Question 1

You deposit X dollars into a 3-year certificate of deposit that pays 4.75 percent annual interest. At the end of the 3 years you have $4,229.70. What number of dollars, X, did you deposit?

Accepted Answer

A)   $3,680.00
B)   $3,712.77
C)   $3,750.00
D)   $3,772.57E) A) and C)
F) All of the above

Question 2

If a stock or bond is risky

Accepted Answer

A)   risk averse people may be willing to hold it as part of a diversified portfolio.
B)   risk averse people may be willing to hold it if the expected return is high enough.
C)   both A and B are correct.
D)   risk averse people will not hold it.E) A) and D)
F) None of the above

Question 3

Of the following interest rates, which is the highest one at which you would prefer to have $170 ten years from today instead of $100 today?

Accepted Answer

A)   3 percent
B)   5 percent
C)   7 percent
D)   9 percentE) B) and C)
F) A) and D)

Question 4

If you deposit $1,000 into a savings account that pays you 5% interest per year, approximately how long will it take to double your money?

Accepted Answer

A)   8 years
B)   10 years
C)   12 years
D)   14 yearsE) B) and D)
F) A) and D)

Question 5

La Rossa Pasta Company is considering expanding its factory. In which case would both the change in the cost and the change in the interest rate each make it less likely that La Rossa's would expand?

Accepted Answer

A)   a decrease in the cost of expanding and a decrease in the interest rate.
B)   a decrease in the cost of expanding and an increase in the interest rate.
C)   an increase in the cost of expanding and a decrease in the interest rate.
D)   an increase in the cost of expanding and an increase in the interest rate.E) A) and B)
F) B) and D)

Question 6

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) None of the above
F) A) and B)

Question 7

What is the present value of a payment of $2,000 to be received two years from today if the interest rate is 5%?

Accepted Answer

A)   $2205
B)   $2200
C)   $1818.18
D)   $1814.06E) B) and C)
F) A) and B)

Question 8

The sooner a payment is received and the higher the interest rate, the greater the present value of a future payment.

Accepted Answer

A) True 
 B)False

Question 9

Historically, stocks have offered higher rates of return than bonds.

Accepted Answer

A) True 
 B)False

Question 10

Your accountant tells you that if you can continue to earn the current interest rate on your balance of $750 for the next three years, you will have $944.78 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)   10 percentE) All of the above
F) B) and C)

Question 11

Rita puts $10,000 into each of two different assets. The first asset pays 10 percent interest and the second pays 5 percent. 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)   $15,500
D)   $20,000E) None of the above
F) A) and B)

Question 12

The objective of diversification is to reduce risk. How does a person diversify a stock portfolio? How is risk measured?

Accepted Answer

Buying stocks in a n...

Question 13

Diversifying

Accepted Answer

A)   increases the standard deviation of the value of a portfolio indicating its risk has increased.
B)   increases the standard deviation of the value of a portfolio indicating its risk has decreased.
C)   decreases the standard deviation of the value of a portfolio indicating its risk has increased.
D)   decreases the standard deviation of the value of a portfolio indicating its risk has decreased.E) A) and B)
F) A) and C)

Question 14

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

Question 15

Scenario 27-2
Suppose Dave has a utility function  where W is his wealth in millions of dollars and U is the utility he obtains.
-Refer to Scenario 27-2. Suppose Dave is faced with a choice between two options. With option A Dave receives a guaranteed $2 million. With option B Dave faces a lottery that pays $0 with probability 0.8 and pays $10 million with probability 0.2. Given Dave's utility function, will he prefer option A or option B? Provide evidence to support your answer.

Accepted Answer

The utility Dave receives from...

Question 16

Svetlana is risk averse. Which of the following is correct about Svetlana?

Accepted Answer

A)   Her marginal utility of wealth increases as her income increases.
B)   She will always accept a bet if the probability of winning a dollar is the same as the probability of losing a dollar.
C)   Her utility function is a straight line.
D)   None of the above are correct.E) A) and B)
F) A) and C)

Question 17

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

Question 18

If the interest rate is 5 percent, then what is the present value of $2,000 to be received in three years?

Accepted Answer

The presen...

Question 19

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) B) and D)
F) All of the above

Question 20

Figure 27-1. The figure shows a utility function. 
-Refer to Figure 27-1. What is measured along the vertical axis?

Accepted Answer

A)   risk aversion
B)   marginal utility
C)   utility
D)   the number of units of a good that can be purchasedE) All of the above
F) B) and C)

Exam 14: The Basic Tools of Finance

The objective of diversification is to reduce risk. How does a person diversify a stock portfolio? How is risk measured?

Correct Answer
verified
Buying stocks in a n...
View Answer

You deposit X dollars into a 3-year certificate of deposit that pays 4.75 percent annual interest. At the end of the 3 years you have $4,229.70. What number of dollars, X, did you deposit?

Correct Answer
verified

La Rossa Pasta Company is considering expanding its factory. In which case would both the change in the cost and the change in the interest rate each make it less likely that La Rossa's would expand?

Correct Answer
verified

If you deposit $1,000 into a savings account that pays you 5% interest per year, approximately how long will it take to double your money?

Correct Answer
verified

If a stock or bond is risky

Correct Answer
verified

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

Correct Answer
verified

Of the following interest rates, which is the highest one at which you would prefer to have $170 ten years from today instead of $100 today?

Correct Answer
verified

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

Correct Answer
verified

Figure 27-1. The figure shows a utility function. -Refer to Figure 27-1. What is measured along the vertical axis?

Correct Answer
verified

Your accountant tells you that if you can continue to earn the current interest rate on your balance of $750 for the next three years, you will have $944.78 in your account. If your accountant is correct, then what is the current interest rate?

Correct Answer
verified

What is the present value of a payment of $2,000 to be received two years from today if the interest rate is 5%?

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
verified

Historically, stocks have offered higher rates of return than bonds.

Correct Answer
verified

Diversifying

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

Correct Answer
verified
The utility Dave receives from...
View Answer

If the interest rate is 5 percent, then what is the present value of $2,000 to be received in three years?

Correct Answer
verified
The presen...
View Answer

Svetlana is risk averse. Which of the following is correct about Svetlana?

Correct Answer
verified

The sooner a payment is received and the higher the interest rate, the greater the present value of a future payment.

Correct Answer
verified

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

Correct Answer
verified

Exam 14: The Basic Tools of Finance

The objective of diversification is to reduce risk. How does a person diversify a stock portfolio? How is risk measured?

Correct AnswerverifiedBuying stocks in a n...View AnswerShow Answer

You deposit X dollars into a 3-year certificate of deposit that pays 4.75 percent annual interest. At the end of the 3 years you have $4,229.70. What number of dollars, X, did you deposit?

Correct AnswerverifiedShow Answer

La Rossa Pasta Company is considering expanding its factory. In which case would both the change in the cost and the change in the interest rate each make it less likely that La Rossa's would expand?

Correct AnswerverifiedShow Answer

If you deposit $1,000 into a savings account that pays you 5% interest per year, approximately how long will it take to double your money?

Correct AnswerverifiedShow Answer

If a stock or bond is risky

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Of the following interest rates, which is the highest one at which you would prefer to have $170 ten years from today instead of $100 today?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Figure 27-1. The figure shows a utility function. -Refer to Figure 27-1. What is measured along the vertical axis?

Correct AnswerverifiedShow Answer

Your accountant tells you that if you can continue to earn the current interest rate on your balance of $750 for the next three years, you will have $944.78 in your account. If your accountant is correct, then what is the current interest rate?

Correct AnswerverifiedShow Answer

What is the present value of a payment of $2,000 to be received two years from today if the interest rate is 5%?

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

Historically, stocks have offered higher rates of return than bonds.

Correct AnswerverifiedShow Answer

Diversifying

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

Correct AnswerverifiedThe utility Dave receives from...View AnswerShow Answer

If the interest rate is 5 percent, then what is the present value of $2,000 to be received in three years?

Correct AnswerverifiedThe presen...View AnswerShow Answer

Svetlana is risk averse. Which of the following is correct about Svetlana?

Correct AnswerverifiedShow Answer

The sooner a payment is received and the higher the interest rate, the greater the present value of a future payment.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answer
verified
Buying stocks in a n...
View 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
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Correct Answer
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Correct Answer
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Correct Answer
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The utility Dave receives from...
View Answer

Correct Answer
verified
The presen...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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