Question 1

Actively managed mutual funds usually fail to outperform index funds,and this fact provides evidence in favor of the efficient markets hypothesis.

Accepted Answer

A) True 
 B)False

Question 2

How does adverse selection affect the insurance market?

Accepted Answer

High risk persons ar...

Question 3

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

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) A) and C)

Question 5

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 C)
F) B) and C)

Question 6

Which of the following changes would decrease the present value of a future payment?

Accepted Answer

A)   a decrease in the size of the payment
B)   an increase in the time until the payment is made
C)   an increase in the interest rate
D)   All of the above are correct.E) None of the above
F) A) and C)

Question 7

Risk

Accepted Answer

A)   can be reduced by placing a large number of small bets rather than a small number of large bets.
B)   can be reduced by increasing the number of stocks in a portfolio.
C)   Both A and B are correct.
D)   Neither A nor B are correct.E) All of the above
F) A) and D)

Question 8

Which of the following make(s) insurance premiums higher than otherwise?

Accepted Answer

A)   adverse selection and moral hazard
B)   adverse selection,but not moral hazard
C)   moral hazard,but not adverse selection
D)   neither adverse selection nor moral hazardE) B) and C)
F) A) and D)

Question 9

A company that produces computer peripherals is considering buying some new equipment that it expects will increase future profits.If the interest rate rises,the present value of these future earnings

Accepted Answer

A)   rises.The company is more likely to buy the equipment.
B)   rises.The company is less likely to buy the equipment.
C)   falls.The company is more likely to buy the equipment.
D)   falls.The company is less likely to buy the equipment.E) None of the above
F) A) and C)

Question 10

In the 1990s,Fed Chair Alan Greenspan believed that the market was

Accepted Answer

A)   undervalued,and evidence later showed that this was clearly correct.
B)   undervalued,but whether it was remains debatable.
C)   overvalued,and evidence later showed that this was clearly correct.
D)   overvalued,but whether it was remains debatable.E) C) and D)
F) B) and C)

Question 11

Suppose you win a small lottery and you are given the following choice: You can (1) receive an immediate payment of $10,000 or (2) three annual payments,each in the amount of $3,600,with the first payment coming one year from now,the second two years from now,and the third three years from now.You would choose to take the three annual payments if the interest rate is

Accepted Answer

A)   2 percent,but not if the interest rate is 3 percent.
B)   3 percent,but not if the interest rate is 4 percent.
C)   4 percent,but not if the interest rate is 5 percent.
D)   5 percent,but not if the interest rate is 6 percent.E) B) and C)
F) All of the above

Question 12

Suppose you win a small lottery and you are given the following choice: You can receive (1) an immediate payment of $10,000 or (2) two annual payments,each in the amount of $5,200,with the first payment coming one year from now,and the second payment coming two years from now.You would choose to take the immediate payment of $10,000 if the interest rate is

Accepted Answer

A)   2 percent,but not if the interest rate is 1 percent.
B)   3 percent,but not if the interest rate is 2 percent.
C)   4 percent,but not if the interest rate is 3 percent.
D)   5 percent,but not if the interest rate is 4 percent.E) All of the above
F) A) and D)

Question 13

A previously well-respected and trusted president of a corporation is accused of fraud.At the same time interest rates unexpectedly fall.Which of the above would tend to make the price of the stock rise?

Accepted Answer

A)   the announcement and the fall in interest rates
B)   the announcement but not the fall in interest rates
C)   the fall in interest rates,but not the announcement
D)   neither the announcement nor the fall in interest ratesE) B) and C)
F) A) and D)

Question 14

David increases the number of companies in which he holds stocks.

Accepted Answer

A)   This reduces risk's standard deviation and firm-specific risk.
B)   This reduces risk's standard deviation and market risk.
C)   This raises market risk,but lowers firm-specific risk.What happens to overall risk is unclear.
D)   This raises firm-specific risk,but lowers market risk.What happens to overall risk is unclear.E) A) and D)
F) B) and C)

Question 15

Suppose 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 highest present value today?

Accepted Answer

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

Question 16

Suppose you put $500 into a bank account today.Interest is paid annually and the annual interest rate is 3%.The future value of the $500 in 5 years to the nearest cent is

Accepted Answer

A)   $575.00
B)   $578.81
C)   $579.64
D)   None of the above is correct.E) B) and D)
F) C) and D)

Question 17

Manufacturers of Weightbegone are concerned that genetic advances in weight control might reduce the demand for their diet snacks.This is an example of

Accepted Answer

A)   firm-specific risk,which will likely raise shareholders' demand for higher return.
B)   firm-specific risk,which will likely not likely raise shareholders' demand for higher return.
C)   market risk,which will likely raise shareholders' demand for higher return.
D)   market risk,which will likely not raise shareholders' demand for higher return.E) A) and B)
F) C) and D)

Question 18

A firm has three different investment options.Option A will give the firm $10 million at the end of one year,$10 million at the end of two years,and $10 million at the end of three years.Option B will give the firm $15 million at the end of one year,$10 million at the end of two years,and $5 million at the end of three years.Option C will give the firm $30 million at the end of one year,and nothing thereafter.Which of these options has the highest present value?

Accepted Answer

A)   Option A
B)   Option B
C)   Option C
D)   The answer depends on the rate of interest,which is not specified here.E) C) and D)
F) None of the above

Question 19

Figure 14-2.The figure shows a utility function for Mary Ann. 
-Refer to Figure 14-2.From the appearance of the utility function,we know that

Accepted Answer

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

Question 20

Adverse selection is illustrated by people who take greater risks after they purchase insurance.

Accepted Answer

A) True 
 B)False

Exam 27: The Basic Tools of Finance

Manufacturers of Weightbegone are concerned that genetic advances in weight control might reduce the demand for their diet snacks.This is an example of

Correct Answer
verified

Which of the following make(s) insurance premiums higher than otherwise?

Correct Answer
verified

Figure 14-2.The figure shows a utility function for Mary Ann. -Refer to Figure 14-2.From the appearance of the utility function,we know that

Correct Answer
verified

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

Correct Answer
verified

Suppose you put $500 into a bank account today.Interest is paid annually and the annual interest rate is 3%.The future value of the $500 in 5 years to the nearest cent is

Correct Answer
verified

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

Correct Answer
verified

Risk

Correct Answer
verified

Correct Answer
verified

A company that produces computer peripherals is considering buying some new equipment that it expects will increase future profits.If the interest rate rises,the present value of these future earnings

Correct Answer
verified

Actively managed mutual funds usually fail to outperform index funds,and this fact provides evidence in favor of the efficient markets hypothesis.

Correct Answer
verified

Correct Answer
verified

In the 1990s,Fed Chair Alan Greenspan believed that the market was

Correct Answer
verified

Suppose 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 highest present value today?

Correct Answer
verified

Adverse selection is illustrated by people who take greater risks after they purchase insurance.

Correct Answer
verified

Which of the following changes would decrease the present value of a future payment?

Correct Answer
verified

Correct Answer
verified

David increases the number of companies in which he holds stocks.

Correct Answer
verified

How does adverse selection affect the insurance market?

Correct Answer
verified
High risk persons ar...
View Answer

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

Correct Answer
verified

A previously well-respected and trusted president of a corporation is accused of fraud.At the same time interest rates unexpectedly fall.Which of the above would tend to make the price of the stock rise?

Correct Answer
verified

Exam 27: The Basic Tools of Finance

Manufacturers of Weightbegone are concerned that genetic advances in weight control might reduce the demand for their diet snacks.This is an example of

Correct AnswerverifiedShow Answer

Which of the following make(s) insurance premiums higher than otherwise?

Correct AnswerverifiedShow Answer

Figure 14-2.The figure shows a utility function for Mary Ann. -Refer to Figure 14-2.From the appearance of the utility function,we know that

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Suppose you put $500 into a bank account today.Interest is paid annually and the annual interest rate is 3%.The future value of the $500 in 5 years to the nearest cent is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Risk

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A company that produces computer peripherals is considering buying some new equipment that it expects will increase future profits.If the interest rate rises,the present value of these future earnings

Correct AnswerverifiedShow Answer

Actively managed mutual funds usually fail to outperform index funds,and this fact provides evidence in favor of the efficient markets hypothesis.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In the 1990s,Fed Chair Alan Greenspan believed that the market was

Correct AnswerverifiedShow Answer

Suppose 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 highest present value today?

Correct AnswerverifiedShow Answer

Adverse selection is illustrated by people who take greater risks after they purchase insurance.

Correct AnswerverifiedShow Answer

Which of the following changes would decrease the present value of a future payment?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

David increases the number of companies in which he holds stocks.

Correct AnswerverifiedShow Answer

How does adverse selection affect the insurance market?

Correct AnswerverifiedHigh risk persons ar...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

A previously well-respected and trusted president of a corporation is accused of fraud.At the same time interest rates unexpectedly fall.Which of the above would tend to make the price of the stock rise?

Correct AnswerverifiedShow Answer

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Correct Answer
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High risk persons ar...
View Answer

Correct Answer
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Correct Answer
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