Question 1

Figure 27-5. The figure shows a utility function for Dexter. 
-Refer to Figure 27-5. From the appearance of the graph, we know that

Accepted Answer

A)   Dexter's level of satisfaction increases by more when his wealth increases from $1,001 to $1,002 than it does when his wealth increases from $1,000 to $1,001.
B)   Dexter's level of satisfaction increases by less when his wealth increases from $1,001 to $1,002 than it does when his wealth increases from $1,000 to $1,001.
C)   Dexter's level of satisfaction increases by the same amount when his wealth increases from $1,001 to $1,002 as it does when his wealth increases from $1,000 to $1,001.
D)   None of the above answers can be inferred from the appearance of the utility function.E) B) and C)
F) None of the above

Question 2

Ronaldo's Foods considered building a store in a new location. The owners and their accountants decided that this was not 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 more 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) B) and D)
F) A) and B)

Question 3

If you deposit $900 into an account for two years and the interest rate is 4%, how much do you have at the end of the two years?

Accepted Answer

A)   $972.00
B)   $973.44
C)   $974.19
D)   None of the above is correct.E) B) and C)
F) All of the above

Question 4

From the standpoint of the economy as a whole, the role of insurance is to greatly reduce or eliminate the risks inherent in life.

Accepted Answer

A) True 
 B)False

Question 5

On the Internet you find the following offers for opening an online account. Which of them is the best offer if you have $2,000 to save for two years?

Accepted Answer

A)   an interest rate of 5 percent, with the bank charging you a $15 processing fee at the time you open your account
B)   an interest rate of 3.5 percent, with the bank giving you a $35 bonus to open your account
C)   an interest rate of 4 percent, with the bank giving you a $20 bonus at the time you open your account
D)   an interest rate of 4.5 percent, with no processing fee and no bonusE) None of the above
F) A) and D)

Question 6

Assuming the interest rate is 5 percent, which of the following has the greatest present value?

Accepted Answer

A)   $240 paid in three years
B)   $225 paid in two years
C)   $210 paid in one year
D)   $200 todayE) B) and D)
F) All of the above

Question 7

Suppose the interest rate is 5 percent. Consider three payment options: 1. $500 today.
2)  $520 one year from today.
3)  $550 two years from today.
Which of the following is correct?

Accepted Answer

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

Question 8

The risk of a portfolio

Accepted Answer

A)   increases as the number of stocks in the portfolio increases.
B)   is usually measured using a statistic called the standard diversification.
C)   is positively related to the average return of the portfolio.
D)   bears no relationship to the average return of the portfolio.E) C) and D)
F) A) and B)

Question 9

For a risk averse person,

Accepted Answer

A)   the pleasure of winning $1,000 on a bet exceeds the pain of losing $1,000 on a bet.
B)   the pain of losing $1,000 on a bet exceeds the pleasure of winning $1,000 on a bet.
C)   the utility function exhibits the property of increasing marginal utility.
D)   the utility function gets steeper as wealth increases.E) C) and D)
F) B) and C)

Question 10

Which of the following is the correct expression for finding the present value of a $1,000 payment one year from today if the interest rate is 6 percent?

Accepted Answer

A)   $1,000  1.06) 
B)   $1,0001.06) 
C)   $1,000/1.06) 
D)   None of the above is correct.E) B) and D)
F) B) and C)

Question 11

Figure 27-5. The figure shows a utility function for Dexter. 
-Refer to Figure 27-5. From the appearance of the utility function, we know that

Accepted Answer

A)   Dexter is risk averse.
B)   Dexter gains more satisfaction when his wealth increases by X dollars than he loses in satisfaction when his wealth decreases by X dollars.
C)   the property of decreasing marginal utility applies to Dexter.
D)   All of the above are correct.E) C) and D)
F) B) and D)

Question 12

Suppose you put $350 into a bank account today. Interest is paid annually and the annual interest rate is 6 percent. The future value of the $350 after 4 years is

Accepted Answer

A)   $414.09.
B)   $434.00.
C)   $441.87.
D)   $481.24.E) B) and C)
F) A) and B)

Question 13

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

Question 14

Diversification cannot reduce market risk.

Accepted Answer

A) True 
 B)False

Question 15

The future value of $500 saved for two years at an interest rate of 5% is

Accepted Answer

A)   $550.25.
B)   $550.00.
C)   $551.25.
D)   None of the above are correct.E) None of the above
F) C) and D)

Question 16

After much anticipation a company releases a new smartphone. The smartphone doesn't work as well as expected and lacks many of the features buyers had been expecting. The unexpectedly negative reaction to the smartphone would

Accepted Answer

A)   raise the present value and the price of the corporation's stock.
B)   raise the present value and reduce the price of the corporation's stock.
C)   reduce the present value and the price of the corporation's stock.
D)   reduce the present value and raise the price of the corporation's stock.E) A) and D)
F) B) and C)

Question 17

Writing in the Wall Street Journal in 2009, economist Jeremy Siegel argued that, in the years leading up to the financial crisis of 2008-2009,

Accepted Answer

A)   financial firms acted in too risky a fashion.
B)   the Federal Reserve's efforts to rein in the risky behavior of certain financial firms were inadequate.
C)   falling house prices "crashed the banks and the economy."
D)   All of the above are correct.E) C) and D)
F) A) and C)

Question 18

At an annual interest rate of 10 percent, about how many years will it take $100 to triple in value?

