Question 1

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

Question 2

From the standpoint of the economy as a whole, the role of

Accepted Answer

A)  the interest rate is to make sure that the price of bonds increases over time.
B)  diversification is to eliminate market risk.
C)  insurance is to reduce the risks inherent in life.
D)  insurance is to spread risks around more efficiently.E) B) and C)
F) A) and B)

Question 3

Dividends

Accepted Answer

A)  are the rates of return on mutual funds.
B)  are cash payments that companies make to shareholders.
C)  are the difference between the price and present value per share of a stock.
D)  are the rates of return on a company's capital stock.E) None of the above
F) B) and C)

Question 4

A person who believes strongly in the use of fundamental analysis to choose a portfolio of stocks

Accepted Answer

A)  has a better chance of outperforming the market if stock prices follow a random walk than if they do not follow a random walk.
B)  almost always chooses to hold index funds in his or her portfolio rather than actively-managed funds.
C)  is spending his or her time wisely if the efficient markets hypothesis is correct.
D)  is interested in the likely ability of a corporation to pay dividends in the future.E) A) and B)
F) B) and D)

Question 5

Yoyo's Frozen Yogurt, Inc. is thinking of building a new warehouse. They believe that this will give them $50,000 of additional revenue at the end of one year, $60,000 additional revenue at the end of two years, and $70,000 in additional revenue at the end of three years. If the interest rate is 5 percent, Yoyo would be willing to pay

Accepted Answer

A)  $140,000, but not $150,000.
B)  $150,000, but not $160,000.
C)  $160,000, but not $170,000.
D)  $170,000, but not $180,000.E) C) and D)
F) A) and B)

Question 6

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 7

Roger determines that if Aim Corporation has high revenues, then Zest Corporation will have low revenues, and that if Aim Corporation has low revenues, Zest Corporation will have high revenues. He buys stock in both corporations.

Accepted Answer

A)  He has reduced firm-specific risk but not market risk.
B)  He has reduced market risk, but not firm-specific risk.
C)  He had reduce both firm-specific risk and market risk.
D)  He has reduced neither firm-specific risk nor market risk.E) A) and B)
F) B) and C)

Question 8

Of the following interest rates, which is the highest one at which you would prefer to have $170 ten years from today instead of $100 today?

Accepted Answer

A)  3 percent
B)  5 percent
C)  7 percent
D)  9 percentE) A) and C)
F) A) and B)

Question 9

The sooner a payment is received and the higher the interest rate, the greater the present value of a future payment.

Accepted Answer

A) True 
 B)False

Question 10

Four years ago Ollie deposited some money into an account. He earned 5 percent interest on this account and now it has a balance of $303.88. About how much money did Ollie deposit into his account when he opened it?

Accepted Answer

A)  $210
B)  $220
C)  $240
D)  $250E) A) and B)
F) A) and C)

Question 11

You are expecting to receive $3,500 at some time in the future. Which of the following would unambiguously increase the present value of this future payment?

Accepted Answer

A)  Interest rates rise and you get the payment sooner.
B)  Interest rates rise and you have to wait longer for the payment.
C)  Interest rates fall and you get the payment sooner.
D)  Interest rates fall and you have to wait longer to get the payment.E) None of the above
F) A) and B)

Question 12

According to the rule of 70, if the interest rate is 10 percent, about how long will it take for the value of a savings account to double?

Accepted Answer

A)  about 6.3 years
B)  about 7 years
C)  about 7.7 years
D)  about 10 yearsE) A) and B)
F) B) and C)

Question 13

Which of the following terms is used to describe a situation in which the price of an asset rises above what appears to be its fundamental value?

Accepted Answer

A)  "random walk"
B)  "random bubble"
C)  "speculative bubble"
D)  "speculative hedge"E) A) and B)
F) A) and C)

Question 14

If Robert is risk-averse, then he will always

Accepted Answer

A)  choose not to play a game where he has a 50 percent chance of winning $1 and a 50 percent chance of losing $1.
B)  choose not to play a game where he has a 75 percent chance of winning $1 and a 25 percent chance of losing $1.
C)  choose to play a game where he has a 52 percent chance of winning $1 and a 48 percent chance of losing $1.
D)  All of the above are correct.E) C) and D)
F) None of the above

Question 15

Hardwood Furniture Store considered building a store in a new location. The owners and their accountants decided that this was the profitable thing to do. However, soon after they made this decision, both the interest rate and the cost of building the store changed. In which case do these changes both make it less likely that they will now build the store?

