Question 1

Three people go to the bank to cash in their accounts.Amy had her money in an account for 25 years at 4 percent interest.Bill had his money in an account for 20 years at 5 percent interest.Celia had her money in an account for 5 years at 20 percent interest.If each of them originally deposited $500 in their accounts,which of them gets the most money when they cash in their accounts?

Accepted Answer

A)   Amy
B)   Bill
C)   Celia
D)   They each get the same amount.E) C) and D)
F) B) and C)

Question 2

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

Question 3

Suppose you will receive $500 at some point in the future.If the annual interest rate is 7.5 percent,then the present value of the $500 is

Accepted Answer

A)   $411.26 if the $500 is to be received in 5 years and $338.95 if the $500 is to be received in 10 years.
B)   $348.28 if the $500 is to be received in 5 years and $242.60 if the $500 is to be received in 10 years.
C)   $291.11 if the $500 is to be received in 5 years and $272.89 if the $500 is to be received in 10 years.
D)   $291.11 if the $500 is to be received in 5 years and $236.49 if the $500 is to be received in 10 years.E) A) and B)
F) All of the above

Question 4

Other things the same,when the interest rate rises,the present value of future revenues from investment projects

Accepted Answer

A)   rises,so investment spending rises.
B)   falls,so investment spending rises.
C)   rises,so investment spending falls.
D)   falls,so investment spending falls.E) A) and B)
F) A) and C)

Question 5

What is the future value of $333 at an interest rate of 3 percent one year from today?

Accepted Answer

A)   $337.39
B)   $342.99
C)   $343.09
D)   None of the above are correct to the nearest cent.E) A) and B)
F) None of the above

Question 6

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

Question 7

Most financial decisions involve two related elements:

Accepted Answer

A)   advice and consent.
B)   investment and taxes.
C)   time and risk.
D)   saving and consumption.E) A) and C)
F) All of the above

Question 8

George has $300 in a bank account.Some years ago he put $213.20 into this account,and it has earned 5 percent interest every year since then.How many years ago did he open his account?

Accepted Answer

A)   4 years
B)   5 years
C)   6 years
D)   7 yearsE) None of the above
F) A) and C)

Question 9

If you presently have $50,000 saved and earn 15 percent interest per year,about how many years will it take for your investment to triple?

Accepted Answer

A)   6
B)   8
C)   10
D)   12E) C) and D)
F) All of the above

Question 10

The future value of $1 saved today is $1/(1 + r).

Accepted Answer

A) True 
 B)False

Question 11

Which of the following changes would increase 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)   a decrease in the interest rate
D)   All of the above are correct.E) None of the above
F) C) and D)

Question 12

Two years ago David put $3,000 into an account paying 3 percent interest.How much does he have in the account today?

Accepted Answer

A)   $3,180.00
B)   $3,182.70
C)   $3,183.62
D)   None of the above are correct to the nearest cent.E) None of the above
F) All of the above

Question 13

Dobson Construction has an investment project that would cost $150,000 today and yield a one-time payoff of $167,000 in three years.What is the highest interest rate at which Dobson would find this project profitable?

Accepted Answer

A)   7%
B)   6%
C)   5%
D)   It is not profitable at any of these interest rates.E) B) and D)
F) A) and D)

Question 14

You have a bond that entitles you to a one-time payment of $10,000 one year from now.The interest rate is 10 percent per year.How much is the bond worth today?

Accepted Answer

A)   $9,090.91
B)   $10,000.00
C)   $8,264.46
D)   9,523.81E) A) and C)
F) A) and B)

Question 15

According to the efficient markets hypothesis,stocks follow a random walk so that stocks that increase in price one year are more likely to increase than decrease in the next year.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following statements best describes the economist's view of finance and the financial system?

Accepted Answer

A)   The financial system is very important to the functioning of the economy,and the tools of finance are often helpful to us as individuals when we find ourselves making certain decisions.
B)   The financial system,while interesting,is not very important to the functioning of the economy;however,the tools of finance are often helpful to us as individuals when we find ourselves making certain decisions.
C)   The financial system is very important to the functioning of the economy;however,the tools of finance are not particularly helpful to us as individuals since we seldom make decisions for which those tools are useful .
D)   The field of finance is intimately concerned with the financial system and the tools of finance,and financial economists see great importance in them;however,the "mainstream" economist sees little value in studying financial markets or the tools of finance.E) B) and D)
F) A) and C)

Question 17

Suppose that interest rates unexpectedly rise and that Carter Corporation announces that revenues from last quarter were down but not as much as the public had anticipated they would be down.According to the efficient markets hypothesis,which of the these things make the price of Carter Corporation Stock fall?

Accepted Answer

A)   both the interest rate rising and the revenue announcement
B)   neither the interest rate rising nor the revenue announcement
C)   only the interest rate rising
D)   only the revenue announcementE) C) and D)
F) B) and C)

Question 18

People who are risk averse dislike bad outcomes more than they like comparable good outcomes.