Accepted Answer

A)   8
B)   10
C)   12
D)   14E) None of the above
F) All of the above

Question 19

When you rent a car, you might treat it with less care than you would if it were your own. This is an example of

Accepted Answer

A)   market risk.
B)   moral hazard.
C)   adverse selection.
D)   risk aversion.E) A) and B)
F) C) and D)

Question 20

What is meant by an asset bubble?

Accepted Answer

The price of an asse...

Exam 14: The Basic Tools of Finance

Writing in the Wall Street Journal in 2009, economist Jeremy Siegel argued that, in the years leading up to the financial crisis of 2008-2009,

Correct Answer
verified

What is meant by an asset bubble?

Correct Answer
verified
The price of an asse...
View Answer

Assuming the interest rate is 5 percent, which of the following has the greatest present value?

Correct Answer
verified

When you rent a car, you might treat it with less care than you would if it were your own. This is an example of

Correct Answer
verified

For a risk averse person,

Correct Answer
verified

Suppose you put $350 into a bank account today. Interest is paid annually and the annual interest rate is 6 percent. The future value of the $350 after 4 years is

Correct Answer
verified

Figure 27-5. The figure shows a utility function for Dexter. -Refer to Figure 27-5. From the appearance of the graph, we know that

Correct Answer
verified

At an annual interest rate of 10 percent, about how many years will it take $100 to triple in value?

Correct Answer
verified

On the Internet you find the following offers for opening an online account. Which of them is the best offer if you have $2,000 to save for two years?

Correct Answer
verified

From the standpoint of the economy as a whole, the role of insurance is to greatly reduce or eliminate the risks inherent in life.

Correct Answer
verified

Diversification cannot reduce market risk.

Correct Answer
verified

Figure 27-5. The figure shows a utility function for Dexter. -Refer to Figure 27-5. From the appearance of the utility function, we know that

Correct Answer
verified

If you deposit $900 into an account for two years and the interest rate is 4%, how much do you have at the end of the two years?

Correct Answer
verified

The risk of a portfolio

Correct Answer
verified

Which of the following is the correct expression for finding the present value of a $1,000 payment one year from today if the interest rate is 6 percent?

Correct Answer
verified

Suppose the interest rate is 5 percent. Consider three payment options: 1. $500 today. 2) $520 one year from today. 3) $550 two years from today. Which of the following is correct?

Correct Answer
verified

The future value of $500 saved for two years at an interest rate of 5% is

Correct Answer
verified

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

After much anticipation a company releases a new smartphone. The smartphone doesn't work as well as expected and lacks many of the features buyers had been expecting. The unexpectedly negative reaction to the smartphone would

Correct Answer
verified

Exam 14: The Basic Tools of Finance

Writing in the Wall Street Journal in 2009, economist Jeremy Siegel argued that, in the years leading up to the financial crisis of 2008-2009,

Correct AnswerverifiedShow Answer

What is meant by an asset bubble?

Correct AnswerverifiedThe price of an asse...View AnswerShow Answer

Assuming the interest rate is 5 percent, which of the following has the greatest present value?

Correct AnswerverifiedShow Answer

When you rent a car, you might treat it with less care than you would if it were your own. This is an example of

Correct AnswerverifiedShow Answer

For a risk averse person,

Correct AnswerverifiedShow Answer

Suppose you put $350 into a bank account today. Interest is paid annually and the annual interest rate is 6 percent. The future value of the $350 after 4 years is

Correct AnswerverifiedShow Answer

Figure 27-5. The figure shows a utility function for Dexter. -Refer to Figure 27-5. From the appearance of the graph, we know that

Correct AnswerverifiedShow Answer

At an annual interest rate of 10 percent, about how many years will it take $100 to triple in value?

Correct AnswerverifiedShow Answer

On the Internet you find the following offers for opening an online account. Which of them is the best offer if you have $2,000 to save for two years?

Correct AnswerverifiedShow Answer

From the standpoint of the economy as a whole, the role of insurance is to greatly reduce or eliminate the risks inherent in life.

Correct AnswerverifiedShow Answer

Diversification cannot reduce market risk.

Correct AnswerverifiedShow Answer

Figure 27-5. The figure shows a utility function for Dexter. -Refer to Figure 27-5. From the appearance of the utility function, we know that

Correct AnswerverifiedShow Answer

If you deposit $900 into an account for two years and the interest rate is 4%, how much do you have at the end of the two years?

Correct AnswerverifiedShow Answer

The risk of a portfolio

Correct AnswerverifiedShow Answer

Which of the following is the correct expression for finding the present value of a $1,000 payment one year from today if the interest rate is 6 percent?

Correct AnswerverifiedShow Answer

Suppose the interest rate is 5 percent. Consider three payment options: 1. $500 today. 2) $520 one year from today. 3) $550 two years from today. Which of the following is correct?

Correct AnswerverifiedShow Answer

The future value of $500 saved for two years at an interest rate of 5% is

Correct AnswerverifiedShow Answer

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

After much anticipation a company releases a new smartphone. The smartphone doesn't work as well as expected and lacks many of the features buyers had been expecting. The unexpectedly negative reaction to the smartphone would

Correct AnswerverifiedShow Answer

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verified

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verified
The price of an asse...
View Answer

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