Question 1

Nancy would like to double the money in her retirement account in five years.According to the rule of 70,what rate of interest would she need to obtain her goal?

Accepted Answer

A)  5 percent
B)  7 percent
C)  10 percent
D)  14 percentE) C) and D)
F) None of the above

Question 2

Marcus puts $500 in an account and one year later has $550;what was the interest rate on the account?

Accepted Answer

A)  10 percent
B)  9 percent
C)  8 percent
D)  None of the above is correct.E) A) and B)
F) B) and C)

Question 3

Which of the following is the correct way to figure the future value of $X that earns r percent for N years?

Accepted Answer

A)  $X(1 + rN) ᴺ
B)  $X(1 + r) ᴺ
C)  $X(1 + rN) 
D)  $X(1 + r/N) NE) A) and C)
F) All of the above

Question 4

At which interest rate is the present value of $95.40 one year from today equal to $90 today?

Accepted Answer

A)  4 percent
B)  5 percent
C)  6 percent
D)  7 percentE) A) and B)
F) C) and D)

Question 5

Other things the same,as the stocks of a greater number of corporations are held in a portfolio,

Accepted Answer

A)  risk increases at an increasing rate.
B)  risk increases at a decreasing rate.
C)  risk decreases at an increasing rate.
D)  risk decreases at a decreasing rate.E) None of the above
F) B) and C)

Question 6

The present value of a payment to be made in the future falls as

Accepted Answer

A)  the interest rate rises and the time until the payment is made increases.
B)  the interest rate rises and the time until the payment is made decreases.
C)  the interest rate falls and the time until the payment is made increases.
D)  the interest rate falls and the time until the payment is made decreases.E) A) and D)
F) None of the above

Question 7

Suppose that the interest rate is 8 percent.Consider three payment options: 1.$200 today.
2) $220 one year from today.
3) $240 two years from today.
Which of the following is correct?

Accepted Answer

A)  1 has the highest present value and 2 has the lowest.
B)  2 has the highest present value and 3 has the lowest.
C)  3 has the highest present value and 1 has the lowest.
D)  None of the above is correct.E) A) and B)
F) A) and C)

Question 8

Fundamental analysis shows that stock in FaceIt! Cosmetics Corporation has a present value that is higher than its price.

Accepted Answer

A)  This stock is overvalued; you should consider adding it to your portfolio.
B)  This stock is overvalued; you shouldn't consider adding it to your portfolio.
C)  This stock is undervalued; you should consider adding it to your portfolio.
D)  This stock is undervalued; you shouldn't consider adding it to your portfolio.E) All of the above
F) A) and B)

Question 9

An increase in the number of corporations in a portfolio from 110 to 120 reduces

Accepted Answer

A)  market risk by more than an increase from 1 to 10.
B)  market risk by less than an increase from 1 to 10.
C)  firm-specific risk by more than an increase from 1 to 10.
D)  firm-specific risk by less than an increase from 1 to 10.E) None of the above
F) B) and C)

Question 10

Which of the following is the correct way to figure the future value of $100 put in an account that earns 4 percent for 10 years?

Accepted Answer

A)  $100(1 + .04¹⁰) 
B)  $100(1 + .04 × 10) 
C)  $100 x 10 x (1 + .04) 
D)  $100(1 + .04) ¹⁰E) B) and C)
F) None of the above

Question 11

What is the present value of a payment of $100 one year from today if the interest rate is 5 percent?

Accepted Answer

A)  $95.50
B)  $95.24
C)  $95.00
D)  None of the above are correct to the nearest penny.E) A) and C)
F) B) and C)

Question 12

Give two conditions that are important to the efficient market theory.List one implication of the efficient market theory.

Accepted Answer

Efficient market theory says that it sho...

Question 13

What is the future value of $500 one year from today if the interest rate is 6 percent?

Accepted Answer

A)  $503
B)  $515
C)  $530
D)  None of the above is correct.E) None of the above
F) B) and D)

Question 14

Fundamental analysis shows that stock in Cedar Valley Furniture Corporation has a price that exceeds its present value.

Accepted Answer

A)  This stock is overvalued; you should consider adding it to your portfolio.
B)  This stock is overvalued; you shouldn't consider adding it to your portfolio.
C)  This stock is undervalued; you should consider adding it to your portfolio.
D)  This stock is undervalued; you shouldn't consider adding it to your portfolio.E) A) and B)
F) All of the above

Question 15

The last $200 of Mary's wealth adds more to her utility than another $200 would.Based on this information,Mary's utility function

Accepted Answer

A)  and marginal utility function are both upward sloping.
B)  and marginal utility function are both downward sloping.
C)  is upward sloping and her marginal utility function is downward sloping.
D)  is downward sloping and her marginal utility function is upward sloping.E) A) and B)
F) A) and C)

Question 16

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

Accepted Answer

A)  $1,000
B)  $1,050
C)  $1,100
D)  None of the above is correct.E) A) and B)
F) A) and C)

Question 17

Assuming the interest rate is 6 percent,which of the following has the greatest present value?

Accepted Answer

A)  $300 paid in two years
B)  $150 paid in one year plus $140 paid in two years
C)  $100 paid today plus $100 paid in one year plus $100 paid in two years
D)  $285 todayE) B) and D)
F) All of the above

Question 18

What is the present value of a payment of $150 one year from today if the interest rate is 6 percent?

Accepted Answer

A)  $141.11
B)  $141.36
C)  $141.75
D)  None of the above are correct to the nearest penny.E) All of the above
F) A) and D)

Question 19

Edgar has four savings accounts.Which one has the most in it?

Accepted Answer

A)  $100 deposited 1 year ago at an 8% interest rate.
B)  $100 deposited 2 years ago at a 4% interest rate.
C)  $100 deposited 4 years ago at a 2% interest rate.
D)  $100 deposited 8 years ago at a 1% interest rate.E) B) and C)
F) A) and C)

Question 20

A judge requires Harry to make a payment to Sally.The judge says that Harry can pay her either $10,000 today or $11,000 two years from today.Of the following interest rates,which is the highest one at which Harry would be better off paying the money today?

Accepted Answer

A)  3%
B)  4%
C)  5%
D)  6%E) B) and C)
F) All of the above

Exam 27: The Basic Tools of Finance

Suppose that the interest rate is 8 percent.Consider three payment options: 1.$200 today. 2) $220 one year from today. 3) $240 two years from today. Which of the following is correct?

Correct AnswerverifiedShow Answer

The present value of a payment to be made in the future falls as

Correct AnswerverifiedShow Answer

Marcus puts $500 in an account and one year later has $550;what was the interest rate on the account?

Correct AnswerverifiedShow Answer

What is the future value of $500 one year from today if the interest rate is 6 percent?

Correct AnswerverifiedShow Answer

An increase in the number of corporations in a portfolio from 110 to 120 reduces

Correct AnswerverifiedShow Answer

Other things the same,as the stocks of a greater number of corporations are held in a portfolio,

Correct AnswerverifiedShow Answer

Fundamental analysis shows that stock in Cedar Valley Furniture Corporation has a price that exceeds its present value.

Correct AnswerverifiedShow Answer

Give two conditions that are important to the efficient market theory.List one implication of the efficient market theory.

Correct AnswerverifiedEfficient market theory says that it sho...View AnswerShow Answer

The last $200 of Mary's wealth adds more to her utility than another $200 would.Based on this information,Mary's utility function

Correct AnswerverifiedShow Answer

Nancy would like to double the money in her retirement account in five years.According to the rule of 70,what rate of interest would she need to obtain her goal?

Correct AnswerverifiedShow Answer

Fundamental analysis shows that stock in FaceIt! Cosmetics Corporation has a present value that is higher than its price.

Correct AnswerverifiedShow Answer

Which of the following is the correct way to figure the future value of $X that earns r percent for N years?

Correct AnswerverifiedShow Answer

What is the present value of a payment of $150 one year from today if the interest rate is 6 percent?

Correct AnswerverifiedShow Answer

Assuming the interest rate is 6 percent,which of the following has the greatest present value?

Correct AnswerverifiedShow Answer

Edgar has four savings accounts.Which one has the most in it?

Correct AnswerverifiedShow Answer

Which of the following is the correct way to figure the future value of $100 put in an account that earns 4 percent for 10 years?

Correct AnswerverifiedShow Answer

What is the present value of a payment of $100 one year from today if the interest rate is 5 percent?

Correct AnswerverifiedShow Answer

At which interest rate is the present value of $95.40 one year from today equal to $90 today?

Correct AnswerverifiedShow Answer

A judge requires Harry to make a payment to Sally.The judge says that Harry can pay her either $10,000 today or $11,000 two years from today.Of the following interest rates,which is the highest one at which Harry would be better off paying the money today?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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Efficient market theory says that it sho...
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