Accepted Answer

A) True 
 B)False

Question 19

On the Internet you find the following offers for opening an online account.Which of them is the best offer if you have $5,000 to save for two years?

Accepted Answer

A)   an interest rate of 5 percent,with the bank charging you a $50 processing fee at the time you open your account
B)   an interest rate of 4 percent,with the bank giving you a $65 bonus at the time you open your account
C)   an interest rate of 3.5 percent,with the bank giving you a $100 bonus to open your account
D)   an interest rate of 4.5 percent,with no processing fee and no bonusE) B) and D)
F) C) and D)

Question 20

The efficient markets hypothesis implies

Accepted Answer

A)   that all stocks are fairly valued all the time and that no stock is a better buy than any other.
B)   that all stocks are fairly valued all the time,but that some stocks may be better buys than other.
C)   that some stocks may be better buys than others and stock experts can determine which ones.
D)   that no stock is efficiently valued.E) A) and C)
F) A) and B)

Exam 27: The Basic Tools of Finance

Other things the same,when the interest rate rises,the present value of future revenues from investment projects

Correct Answer
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Correct Answer
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The efficient markets hypothesis implies

Correct Answer
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According to the efficient markets hypothesis,stocks follow a random walk so that stocks that increase in price one year are more likely to increase than decrease in the next year.

Correct Answer
verified

Correct Answer
verified

People who are risk averse dislike bad outcomes more than they like comparable good outcomes.

Correct Answer
verified

If you presently have $50,000 saved and earn 15 percent interest per year,about how many years will it take for your investment to triple?

Correct Answer
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On the Internet you find the following offers for opening an online account.Which of them is the best offer if you have $5,000 to save for two years?

Correct Answer
verified

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

Correct Answer
verified

George has $300 in a bank account.Some years ago he put $213.20 into this account,and it has earned 5 percent interest every year since then.How many years ago did he open his account?

Correct Answer
verified

What is the future value of $333 at an interest rate of 3 percent one year from today?

Correct Answer
verified

Dividends

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

You have a bond that entitles you to a one-time payment of $10,000 one year from now.The interest rate is 10 percent per year.How much is the bond worth today?

Correct Answer
verified

The future value of $1 saved today is $1/(1 + r).

Correct Answer
verified

Two years ago David put $3,000 into an account paying 3 percent interest.How much does he have in the account today?

Correct Answer
verified

Suppose you will receive $500 at some point in the future.If the annual interest rate is 7.5 percent,then the present value of the $500 is

Correct Answer
verified

Which of the following statements best describes the economist's view of finance and the financial system?

Correct Answer
verified

Dobson Construction has an investment project that would cost $150,000 today and yield a one-time payoff of $167,000 in three years.What is the highest interest rate at which Dobson would find this project profitable?

Correct Answer
verified

Most financial decisions involve two related elements:

Correct Answer
verified

Exam 27: The Basic Tools of Finance

Other things the same,when the interest rate rises,the present value of future revenues from investment projects

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The efficient markets hypothesis implies

Correct AnswerverifiedShow Answer

According to the efficient markets hypothesis,stocks follow a random walk so that stocks that increase in price one year are more likely to increase than decrease in the next year.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

People who are risk averse dislike bad outcomes more than they like comparable good outcomes.

Correct AnswerverifiedShow Answer

If you presently have $50,000 saved and earn 15 percent interest per year,about how many years will it take for your investment to triple?

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 $5,000 to save for two years?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

George has $300 in a bank account.Some years ago he put $213.20 into this account,and it has earned 5 percent interest every year since then.How many years ago did he open his account?

Correct AnswerverifiedShow Answer

What is the future value of $333 at an interest rate of 3 percent one year from today?

Correct AnswerverifiedShow Answer

Dividends

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

You have a bond that entitles you to a one-time payment of $10,000 one year from now.The interest rate is 10 percent per year.How much is the bond worth today?

Correct AnswerverifiedShow Answer

The future value of $1 saved today is $1/(1 + r).

Correct AnswerverifiedShow Answer

Two years ago David put $3,000 into an account paying 3 percent interest.How much does he have in the account today?

Correct AnswerverifiedShow Answer

Suppose you will receive $500 at some point in the future.If the annual interest rate is 7.5 percent,then the present value of the $500 is

Correct AnswerverifiedShow Answer

Which of the following statements best describes the economist's view of finance and the financial system?

Correct AnswerverifiedShow Answer

Dobson Construction has an investment project that would cost $150,000 today and yield a one-time payoff of $167,000 in three years.What is the highest interest rate at which Dobson would find this project profitable?

Correct AnswerverifiedShow Answer

Most financial decisions involve two related elements:

Correct AnswerverifiedShow 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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