Question 1

Fundamental analysis shows that stock in Garske Software Corporation has a present value that is higher than 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) B) and D)
F) B) and C)

Question 2

In general, as a person includes fewer stocks and more bonds in his portfolio,

Accepted Answer

A)   both risk and expected return rise.
B)   risk rises but expected return falls.
C)   risk falls, but expected return rises.
D)   both risk and expected return fall.E) B) and D)
F) None of the above

Question 3

You could borrow $2,000 today from Bank A and repay the loan, with interest, by paying Bank A $2,154 one year from today. Or, you could borrow X dollars today from Bank B and repay the loan, with interest, by paying Bank B $2,477.10 one year from today. In order for the same interest rate to apply to the two loans, X =

Accepted Answer

A)   $2,300.00.
B)   $2,450.00.
C)   $2,500.00.
D)   $2,525.50.E) B) and C)
F) A) and B)

Question 4

Melissa 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) C) and D)
F) None of the above

Question 5

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)   701 + r) /r years.E) B) and C)
F) All of the above

Question 6

Kurt decided to increase the number of stocks in his portfolio. In doing so, Kurt reduced

Accepted Answer

A)   both the firm-specific risk and the market risk of his portfolio.
B)   the firm-specific risk, but not the market risk of his portfolio.
C)   the market risk, but not the firm-specific risk of his portfolio.
D)   neither the market risk nor the firm-specific risk of his portfolio.E) A) and D)
F) C) and D)

Question 7

Which of the following has the highest future value?

Accepted Answer

A)   $100 saved for 2 years at 10 percent interest
B)   $110 saved for 2 years at 9 percent interest
C)   $120 saved for 2 years at 8 percent interest
D)   $130 saved for 2 years at 7 percent interestE) B) and D)
F) A) and B)

Question 8

In the 1990s, Fed Chairperson Alan Greenspan questioned whether the stock market

Accepted Answer

A)   boom at that time reflected "irrational exuberance."
B)   decline at that time reflected "irrational funk."
C)   boom at that time reflected "rational exuberance."
D)   decline at that time reflected "rational funk."E) B) and C)
F) All of the above

Question 9

Diversification can reduce firm-specific risk.

Accepted Answer

A) True 
 B)False

Question 10

Suppose Emilio offers you $500 today or $X in 10 years. If the interest rate is 6 percent, then at what value of X would you be indifferent between the two options?

Accepted Answer

A)   X = 809.33
B)   X = 855.56
C)   X = 895.42
D)   X = 916.74E) A) and D)
F) A) and C)

Question 11

The rule of 70 can be stated as follows: A variable with a growth rate of X percent per year

Accepted Answer

A)   doubles every 70/X years.
B)   doubles every 701 - 1/X)  years.
C)   doubles every 70/X2 years.
D)   doubles every 70/1 - X)  years.E) B) and D)
F) B) and C)

Question 12

At which interest rate is the present value of $145.80 two years from today equal to $125 today?

Accepted Answer

A)   2 percent
B)   4 percent
C)   6 percent
D)   8 percentE) A) and C)
F) A) and B)

Question 13

The concept of present value helps explain why the quantity of loanable funds demanded decreases when the interest rate increases.

Accepted Answer

A) True 
 B)False

Question 14

For a risk averse person,

Accepted Answer

A)   the pleasure of winning $1,000 on a bet exceeds the pain of losing $1,000 on a bet.
B)   the pain of losing $1,000 on a bet exceeds the pleasure of winning $1,000 on a bet.
C)   the utility function exhibits the property of increasing marginal utility.
D)   the utility function gets steeper as wealth increases.E) None of the above
F) B) and C)

Question 15

You could borrow $2,000 today from Bank A and repay the loan, with interest, by paying Bank A $2,125 one year from today. Or, you could borrow X dollars today from Bank B and repay the loan, with interest, by paying Bank B $2,200 two years from today. In order for the same interest rate to apply to the two loans, X =

Accepted Answer

A)   $1,853.55.
B)   $1,898.70.
C)   $1,948.79.
D)   $2,012.22.E) A) and C)
F) C) and D)

Question 16

Which of the following is the correct expression for finding the present value of a $500 payment two years from today if the interest rate is 6 percent?

Accepted Answer

A)   $500/1.06) 2
B)   $500 - 5001.06) 2
C)   $500/1.02) 6
D)   None of the above is correct.E) All of the above
F) B) and D)

Question 17

Your accountant tells you that if you can continue to earn the current interest rate on your balance of $800 for the next two years you will have $898.88 in your account. If your accountant is correct, then what is the current interest rate?

Accepted Answer

A)   6 percent
B)   7 percent
C)   8 percent
D)   9 percentE) A) and B)
F) B) and D)

Question 18

Risk aversion helps to explain various things we observe in the economy, including

Accepted Answer

A)   adherence to the old adage, "Don't put all your eggs in one basket."
B)   insurance.
C)   the risk-return trade-off.
D)   All of the above are correct.E) None of the above
F) A) and B)

Question 19

Suppose the Johnson Corporation releases an earnings report that beats the market's expectations. What does the efficient markets hypothesis predict will happen to Johnson's stock price.

