.

Question 6

Which of the following has a present value of $100?

Accepted Answer

A)  $110 in two years when the interest rate is 5 percent
B)  $112.36 in two years when the interest rate is 6 percent
C)  $117.49 in two years when the interest rate is 7 percent
D)  None of the above are correct to the nearest cent.

Question 7

Which famous person referred to compounding as "the greatest mathematical discovery of all time?"

Accepted Answer

A)  Abraham Lincoln
B)  Thomas Edison
C)  Benjamin Franklin
D)  Albert Einstein

Question 8

Which of the following is not correct?

Accepted Answer

A)  A risk averse person might be willing to hold stocks.
B)  Other things the same, a portfolio with the stocks of a large number of companies has less risk.
C)  Other things the same, the larger a portion of savings a person invests in stocks, the greater his expected return.
D)  Diversification can eliminate market risk but not firm-specific risk.

Question 9

Marcia has four savings accounts. Which account has the largest balance?

Accepted Answer

A)  $100 deposited 1 year ago at an 8 percent interest rate
B)  $100 deposited 2 years ago at a 4 percent interest rate
C)  $100 deposited 4 years ago at a 2 percent interest rate
D)  $100 deposited 8 years ago at a 1 percent interest rate

Question 10

If you are faced with the choice of receiving $500 today or $800 6 years from today, you will be indifferent between the two possibilities if the interest rate is 8.148 percent.

Accepted Answer

A) True 
 B)False

Question 11

Figure 14-2. The figure shows a utility function for Mary Ann. 
-Refer to Figure 14-2. Suppose Mary Ann begins with $1,050 in wealth. Which of the following coin-flip bets would she definitely not be willing to accept?

Accepted Answer

A)  If it is "heads," she wins $100; if it is tails, she loses $95.
B)  If it is "heads," she wins $150; if it is tails, she loses $150.
C)  If it is "heads," she wins $150; if it is tails, she loses $140.
D)  She definitely would not accept any of these bets.

Question 12

If a person had increasing marginal utility, then the decline in utility from losing $1,000 would be greater than the increase in utility from gaining $1,000.

Accepted Answer

A) True 
 B)False

Question 13

The You Look Marvelous! cosmetic company is considering building a new shampoo factory. Its accountants and board of directors meet and decide that it is not a good idea to build the factory. If interest rates fall after the meeting

Accepted Answer

A)  the present value of the factory rises. It's more likely the company will build the factory.
B)  the present value of the factory rises. It's less likely the company will build the factory.
C)  the present value of the factory falls. It's more likely the company will build the factory.
D)  the present value of the factory falls. It's less likely the company will build the factory.

Question 14

Discuss the statistical evidence concerning the efficient markets hypothesis.

Accepted Answer

The evidence indicates that stock prices...

Question 15

Which of the following games might a risk-averse person play?

Accepted Answer

A)  a game where she has a 50 percent chance of winning $1 and a 50 percent chance of losing $1
B)  a game where she has a 50 percent chance of winning $100 and a 50 percent chance of losing $100
C)  a game where she has a 60 percent chance of winning $1 and a 40 percent chance of losing $1
D)  a game where she has a 40 percent chance of winning $1 and a 60 percent chance of losing $1

Question 16

The present value of $100 to be paid in two years is less than the present value of $100 to be paid in three years.

Accepted Answer

A) True 
 B)False

Question 17

If your research leads you to believe that the present value of a stock's dividend stream and future price is less than its price then you believe the stock is

Accepted Answer

A)  overvalued so you should consider buying it.
B)  overvalued so you should not consider buying it.
C)  undervalued so you should consider buying it.
D)  undervalued so you should not consider buying it.

Question 18

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, which is not specified here.

Question 19

Economists have developed models of risk aversion using the concept of

Accepted Answer

A)  utility and the associated assumption of diminishing marginal utility.
B)  utility and the associated assumption of increasing marginal utility.
C)  income and the associated assumption of diminishing marginal wealth.
D)  income and the associated assumption of increasing marginal wealth.

Exam 14: The Basic Tools of Finance

Marcia has four savings accounts. Which account has the largest balance?

Correct Answer
verified

If your research leads you to believe that the present value of a stock's dividend stream and future price is less than its price then you believe the stock is

Correct Answer
verified

Which of the following changes would increase the present value of a future payment?

Correct Answer
verified

Which of the following games might a risk-averse person play?

Correct Answer
verified

If you are faced with the choice of receiving $500 today or $800 6 years from today, you will be indifferent between the two possibilities if the interest rate is 8.148 percent.

Correct Answer
verified

If a person had increasing marginal utility, then the decline in utility from losing $1,000 would be greater than the increase in utility from gaining $1,000.

Correct Answer
verified

Correct Answer
verified

Which of the following is not correct?

Correct Answer
verified

The field of finance primarily studies

Correct Answer
verified

Figure 14-2. The figure shows a utility function for Mary Ann. -Refer to Figure 14-2. Suppose Mary Ann begins with $1,050 in wealth. Which of the following coin-flip bets would she definitely not be willing to accept?

Correct Answer
verified

Which famous person referred to compounding as "the greatest mathematical discovery of all time?"

Correct Answer
verified

Economists have developed models of risk aversion using the concept of

Correct Answer
verified

At which interest rate is the present value of $183.60 two years from today equal to about $173.06 today?

Correct Answer
verified

Discuss the statistical evidence concerning the efficient markets hypothesis.

Correct Answer
verified
The evidence indicates that stock prices...
View 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 Answer
verified

The present value of $100 to be paid in two years is less than the present value of $100 to be paid in three years.

Correct Answer
verified

Which of the following has a present value of $100?

Correct Answer
verified

The You Look Marvelous! cosmetic company is considering building a new shampoo factory. Its accountants and board of directors meet and decide that it is not a good idea to build the factory. If interest rates fall after the meeting

Correct Answer
verified

Felix deposited $500 into an account two years ago. The first year he earned 3 percent interest and the second year he earned 5 percent interest. How much money does Felix have in his account now?

Correct Answer
verified

Exam 14: The Basic Tools of Finance

Marcia has four savings accounts. Which account has the largest balance?

Correct AnswerverifiedShow Answer

If your research leads you to believe that the present value of a stock's dividend stream and future price is less than its price then you believe the stock is

Correct AnswerverifiedShow Answer

Which of the following changes would increase the present value of a future payment?

Correct AnswerverifiedShow Answer

Which of the following games might a risk-averse person play?

Correct AnswerverifiedShow Answer

If you are faced with the choice of receiving $500 today or $800 6 years from today, you will be indifferent between the two possibilities if the interest rate is 8.148 percent.

Correct AnswerverifiedShow Answer

If a person had increasing marginal utility, then the decline in utility from losing $1,000 would be greater than the increase in utility from gaining $1,000.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is not correct?

Correct AnswerverifiedShow Answer

The field of finance primarily studies

Correct AnswerverifiedShow Answer

Figure 14-2. The figure shows a utility function for Mary Ann. -Refer to Figure 14-2. Suppose Mary Ann begins with $1,050 in wealth. Which of the following coin-flip bets would she definitely not be willing to accept?

Correct AnswerverifiedShow Answer

Which famous person referred to compounding as "the greatest mathematical discovery of all time?"

Correct AnswerverifiedShow Answer

Economists have developed models of risk aversion using the concept of

Correct AnswerverifiedShow Answer

At which interest rate is the present value of $183.60 two years from today equal to about $173.06 today?

Correct AnswerverifiedShow Answer

Discuss the statistical evidence concerning the efficient markets hypothesis.

Correct AnswerverifiedThe evidence indicates that stock prices...View AnswerShow 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 present value of $100 to be paid in two years is less than the present value of $100 to be paid in three years.

Correct AnswerverifiedShow Answer

Which of the following has a present value of $100?

Correct AnswerverifiedShow Answer

The You Look Marvelous! cosmetic company is considering building a new shampoo factory. Its accountants and board of directors meet and decide that it is not a good idea to build the factory. If interest rates fall after the meeting

Correct AnswerverifiedShow Answer

Felix deposited $500 into an account two years ago. The first year he earned 3 percent interest and the second year he earned 5 percent interest. How much money does Felix have in his account now?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The evidence indicates that stock prices...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified