Question 1

You put $75 in the bank one year ago and forgot about it.The bank sends you a notice that you now have $81 in your account.What interest rate did you earn?

Accepted Answer

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

Question 2

At which interest rate is the present value of $135.20 two years from today equal to $125 today?

Accepted Answer

A)  2 percent
B)  4 percent
C)  6 percent
D)  8 percentE) A) and B)
F) All of the above

Question 3

As the interest rate increases,what happens to the present value of a future payment? Explain why changes in the interest rate will lead to changes in the quantity of loanable funds demanded and investment spending.

Accepted Answer

An increase in the interest rate reduces...

Question 4

Discuss the statistical evidence concerning the efficient markets hypothesis.

Accepted Answer

The evidence indicates that stock prices...

Question 5

According to the rule of 70,if you earn an interest rate of 3.5 percent,your savings will double about every 20 years.

Accepted Answer

A) True 
 B)False

Question 6

The market for insurance is one example of reducing risk by using diversification.

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A)  $105.26
B)  $105.00
C)  $95.24
D)  $95.00E) A) and B)
F) C) and D)

Question 8

Susan puts $125 into an account and one year later has $135;what was the interest rate?

Accepted Answer

A)  5 percent
B)  7 percent
C)  8 percent
D)  10 percentE) None of the above
F) B) and C)

Question 9

A high ranking corporate official of a well-known company is unexpectedly sentenced to prison for criminal activity in trading stocks.This should

Accepted Answer

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

Question 10

Rex is a mortgage broker,who is paid by commission.When interest rates decline,he does a lot of business and earns a lot of money,as more people buy houses or refinance their mortgages.But when interest rates rise,business falls substantially.To diversify,Rex should choose investments that

Accepted Answer

A)  provide a higher return than the market average.
B)  provide a lower return than the market average.
C)  pay higher returns when interest rates rise and lower returns when interest rates fall.
D)  pay lower returns when interest rates rise and higher returns when interest rates fall.E) A) and B)
F) C) and D)

Question 11

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

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) C) and D)
F) A) and C)

Question 12

Happy Trails,a bicycle rental company,is considering purchasing three additional bicycles.Each bicycle would cost them $249.66.At the end of the first year the increase to their revenues would be $140 per bicycle.At the end of the second year the increase to their revenues would be $115 per bicycle and they can sell each used bike for another $25.At which of the following interest rates is the sum of the present value of the revenues from buying a bicycle closest to the price of a bicycle?

Accepted Answer

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

Question 13

Rita puts $10,000 into to two different assets.The first pays 10% and the second pays 5%.According to the rule of 70,what is the approximate difference in the value of the two assets after 14 years?

Accepted Answer

A)  $12,000
B)  $14,000
C)  $17,000
D)  $20,000E) None of the above
F) A) and B)

Question 14

If a person is risk averse,then as wealth increases,total utility of wealth

Accepted Answer

A)  increases at an increasing rate.
B)  increases at a decreasing rate.
C)  decreases at an increasing rate.
D)  decreases at a decreasing rate.E) A) and C)
F) A) and D)

Question 15

Alice says that the present value of $700 one year from today if the interest rate is 6 percent is less than the present value of $700 two years from today if the interest rate is 3 percent.Beth says that $700 saved for one year at 6 percent interest has a smaller future value than $700 saved for two years at 3 percent interest.

Accepted Answer

A)  Both Alice and Beth are correct.
B)  Both Alice and Beth are incorrect.
C)  Only Alice is correct.
D)  Only Beth is correct.E) All of the above
F) A) and C)

Question 16

To diversify,a homeowner with a variable-rate mortgage should choose investments that

Accepted Answer

A)  pay higher returns when interest rates rise and lower returns when interest rates fall.
B)  pay lower returns when interest rates rise and higher returns when interest rates fall.
C)  provide a higher return than the market average.
D)  provide a lower return than the market average.E) None of the above
F) C) and D)

Question 17

Fundamental analysis shows that stock in Lodgefire Restaurants has a present value below 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) A) and B)
F) None of the above

Question 18

Darby puts $75 in an account and one year later has $100;what was the interest rate on the account?

Accepted Answer

A)  20 percent
B)  25 percent
C)  30 percent
D)  None of the above is correct.E) A) and C)
F) B) and D)

Question 19

Suppose that the interest rate is 7 percent.Consider four payment options: Option A: $500 today.
Option B: $550 one year from today.
Option C: $575 two years from today.
Option D: $600 three years from today.
Which of the payments has the lowest present value today?

Accepted Answer

A)  Option A
B)  Option B
C)  Option C
D)  Option DE) A) and B)
F) None of the above

Question 20

At which interest rate is the present value of $189.28 two years from today equal to $175 today?

