Question 1

A previously well-respected and trusted president of a corporation is accused of fraud. At the same time interest rates unexpectedly fall. Which of the above would tend to make the price of the stock rise?

Accepted Answer

A)  the announcement and the fall in interest rates
B)  the announcement but not the fall in interest rates
C)  the fall in interest rates, but not the announcement
D)  neither the announcement nor the fall in interest ratesE) None of the above
F) All of the above

Question 2

Write the rule of 70. Suppose that your great-great-grandmother put $50 in a savings account 100 years ago and the account is now worth $1,600. Use the rule of 70 to determine about what interest rate she earned.

Accepted Answer

$1,600/$50 = 32. The rule of 70 says tha...

Question 3

The price of a bond is equal to the sum of the present values of its future payments. Suppose a certain bond pays $50 one year from today and $1,050 two years from today. What is the price of the bond if the interest rate is 5 percent?

Accepted Answer

A)  $1,050.00
B)  $1,045.35
C)  $1,000.00
D)  $945.35E) B) and D)
F) A) and C)

Question 4

If a friend tells you that he is certain a stock price will rise based on information he heard on television or saw on the Internet, should you be skeptical? Explain.

Accepted Answer

Yes, according to the efficient markets ...

Question 5

In answering which of the following questions would you find it necessary to calculate a present value?

Accepted Answer

A)  Should Jane put $1,000 today into a 5-year certificate of deposit that pays 4 percent annual interest?
B)  Should ABC Corporation buy a factory today for $2 million, knowing that the factory will yield the corporation $3 million after 5 years?
C)  If Jill puts $5,000 today into a bank account that pays 3 percent interest, then how much will she have in the account after 2 years?
D)  You would find it necessary to calculate a present value in order to answer all of these questions.E) A) and D)
F) B) and C)

Question 6

Define the efficient markets hypothesis.

Accepted Answer

The efficient market hypothesi...

Question 7

The available evidence indicates that

Accepted Answer

A)  about one-half of all managers of active mutual funds consistently outperform index funds.
B)  outperforming the market on a consistent basis is extremely difficult to do.
C)  there is little truth to the notion that there is a trade-off between risk and return.
D)  there is little truth to the efficient markets hypothesis.E) A) and D)
F) B) and D)

Question 8

The present value of a future payment to be received in three years is $1,000. If the interest rate is 5%, what is the amount that will be paid in three years?

Accepted Answer

A)  $1,150.00
B)  $1,157.63
C)  $1,215.51
D)  $1,250.00E) B) and D)
F) B) and C)

Question 9

Braden says that $400 saved for one year at 4 percent interest has a smaller future value than $400 saved for two years at 2 percent interest. Lefty says that the present value of $400 to be received one year from today if the interest rate is 4 percent exceeds the present value of $400 to be received two years from today if the interest rate is 2 percent.

Accepted Answer

A)  Braden and Lefty are both correct.
B)  Braden and Lefty are both incorrect.
C)  Only Braden is correct.
D)  Only Lefty is correct.E) B) and C)
F) All of the above

Question 10

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

Accepted Answer

A)  $1,225.38
B)  $1,248.48
C)  $1,264.72
D)  $1,273.45E) A) and B)
F) B) and C)

Question 11

Suppose that interest rates unexpectedly rise and that FineLine Corporation announces that revenues from last quarter were down but not as much as the public had anticipated they would be down. According to the efficient markets hypothesis, which of the these things make the price of FineLine Corporation Stock fall?