Accepted Answer

A)  Interest rates rise and the cost of building the store rises.
B)  Interest rates rise and the cost of building the store falls.
C)  Interest rates fall and the cost of building the store rises.
D)  Interest rates fall and the cost of building the store falls.E) None of the above
F) All of the above

Question 16

According to the efficient market hypothesis

Accepted Answer

A)  changes in the prices of stocks are predictable. Evidence shows that managed funds typically do better than indexed funds.
B)  changes in the prices of stocks are predictable. Evidence shows that indexed funds typically do better than managed funds.
C)  changes in the prices of stocks are not predictable. Evidence shows that managed funds typically do better than indexed funds.
D)  changes in the prices of stocks are not predictable. Evidence shows that indexed funds typically do better than managed funds.E) A) and C)
F) A) and D)

Question 17

According to the rule of 70, if you earn an interest rate of 3.5 percent, your savings will double about every 20 years.

Accepted Answer

A) True 
 B)False

Question 18

According to the rule of 70, if the interest rate is 5 percent, how long will it take for the value of a savings account to double?

Accepted Answer

A)  about 3.5 years
B)  about 6.3 years
C)  about 12 years
D)  about 14 yearsE) A) and B)
F) A) and C)

Question 19

People who are risk averse dislike bad outcomes more than they like comparable good outcomes.

Accepted Answer

A) True 
 B)False

Question 20

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

Exam 14: The Basic Tools of Finance

Dividends

Correct Answer
verified

You are expecting to receive $3,500 at some time in the future. Which of the following would unambiguously increase the present value of this future payment?

Correct Answer
verified

A person who believes strongly in the use of fundamental analysis to choose a portfolio of stocks

Correct Answer
verified

Roger determines that if Aim Corporation has high revenues, then Zest Corporation will have low revenues, and that if Aim Corporation has low revenues, Zest Corporation will have high revenues. He buys stock in both corporations.

Correct Answer
verified

Four years ago Ollie deposited some money into an account. He earned 5 percent interest on this account and now it has a balance of $303.88. About how much money did Ollie deposit into his account when he opened it?

Correct Answer
verified

Which of the following terms is used to describe a situation in which the price of an asset rises above what appears to be its fundamental value?

Correct Answer
verified

According to the rule of 70, if the interest rate is 10 percent, about how long will it take for the value of a savings account to double?

Correct Answer
verified

People who are risk averse dislike bad outcomes more than they like comparable good outcomes.

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

The sooner a payment is received and the higher the interest rate, the greater the present value of a future payment.

Correct Answer
verified

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

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

Correct Answer
verified

Correct Answer
verified

According to the efficient market hypothesis

Correct Answer
verified

According to the rule of 70, if the interest rate is 5 percent, how long will it take for the value of a savings account to double?

Correct Answer
verified

From the standpoint of the economy as a whole, the role of

Correct Answer
verified

If Robert is risk-averse, then he will always

Correct Answer
verified

Of the following interest rates, which is the highest one at which you would prefer to have $170 ten years from today instead of $100 today?

Correct Answer
verified

According to the rule of 70, if you earn an interest rate of 3.5 percent, your savings will double about every 20 years.

Correct Answer
verified

Exam 14: The Basic Tools of Finance

Dividends

Correct AnswerverifiedShow Answer

You are expecting to receive $3,500 at some time in the future. Which of the following would unambiguously increase the present value of this future payment?

Correct AnswerverifiedShow Answer

A person who believes strongly in the use of fundamental analysis to choose a portfolio of stocks

Correct AnswerverifiedShow Answer

Roger determines that if Aim Corporation has high revenues, then Zest Corporation will have low revenues, and that if Aim Corporation has low revenues, Zest Corporation will have high revenues. He buys stock in both corporations.

Correct AnswerverifiedShow Answer

Four years ago Ollie deposited some money into an account. He earned 5 percent interest on this account and now it has a balance of $303.88. About how much money did Ollie deposit into his account when he opened it?

Correct AnswerverifiedShow Answer

Which of the following terms is used to describe a situation in which the price of an asset rises above what appears to be its fundamental value?

Correct AnswerverifiedShow Answer

According to the rule of 70, if the interest rate is 10 percent, about how long will it take for the value of a savings account to double?

Correct AnswerverifiedShow Answer

People who are risk averse dislike bad outcomes more than they like comparable good outcomes.

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

The sooner a payment is received and the higher the interest rate, the greater the present value of a future payment.

Correct AnswerverifiedShow 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

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

According to the efficient market hypothesis

Correct AnswerverifiedShow Answer

According to the rule of 70, if the interest rate is 5 percent, how long will it take for the value of a savings account to double?

Correct AnswerverifiedShow Answer

From the standpoint of the economy as a whole, the role of

Correct AnswerverifiedShow Answer

If Robert is risk-averse, then he will always

Correct AnswerverifiedShow Answer

Of the following interest rates, which is the highest one at which you would prefer to have $170 ten years from today instead of $100 today?

Correct AnswerverifiedShow Answer

According to the rule of 70, if you earn an interest rate of 3.5 percent, your savings will double about every 20 years.

Correct AnswerverifiedShow Answer

Correct Answer
verified

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

Correct Answer
verified

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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