Accepted Answer

A)  2 percent
B)  4 percent
C)  6 percent
D)  8 percentE) A) and B)
F) None of the above

Exam 27: The Basic Tools of Finance

Rex is a mortgage broker,who is paid by commission.When interest rates decline,he does a lot of business and earns a lot of money,as more people buy houses or refinance their mortgages.But when interest rates rise,business falls substantially.To diversify,Rex should choose investments that

Correct Answer
verified

If a person is risk averse,then as wealth increases,total utility of wealth

Correct Answer
verified

At which interest rate is the present value of $189.28 two years from today equal to $175 today?

Correct Answer
verified

To diversify,a homeowner with a variable-rate mortgage should choose investments that

Correct Answer
verified

Suppose that the interest rate is 7 percent.Consider four payment options: Option A: $500 today. Option B: $550 one year from today. Option C: $575 two years from today. Option D: $600 three years from today. Which of the payments has the lowest present value today?

Correct Answer
verified

Correct Answer
verified

The market for insurance is one example of reducing risk by using diversification.

Correct Answer
verified

At which interest rate is the present value of $135.20 two years from today equal to $125 today?

Correct Answer
verified

You put $75 in the bank one year ago and forgot about it.The bank sends you a notice that you now have $81 in your account.What interest rate did you earn?

Correct Answer
verified

Rita puts $10,000 into to two different assets.The first pays 10% and the second pays 5%.According to the rule of 70,what is the approximate difference in the value of the two assets after 14 years?

Correct Answer
verified

Darby puts $75 in an account and one year later has $100;what was the interest rate on the account?

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

Discuss the statistical evidence concerning the efficient markets hypothesis.

Correct Answer
verified
The evidence indicates that stock prices...
View Answer

As the interest rate increases,what happens to the present value of a future payment? Explain why changes in the interest rate will lead to changes in the quantity of loanable funds demanded and investment spending.

Correct Answer
verified
An increase in the interest rate reduces...
View Answer

Correct Answer
verified

Fundamental analysis shows that stock in Lodgefire Restaurants has a present value below its price.

Correct Answer
verified

A high ranking corporate official of a well-known company is unexpectedly sentenced to prison for criminal activity in trading stocks.This should

Correct Answer
verified

According to the rule of 70,if you earn an interest rate of 3.5 percent,your savings will double about every 20 years.

Correct Answer
verified

Susan puts $125 into an account and one year later has $135;what was the interest rate?

Correct Answer
verified

Exam 27: The Basic Tools of Finance

Rex is a mortgage broker,who is paid by commission.When interest rates decline,he does a lot of business and earns a lot of money,as more people buy houses or refinance their mortgages.But when interest rates rise,business falls substantially.To diversify,Rex should choose investments that

Correct AnswerverifiedShow Answer

If a person is risk averse,then as wealth increases,total utility of wealth

Correct AnswerverifiedShow Answer

At which interest rate is the present value of $189.28 two years from today equal to $175 today?

Correct AnswerverifiedShow Answer

To diversify,a homeowner with a variable-rate mortgage should choose investments that

Correct AnswerverifiedShow Answer

Suppose that the interest rate is 7 percent.Consider four payment options: Option A: $500 today. Option B: $550 one year from today. Option C: $575 two years from today. Option D: $600 three years from today. Which of the payments has the lowest present value today?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The market for insurance is one example of reducing risk by using diversification.

Correct AnswerverifiedShow Answer

At which interest rate is the present value of $135.20 two years from today equal to $125 today?

Correct AnswerverifiedShow Answer

You put $75 in the bank one year ago and forgot about it.The bank sends you a notice that you now have $81 in your account.What interest rate did you earn?

Correct AnswerverifiedShow Answer

Rita puts $10,000 into to two different assets.The first pays 10% and the second pays 5%.According to the rule of 70,what is the approximate difference in the value of the two assets after 14 years?

Correct AnswerverifiedShow Answer

Darby puts $75 in an account and one year later has $100;what was the interest rate on the account?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Discuss the statistical evidence concerning the efficient markets hypothesis.

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

As the interest rate increases,what happens to the present value of a future payment? Explain why changes in the interest rate will lead to changes in the quantity of loanable funds demanded and investment spending.

Correct AnswerverifiedAn increase in the interest rate reduces...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Fundamental analysis shows that stock in Lodgefire Restaurants has a present value below its price.

Correct AnswerverifiedShow Answer

A high ranking corporate official of a well-known company is unexpectedly sentenced to prison for criminal activity in trading stocks.This should

Correct AnswerverifiedShow Answer

According to the rule of 70,if you earn an interest rate of 3.5 percent,your savings will double about every 20 years.

Correct AnswerverifiedShow Answer

Susan puts $125 into an account and one year later has $135;what was the interest rate?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The evidence indicates that stock prices...
View Answer

Correct Answer
verified
An increase in the interest rate reduces...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified