Question 1

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) B) and D)
F) C) and D)

Question 2

An increase in the interest rate causes a decrease in the future value of $1,000 that you have in a bank account today.

Accepted Answer

A) True 
 B)False

Question 3

Historically,stocks have offered higher rates of return than bonds.

Accepted Answer

A) True 
 B)False

Question 4

A bank might make mortgages to people in different regions of the country.By doing so

Accepted Answer

A)   the bank reduces the risk it faces from falling house prices in its region and falling prices in all regions.
B)   the bank reduces the risk it faces of falling house prices in its region but not from falling prices in all regions.
C)   the bank reduces the risk it faces of falling house prices in all regions,but not the risk it faces from falling house prices in its regions.
D)   the bank reduces neither the risk it faces from falling house prices in its region nor falling prices in all regions.E) A) and C)
F) None of the above

Question 5

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

Question 6

In the 15 years ending June 2010,most active portfolio managers failed to beat the market.

Accepted Answer

A) True 
 B)False

Question 7

At which interest rate is the present value of $168.54 two years from today equal to $150 today?

Accepted Answer

A)   4 percent
B)   5 percent
C)   6 percent
D)   None of the above would give a present value within a cent of $162.24.E) A) and C)
F) All of the above

Question 8

Figure 14-3.The figure shows a utility function for Rob. 
-Refer to Figure 14-3.From the appearance of Rob's utility function,we know that

Accepted Answer

A)   the pain that Rob would experience if he lost $200 of his wealth would exceed the pleasure that he would experience if he added $200 to his wealth.
B)   the pleasure that Rob would experience if he added $200 to his wealth would exceed the pain that he would experience if he lost $200 of his wealth.
C)   the property of increasing utility does not apply to Rob.
D)   the property of diminishing marginal utility does not apply to Rob.E) A) and B)
F) All of the above

Question 9

Which of the following best illustrates diversification?

Accepted Answer

A)   A company that produces many different products decides to produce fewer.
B)   After selling stock,corporate management spends funds on projects with greater risks than shareholders had anticipated.
C)   Instead of holding only the stocks of companies engaged in the banking business,a person decides to hold stock in a number of different companies producing different goods and services.
D)   A person decides to purchase only stocks that have paid high dividends in the past.E) A) and C)
F) B) and C)

Question 10

The efficient markets hypothesis says that beating the market consistently is

Accepted Answer

A)   impossible.Many studies find that beating the market is,at best,extremely difficult.
B)   impossible.Many studies find that beating the market is relatively easy.
C)   relatively easy.Many studies find that beating the market is,at best,extremely difficult.
D)   relatively easy.Many studies find that beating the market is relatively easy.E) A) and D)
F) None of the above

Question 11

The efficient markets hypothesis implies that

Accepted Answer

A)   building a portfolio based on a published list of the "most respected" companies is likely to produce a better-than-average return.
B)   if a stock rose in price last year,it is likely to rise in price this year.
C)   managed mutual funds should generally outperform indexed mutual funds.
D)   None of the above are correct.E) A) and D)
F) A) and B)

Question 12

Using the rule of 70,about how much would $100 be worth after 50 years if the interest rate were 7 percent?

Accepted Answer

A)   $400
B)   $800
C)   $1,600
D)   $3,200E) B) and C)
F) None of the above

Question 13

Stock market fluctuations

Accepted Answer

A)   often go hand in hand with fluctuations in the economy more broadly.
B)   rarely have anything to do with fluctuations in the economy more broadly.
C)   have few,if any,macroeconomic implications.
D)   are attributable to the widespread belief that the efficient markets hypothesis is correct.E) A) and B)
F) C) and D)

Question 14

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

Question 15

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) C) and D)

Question 16

Sari puts $100 into an account with an interest rate of 10 percent.According to the rule of 70,about how much does she have at the end of 21 years?

Accepted Answer

A)   $210
B)   $300
C)   $800
D)   $1,010E) A) and D)
F) B) and C)

Question 17

The largest reduction in a portfolio's risk is achieved when the number of stocks in the portfolio is increased from

Accepted Answer

A)   80 to 100.
B)   40 to 80.
C)   10 to 20.
D)   1 to 10.E) All of the above
F) B) and C)

Question 18

The efficient markets hypothesis implies

Accepted Answer

A)   that all stocks are fairly valued all the time and that no stock is a better buy than any other.
B)   that all stocks are fairly valued all the time,but that some stocks may be better buys than other.
C)   that some stocks may be better buys than others and stock experts can determine which ones.
D)   that no stock is efficiently valued.E) A) and D)
F) B) and C)

Question 19

You are tearing down a building and find $1 in change that someone lost when working on the building 140 years ago.If,instead of being careless with the $1 in change,this person had deposited it into a bank and earned 2 percent interest every year for 140 years,how much would be in the account today according to the rule of 70?

Accepted Answer

A)   $4
B)   $8
C)   $16
D)   $32E) B) and D)
F) A) and B)

Question 20

When you were 10 years old,your grandparents put $500 into an account for you paying 7 percent interest.Now that you are 18 years old,your grandparents tell you that you can take the money out of the account.What is the balance to the nearest cent?

Accepted Answer

A)   $1,200.00
B)   $1,111.77
C)   $983.58
D)   $859.09E) B) and C)
F) C) and D)

Exam 27: The Basic Tools of Finance

The efficient markets hypothesis implies

Correct Answer
verified

At which interest rate is the present value of $168.54 two years from today equal to $150 today?

Correct Answer
verified

In the 15 years ending June 2010,most active portfolio managers failed to beat the market.

Correct Answer
verified

When you were 10 years old,your grandparents put $500 into an account for you paying 7 percent interest.Now that you are 18 years old,your grandparents tell you that you can take the money out of the account.What is the balance to the nearest cent?

Correct Answer
verified

An increase in the interest rate causes a decrease in the future value of $1,000 that you have in a bank account today.

Correct Answer
verified

Stock market fluctuations

Correct Answer
verified

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

Correct Answer
verified

Which of the following best illustrates diversification?

Correct Answer
verified

Which of the following best illustrates moral hazard?

Correct Answer
verified

A bank might make mortgages to people in different regions of the country.By doing so

Correct Answer
verified

Historically,stocks have offered higher rates of return than bonds.

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

The efficient markets hypothesis implies that

Correct Answer
verified

Figure 14-3.The figure shows a utility function for Rob. -Refer to Figure 14-3.From the appearance of Rob's utility function,we know that

Correct Answer
verified

Using the rule of 70,about how much would $100 be worth after 50 years if the interest rate were 7 percent?

Correct Answer
verified

The efficient markets hypothesis says that beating the market consistently is

Correct Answer
verified

The largest reduction in a portfolio's risk is achieved when the number of stocks in the portfolio is increased from

Correct Answer
verified

Sari puts $100 into an account with an interest rate of 10 percent.According to the rule of 70,about how much does she have at the end of 21 years?

Correct Answer
verified

Exam 27: The Basic Tools of Finance

The efficient markets hypothesis implies

Correct AnswerverifiedShow Answer

At which interest rate is the present value of $168.54 two years from today equal to $150 today?

Correct AnswerverifiedShow Answer

In the 15 years ending June 2010,most active portfolio managers failed to beat the market.

Correct AnswerverifiedShow Answer

When you were 10 years old,your grandparents put $500 into an account for you paying 7 percent interest.Now that you are 18 years old,your grandparents tell you that you can take the money out of the account.What is the balance to the nearest cent?

Correct AnswerverifiedShow Answer

An increase in the interest rate causes a decrease in the future value of $1,000 that you have in a bank account today.

Correct AnswerverifiedShow Answer

Stock market fluctuations

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following best illustrates diversification?

Correct AnswerverifiedShow Answer

Which of the following best illustrates moral hazard?

Correct AnswerverifiedShow Answer

A bank might make mortgages to people in different regions of the country.By doing so

Correct AnswerverifiedShow Answer

Historically,stocks have offered higher rates of return than bonds.

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

The efficient markets hypothesis implies that

Correct AnswerverifiedShow Answer

Figure 14-3.The figure shows a utility function for Rob. -Refer to Figure 14-3.From the appearance of Rob's utility function,we know that

Correct AnswerverifiedShow Answer

Using the rule of 70,about how much would $100 be worth after 50 years if the interest rate were 7 percent?

Correct AnswerverifiedShow Answer

The efficient markets hypothesis says that beating the market consistently is

Correct AnswerverifiedShow Answer

The largest reduction in a portfolio's risk is achieved when the number of stocks in the portfolio is increased from

Correct AnswerverifiedShow Answer

Sari puts $100 into an account with an interest rate of 10 percent.According to the rule of 70,about how much does she have at the end of 21 years?

Correct AnswerverifiedShow Answer

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