Accepted Answer

A)  both the interest rate rising and the revenue announcement
B)  neither the interest rate rising nor the revenue announcement
C)  only the interest rate rising
D)  only the revenue announcementE) A) and B)
F) A) and C)

Question 12

If more people think a corporation's stock is overvalued than think it is undervalued then there is a

Accepted Answer

A)  surplus, so its price will rise.
B)  surplus, so its price will fall.
C)  shortage, so its price will rise.
D)  shortage, so its price will fall.E) B) and D)
F) A) and B)

Question 13

Suppose that an increased risk of mortgage defaults lowers the expected profitability of banks. Then we would expect to see

Accepted Answer

A)  the demand for bank stocks rise which would raise the prices of bank stocks.
B)  the demand for bank stocks rise which would reduce the prices of bank stocks.
C)  the demand for bank stocks fall which would raise the prices of bank stocks.
D)  the demand for bank stocks fall which would reduce the prices of bank stocks.E) All of the above
F) A) and B)

Question 14

What is the present value of a payment of $250 one year from today if the interest rate is 4 percent?

Accepted Answer

A)  $240.38
B)  $242.24
C)  $244.40
D)  None of the above are correct to the nearest cent.E) All of the above
F) None of the above

Question 15

Risk aversion helps to explain various things we observe in the economy, including

Accepted Answer

A)  adherence to the old adage, "Don't put all your eggs in one basket."
B)  insurance.
C)  the risk-return trade-off.
D)  All of the above are correct.E) All of the above
F) B) and C)

Question 16

If the interest rate is 2.49 percent, then what is the present value of $5,000 to be received in 4 years?

Accepted Answer

A)  $4,531.52
B)  $4,878.52
C)  $5,124.50
D)  $5,516.91E) A) and D)
F) A) and B)

Question 17

Actively managed mutual funds usually fail to outperform index funds, and this fact provides evidence in favor of the efficient markets hypothesis.

Accepted Answer

A) True 
 B)False

Question 18

On May 25, 1980 three pals graduated from high school, pooled together $3,000 and put the money into an account promising to pay 8% for the next 30 years. On May 25, 2010 they withdrew all the money from the account. To the nearest dollar, how much did they withdraw?

Accepted Answer

A)  $25,962
B)  $27,297
C)  $30,188
D)  None of the above are correct to the nearest dollar.E) A) and C)
F) B) and C)

Question 19

If you put $300 into an account paying 2 percent interest, what will be the value of this account in 4 years?

Accepted Answer

A)  $320.69
B)  $324.00
C)  $324.73
D)  $327.81E) B) and C)
F) A) and B)

Question 20

Which, if any, of the present values below are correctly computed?

Accepted Answer

A)  A payment of $1,000 to be received one year from today, with a 8 percent interest rate, has a present value of $945.45.
B)  A payment of $1,000 to be received one year from today, with a 9 percent interest rate, has a present value of $911.11.
C)  A payment of $1,000 to be received one year from today, with a 10 percent interest rate, has a present value of $905.06.
D)  None of the above are correct to the nearest cent.E) A) and D)
F) A) and C)

Exam 27: Tools of Finance

If a friend tells you that he is certain a stock price will rise based on information he heard on television or saw on the Internet, should you be skeptical? Explain.

Correct Answer
verified
Yes, according to the efficient markets ...
View Answer

Risk aversion helps to explain various things we observe in the economy, including

Correct Answer
verified

Correct Answer
verified

A previously well-respected and trusted president of a corporation is accused of fraud. At the same time interest rates unexpectedly fall. Which of the above would tend to make the price of the stock rise?

Correct Answer
verified

In answering which of the following questions would you find it necessary to calculate a present value?

Correct Answer
verified

Suppose that an increased risk of mortgage defaults lowers the expected profitability of banks. Then we would expect to see

Correct Answer
verified

The present value of a future payment to be received in three years is $1,000. If the interest rate is 5%, what is the amount that will be paid in three years?

Correct Answer
verified

Write the rule of 70. Suppose that your great-great-grandmother put $50 in a savings account 100 years ago and the account is now worth $1,600. Use the rule of 70 to determine about what interest rate she earned.

Correct Answer
verified
$1,600/$50 = 32. The rule of 70 says tha...
View Answer

If more people think a corporation's stock is overvalued than think it is undervalued then there is a

Correct Answer
verified

What is the present value of a payment of $250 one year from today if the interest rate is 4 percent?

Correct Answer
verified

If you put $300 into an account paying 2 percent interest, what will be the value of this account in 4 years?

Correct Answer
verified

Actively managed mutual funds usually fail to outperform index funds, and this fact provides evidence in favor of the efficient markets hypothesis.

Correct Answer
verified

Which, if any, of the present values below are correctly computed?

Correct Answer
verified

The price of a bond is equal to the sum of the present values of its future payments. Suppose a certain bond pays $50 one year from today and $1,050 two years from today. What is the price of the bond if the interest rate is 5 percent?

Correct Answer
verified

Correct Answer
verified

Define the efficient markets hypothesis.

Correct Answer
verified
The efficient market hypothesi...
View Answer

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

Correct Answer
verified

On May 25, 1980 three pals graduated from high school, pooled together $3,000 and put the money into an account promising to pay 8% for the next 30 years. On May 25, 2010 they withdrew all the money from the account. To the nearest dollar, how much did they withdraw?

Correct Answer
verified

If the interest rate is 2.49 percent, then what is the present value of $5,000 to be received in 4 years?

Correct Answer
verified

The available evidence indicates that

Correct Answer
verified

Exam 27: Tools of Finance

If a friend tells you that he is certain a stock price will rise based on information he heard on television or saw on the Internet, should you be skeptical? Explain.

Correct AnswerverifiedYes, according to the efficient markets ...View AnswerShow Answer

Risk aversion helps to explain various things we observe in the economy, including

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A previously well-respected and trusted president of a corporation is accused of fraud. At the same time interest rates unexpectedly fall. Which of the above would tend to make the price of the stock rise?

Correct AnswerverifiedShow Answer

In answering which of the following questions would you find it necessary to calculate a present value?

Correct AnswerverifiedShow Answer

Suppose that an increased risk of mortgage defaults lowers the expected profitability of banks. Then we would expect to see

Correct AnswerverifiedShow Answer

The present value of a future payment to be received in three years is $1,000. If the interest rate is 5%, what is the amount that will be paid in three years?

Correct AnswerverifiedShow Answer

Write the rule of 70. Suppose that your great-great-grandmother put $50 in a savings account 100 years ago and the account is now worth $1,600. Use the rule of 70 to determine about what interest rate she earned.

Correct Answerverified$1,600/$50 = 32. The rule of 70 says tha...View AnswerShow Answer

If more people think a corporation's stock is overvalued than think it is undervalued then there is a

Correct AnswerverifiedShow Answer

What is the present value of a payment of $250 one year from today if the interest rate is 4 percent?

Correct AnswerverifiedShow Answer

If you put $300 into an account paying 2 percent interest, what will be the value of this account in 4 years?

Correct AnswerverifiedShow Answer

Actively managed mutual funds usually fail to outperform index funds, and this fact provides evidence in favor of the efficient markets hypothesis.

Correct AnswerverifiedShow Answer

Which, if any, of the present values below are correctly computed?

Correct AnswerverifiedShow Answer

The price of a bond is equal to the sum of the present values of its future payments. Suppose a certain bond pays $50 one year from today and $1,050 two years from today. What is the price of the bond if the interest rate is 5 percent?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Define the efficient markets hypothesis.

Correct AnswerverifiedThe efficient market hypothesi...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

On May 25, 1980 three pals graduated from high school, pooled together $3,000 and put the money into an account promising to pay 8% for the next 30 years. On May 25, 2010 they withdrew all the money from the account. To the nearest dollar, how much did they withdraw?

Correct AnswerverifiedShow Answer

If the interest rate is 2.49 percent, then what is the present value of $5,000 to be received in 4 years?

Correct AnswerverifiedShow Answer

The available evidence indicates that

Correct AnswerverifiedShow Answer

Correct Answer
verified
Yes, according to the efficient markets ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
$1,600/$50 = 32. The rule of 70 says tha...
View 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
The efficient market hypothesi...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified