Question 1

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) A) and D)

Question 2

Historically the return on stocks has been higher than the return on bonds. In part this reflects the higher risk from holding stock.

Accepted Answer

A) True 
 B)False

Question 3

A risk-averse person

Accepted Answer

A)  has a utility curve where the slope increases with wealth, and might take a bet with a 80 percent chance of winning $300 and a 20 per chance of losing $300.
B)  has a utility curve where the slope increases with wealth, and would never take a bet with a 80 percent chance of winning $300 and a 20 per cent chance of losing $300.
C)  has a utility curve where the slope decreases with wealth, and might take a bet with a 80 percent chance of winning $300 and a 20 per chance of losing $300.
D)  has a utility curve where the slope decreases with wealth, and would never take a bet with a 80 percent chance of winning $300 and a 20 per cent chance of losing $300.E) A) and B)
F) A) and C)

Question 4

You have a choice among three options. Option 1: receive $900 immediately. Option 2: receive $1,200 one year from now. Option 3: receive $2,000 five years from now. The interest rate is 15 percent. Rank these three options from highest present value to lowest present value.

Accepted Answer

A)  Option 1; Option 2; Option 3
B)  Option 3; Option 2; Option 1
C)  Option 2; Option 3; Option 1
D)  Option 3; Option 1; Option 2E) All of the above
F) A) and B)

Question 5

The field of finance primarily studies

Accepted Answer

A)  how society manages its scarce resources.
B)  the implications of time and risk for allocating resources over time.
C)  firms' decisions concerning how much to produce and what price to charge.
D)  how society can reduce market risk.E) A) and B)
F) C) and D)

Question 6

As the interest rate increases, the present value of future sums decreases, so firms will find fewer investment projects profitable.

Accepted Answer

A) True 
 B)False

Question 7

According to the efficient markets hypothesis, the number of people who think a stock is overvalued exactly balances the number of people who think a stock is undervalued.

Accepted Answer

A) True 
 B)False

Question 8

Tim put $275 in the bank one year ago and forgot about it. Today, the bank sent Tim a statement indicating that he now has $294.25 in his account. What interest rate did Tim earn?

Accepted Answer

A)  5 percent
B)  6 percent
C)  7 percent
D)  8 percentE) All of the above
F) A) and C)

Question 9

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 D)
F) C) and D)

Question 10

Albert Einstein once referred to compounding as

Accepted Answer

A)  "an obsession among economists that defies explanation."
B)  "the greatest mathematical discovery of all time."
C)  his own discovery.
D)  John Maynard Keynes's greatest contribution.E) B) and C)
F) A) and B)

Question 11

What is the future value of $800 one year from today if the interest rate is 7 percent?

Accepted Answer

A)  $747.66
B)  $756.00
C)  $856.00
D)  None of the above are correct to the nearest cent.E) B) and C)
F) A) and D)

Question 12

Your financial advisor tells you that if you earn the historical rate of return on a certain mutual fund, then in three years your $20,000 will grow to $23,152.50. What rate of interest does your financial advisor expect you to earn?

Accepted Answer

A)  5 percent
B)  6 percent
C)  7 percent
D)  8 percentE) A) and C)
F) A) and D)

Question 13

Fundamental analysis determines the value of a stock based on

Accepted Answer

A)  dividends.
B)  the expected final sale price.
C)  the ability of the corporation to earn profits.
D)  All of the above are correct.E) B) and D)
F) B) and C)

Question 14

Your accountant tells you that if you can continue to earn the current interest rate on your balance of $500 for ten years, you will have about $983.58. If your accountant is correct, what is the current rate of interest?

Accepted Answer

A)  5 percent
B)  6 percent
C)  7 percent
D)  8 percentE) All of the above
F) None of the above

Exam 27: Tools of Finance

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

Correct Answer
verified

The field of finance primarily studies

Correct Answer
verified

Your accountant tells you that if you can continue to earn the current interest rate on your balance of $500 for ten years, you will have about $983.58. If your accountant is correct, what is the current rate of interest?

Correct Answer
verified

A risk-averse person

Correct Answer
verified

Your financial advisor tells you that if you earn the historical rate of return on a certain mutual fund, then in three years your $20,000 will grow to $23,152.50. What rate of interest does your financial advisor expect you to earn?

Correct Answer
verified

Tim put $275 in the bank one year ago and forgot about it. Today, the bank sent Tim a statement indicating that he now has $294.25 in his account. What interest rate did Tim earn?

Correct Answer
verified

Dividends

Correct Answer
verified

Fundamental analysis determines the value of a stock based on

Correct Answer
verified

According to the efficient markets hypothesis, the number of people who think a stock is overvalued exactly balances the number of people who think a stock is undervalued.

Correct Answer
verified

As the interest rate increases, the present value of future sums decreases, so firms will find fewer investment projects profitable.

Correct Answer
verified

Albert Einstein once referred to compounding as

Correct Answer
verified

Historically the return on stocks has been higher than the return on bonds. In part this reflects the higher risk from holding stock.

Correct Answer
verified

What is the future value of $800 one year from today if the interest rate is 7 percent?

Correct Answer
verified

You have a choice among three options. Option 1: receive $900 immediately. Option 2: receive $1,200 one year from now. Option 3: receive $2,000 five years from now. The interest rate is 15 percent. Rank these three options from highest present value to lowest present value.

Correct Answer
verified

Exam 27: Tools of Finance

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

Correct AnswerverifiedShow Answer

The field of finance primarily studies

Correct AnswerverifiedShow Answer

Your accountant tells you that if you can continue to earn the current interest rate on your balance of $500 for ten years, you will have about $983.58. If your accountant is correct, what is the current rate of interest?

Correct AnswerverifiedShow Answer

A risk-averse person

Correct AnswerverifiedShow Answer

Your financial advisor tells you that if you earn the historical rate of return on a certain mutual fund, then in three years your $20,000 will grow to $23,152.50. What rate of interest does your financial advisor expect you to earn?

Correct AnswerverifiedShow Answer

Tim put $275 in the bank one year ago and forgot about it. Today, the bank sent Tim a statement indicating that he now has $294.25 in his account. What interest rate did Tim earn?

Correct AnswerverifiedShow Answer

Dividends

Correct AnswerverifiedShow Answer

Fundamental analysis determines the value of a stock based on

Correct AnswerverifiedShow Answer

According to the efficient markets hypothesis, the number of people who think a stock is overvalued exactly balances the number of people who think a stock is undervalued.

Correct AnswerverifiedShow Answer

As the interest rate increases, the present value of future sums decreases, so firms will find fewer investment projects profitable.

Correct AnswerverifiedShow Answer

Albert Einstein once referred to compounding as

Correct AnswerverifiedShow Answer

Historically the return on stocks has been higher than the return on bonds. In part this reflects the higher risk from holding stock.

Correct AnswerverifiedShow Answer

What is the future value of $800 one year from today if the interest rate is 7 percent?

Correct AnswerverifiedShow Answer

You have a choice among three options. Option 1: receive $900 immediately. Option 2: receive $1,200 one year from now. Option 3: receive $2,000 five years from now. The interest rate is 15 percent. Rank these three options from highest present value to lowest present value.

Correct AnswerverifiedShow 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

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified