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) A) and B)
F) A) and C)

Question 2

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

Question 3

Suppose you will receive $800 in two years. If the interest rate is 5 percent, then the present value of this future payment is

Accepted Answer

A)   $725.62. It would be higher if the interest rate were higher.
B)   $727.28. It would be higher if the interest rate were higher.
C)   $725.62. It would be lower if the interest rate were higher.
D)   $727.28. It would be lower if the interest rate were higher.E) C) and D)
F) B) and D)

Question 4

Other things the same, an increase in the interest rate makes the quantity of loanable funds supplied

Accepted Answer

A)   rise, and investment spending rise.
B)   rise, and investment spending fall.
C)   fall, and investment spending rise.
D)   fall, and investment spending fall.E) None of the above
F) A) and C)

Question 5

Discuss the statistical evidence concerning the efficient markets hypothesis.

Accepted Answer

The evidence indicates that stock prices...

Question 6

Janelle offers you $1,000 today or $1,500 in 5 years. You would prefer to take the $1,500 in 5 years if the interest rate is

Accepted Answer

A)   8 percent.
B)   9 percent.
C)   10 percent.
D)   All of the above are correct.E) B) and D)
F) All of the above

Question 7

Because the statistic called the standard deviation measures the volatility of a variable, it is used to measure the return of a portfolio.

Accepted Answer

A) True 
 B)False

Question 8

Angela reads financial advice columns and concludes the following. Which, if any, of her conclusions are incorrect?

Accepted Answer

A)   Higher average returns come at the price of higher risk.
B)   People who are risk averse should never hold stock.
C)   Diversification cannot eliminate all of the risk in stock portfolio.
D)   None of her conclusions are incorrect.E) A) and D)
F) B) and D)

Question 9

Figure 9-2. The figure shows a utility function for Mary Ann.
 
-Refer to Figure 9-2. From the appearance of the utility function, we know that

Accepted Answer

A)   Mary Ann is risk averse.
B)   Mary Ann gains less satisfaction when her wealth increases by X dollars than she loses in satisfaction when her wealth decreases by X dollars.
C)   the property of diminishing marginal utility applies to Mary Ann.
D)   All of the above are correct.E) B) and C)
F) None of the above

Question 10

Matt's Utility Function  If Matt's current wealth is $51,000, then

Accepted Answer

A)   his gain in utility from gaining $1,000 is greater than his loss in utility from losing $1,000. Matt is risk averse.
B)   his gain in utility from gaining $1,000 is greater than his loss in utility from losing $1,000. Matt is not risk averse.
C)   his gain in utility from gaining $1,000 is less than his loss in utility from losing $1,000. Matt is risk averse.
D)   his gain in utility from gaining $1,000 is less than his loss in utility from losing $1,000. Matt is not risk averse.E) C) and D)
F) None of the above

Question 11

Figure 9-4. The figure shows a utility function for Dexter.
 
-Refer to Figure 9-4. From the appearance of the utility function, we know that

Accepted Answer

A)   Dexter is risk averse.
B)   Dexter gains less satisfaction when his wealth increases by X dollars than he loses in satisfaction when his wealth decreases by X dollars.
C)   the property of diminishing marginal utility does not apply to Dexter.
D)   All of the above are correct.E) B) and C)
F) A) and D)

Question 12

If the interest rate is r percent, then the rule of 70 says that your savings will double about every

Accepted Answer

A)   70/(1 - r)  years.
B)   70/(1 + r)  years.
C)   70/r years.
D)   70(1 + r) /r years.E) B) and C)
F) A) and B)

Question 13

Suppose that fundamental analysis indicates a particular company's stock is overvalued.

Accepted Answer

A)   This means its present value is less than its price. You should consider adding the stock to your portfolio.
B)   This means its present value is less than its price. You shouldn't consider adding the stock to your portfolio.
C)   This means its present value is more than its price. You should consider adding the stock to your portfolio.
D)   This means its present value is more than its price. You shouldn't consider adding the stock to your portfolio.E) None of the above
F) A) and C)

Question 14

If asset markets are driven by the "animal spirits" of investors, then

Accepted Answer

A)   those markets reflect rational behavior.
B)   those markets reflect irrational behavior.
C)   the efficient markets hypothesis is correct.
D)   the stock market exhibits informational efficiency.E) A) and B)
F) A) and C)

Question 15

When a person engages in detailed analysis of a company to determine its value, he or she is engaging in

Accepted Answer

A)   standard deviation analysis.
B)   informational analysis.
C)   fundamental analysis.
D)   efficiency analysis.E) B) and C)
F) A) and B)

Question 16

What is the present value of a payment of $1,000 two years from now if the interest rate is 6%?

Accepted Answer

A)   $2,000/1.06
B)   $1000/(1.06) 2
C)   $1000/(1 + 0.062) 
D)   None of the above are correct.E) B) and C)
F) A) and D)

Question 17

Markovich Corporation is considering building a new plant. It will cost $1 million today to build it and it will generate revenues of $1.121 million three years from today. Of the interest rates below, which is the highest interest rate at which Markovich still would be willing to build the plant?

Accepted Answer

A)   3 percent
B)   3.5 percent
C)   4 percent
D)   4.5 percentE) None of the above
F) A) and D)

Question 18

A company that can build a project that will cost $50,000, but returns $52,000 in one year would make a good decision by turning this project down if the interest rate were 3 percent.

Accepted Answer

A) True 
 B)False

Question 19

If stock prices follow a random walk, it means

Accepted Answer

A)   long periods of declining prices are followed by long periods of rising prices.
B)   the greater the number of consecutive days of price declines, the greater the probability prices will increase the following day.
C)   stock prices are unrelated to random events that shock the economy.
D)   stock prices are just as likely to rise as to fall at any given time.E) None of the above
F) A) and B)

Question 20

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 C)
F) A) and D)

Exam 9: The Basic Tools of Finance

Janelle offers you $1,000 today or $1,500 in 5 years. You would prefer to take the $1,500 in 5 years if the interest rate is

Correct AnswerverifiedShow Answer

Matt's Utility Function If Matt's current wealth is $51,000, then

Correct AnswerverifiedShow Answer

If stock prices follow a random walk, it means

Correct AnswerverifiedShow Answer

Markovich Corporation is considering building a new plant. It will cost $1 million today to build it and it will generate revenues of $1.121 million three years from today. Of the interest rates below, which is the highest interest rate at which Markovich still would be willing to build the plant?

Correct AnswerverifiedShow Answer

Suppose you will receive $800 in two years. If the interest rate is 5 percent, then the present value of this future payment is

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

Angela reads financial advice columns and concludes the following. Which, if any, of her conclusions are incorrect?

Correct AnswerverifiedShow Answer

If the interest rate is r percent, then the rule of 70 says that your savings will double about every

Correct AnswerverifiedShow Answer

Suppose that fundamental analysis indicates a particular company's stock is overvalued.

Correct AnswerverifiedShow Answer

When a person engages in detailed analysis of a company to determine its value, he or she is engaging in

Correct AnswerverifiedShow Answer

Figure 9-4. The figure shows a utility function for Dexter. -Refer to Figure 9-4. From the appearance of the utility function, we know that

Correct AnswerverifiedShow Answer

Dividends

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

Correct AnswerverifiedShow Answer

Figure 9-2. The figure shows a utility function for Mary Ann. -Refer to Figure 9-2. From the appearance of the utility function, we know that

Correct AnswerverifiedShow Answer

What is the present value of a payment of $1,000 two years from now if the interest rate is 6%?

Correct AnswerverifiedShow Answer

Discuss the statistical evidence concerning the efficient markets hypothesis.

Correct AnswerverifiedThe evidence indicates that stock prices...View AnswerShow Answer

Because the statistic called the standard deviation measures the volatility of a variable, it is used to measure the return of a portfolio.

Correct AnswerverifiedShow Answer

A company that can build a project that will cost $50,000, but returns $52,000 in one year would make a good decision by turning this project down if the interest rate were 3 percent.

Correct AnswerverifiedShow Answer

If asset markets are driven by the "animal spirits" of investors, then

Correct AnswerverifiedShow Answer

Other things the same, an increase in the interest rate makes the quantity of loanable funds supplied

Correct AnswerverifiedShow Answer

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The evidence indicates that stock prices...
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