Accepted Answer

The efficient markets hypothes...

Question 20

ZZL Corporation has the opportunity to undertake an investment project that will cost $20,000 today. If the interest rate is 20 percent and if the project will yield the company $30,000 in 3 years, then ZZL will undertake the project.

Accepted Answer

A) True 
 B)False

Exam 9: The Basic Tools of Finance

The concept of present value helps explain why the quantity of loanable funds demanded decreases when the interest rate increases.

Correct Answer
verified

Fundamental analysis shows that stock in Garske Software Corporation has a present value that is higher than its price.

Correct Answer
verified

Correct Answer
verified

Diversification can reduce firm-specific risk.

Correct Answer
verified

The rule of 70 can be stated as follows: A variable with a growth rate of X percent per year

Correct Answer
verified

Risk aversion helps to explain various things we observe in the economy, including

Correct Answer
verified

Kurt decided to increase the number of stocks in his portfolio. In doing so, Kurt reduced

Correct Answer
verified

Correct Answer
verified

Melissa 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 Answer
verified

Which of the following has the highest future value?

Correct Answer
verified

Which of the following is the correct expression for finding the present value of a $500 payment two years from today if the interest rate is 6 percent?

Correct Answer
verified

Suppose Emilio offers you $500 today or $X in 10 years. If the interest rate is 6 percent, then at what value of X would you be indifferent between the two options?

Correct Answer
verified

In general, as a person includes fewer stocks and more bonds in his portfolio,

Correct Answer
verified

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

Correct Answer
verified

ZZL Corporation has the opportunity to undertake an investment project that will cost $20,000 today. If the interest rate is 20 percent and if the project will yield the company $30,000 in 3 years, then ZZL will undertake the project.

Correct Answer
verified

At which interest rate is the present value of $145.80 two years from today equal to $125 today?

Correct Answer
verified

For a risk averse person,

Correct Answer
verified

Suppose the Johnson Corporation releases an earnings report that beats the market's expectations. What does the efficient markets hypothesis predict will happen to Johnson's stock price.

Correct Answer
verified
The efficient markets hypothes...
View Answer

In the 1990s, Fed Chairperson Alan Greenspan questioned whether the stock market

Correct Answer
verified

Your accountant tells you that if you can continue to earn the current interest rate on your balance of $800 for the next two years you will have $898.88 in your account. If your accountant is correct, then what is the current interest rate?

Correct Answer
verified

Exam 9: The Basic Tools of Finance

The concept of present value helps explain why the quantity of loanable funds demanded decreases when the interest rate increases.

Correct AnswerverifiedShow Answer

Fundamental analysis shows that stock in Garske Software Corporation has a present value that is higher than its price.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Diversification can reduce firm-specific risk.

Correct AnswerverifiedShow Answer

The rule of 70 can be stated as follows: A variable with a growth rate of X percent per year

Correct AnswerverifiedShow Answer

Risk aversion helps to explain various things we observe in the economy, including

Correct AnswerverifiedShow Answer

Kurt decided to increase the number of stocks in his portfolio. In doing so, Kurt reduced

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Melissa 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

Which of the following has the highest future value?

Correct AnswerverifiedShow Answer

Which of the following is the correct expression for finding the present value of a $500 payment two years from today if the interest rate is 6 percent?

Correct AnswerverifiedShow Answer

Suppose Emilio offers you $500 today or $X in 10 years. If the interest rate is 6 percent, then at what value of X would you be indifferent between the two options?

Correct AnswerverifiedShow Answer

In general, as a person includes fewer stocks and more bonds in his portfolio,

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

ZZL Corporation has the opportunity to undertake an investment project that will cost $20,000 today. If the interest rate is 20 percent and if the project will yield the company $30,000 in 3 years, then ZZL will undertake the project.

Correct AnswerverifiedShow Answer

At which interest rate is the present value of $145.80 two years from today equal to $125 today?

Correct AnswerverifiedShow Answer

For a risk averse person,

Correct AnswerverifiedShow Answer

Suppose the Johnson Corporation releases an earnings report that beats the market's expectations. What does the efficient markets hypothesis predict will happen to Johnson's stock price.

Correct AnswerverifiedThe efficient markets hypothes...View AnswerShow Answer

In the 1990s, Fed Chairperson Alan Greenspan questioned whether the stock market

Correct AnswerverifiedShow Answer

Your accountant tells you that if you can continue to earn the current interest rate on your balance of $800 for the next two years you will have $898.88 in your account. If your accountant is correct, then what is the current interest rate?

Correct AnswerverifiedShow Answer

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The efficient markets hypothes...
View Answer

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Correct Answer
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