Question 1

Mixster Concrete Company is considering buying a new cement truck. The owners and their accountants decide that this is the profitable thing to do. Before they can buy the truck, the interest rate and price of trucks change. In which case do these changes both make them less likely to buy the truck?

Accepted Answer

A)   Interest rates rise and truck prices rise.
B)   Interest rates fall and truck prices rise.
C)   Interest rates rise and truck prices fall.
D)   Interest rates fall and truck prices fall.E) None of the above
F) A) and B)

Question 2

A person who is risk averse might accept a 50% chance of losing $100 today in exchange for a 50% chance of winning $125 in two years if the interest rate was

Accepted Answer

A)   9% but not 10%
B)   10% but not 11%
C)   11% but not 12%
D)   None of the above is correct; a risk averse person would not accept any of the above bets.E) A) and C)
F) B) and C)

Question 3

The value of a stock is based on the

Accepted Answer

A)   present values of the dividend stream and final price. As a result, the value of a stock rises when interest rates rise.
B)   present values of the dividend stream and final price. As a result, the value of a stock falls when interest rates rise.
C)   future values of the dividend stream and final price. As a result, the value of a stock rises when interest rates rises.
D)   future values of the dividend stream and final price. As a result, the value of a stock falls when interest rates rise.E) All of the above
F) C) and D)

Question 4

Jack's Lock and Key is considering remodeling. It estimates that the remodeling will cost $6,000 and that as a result revenues will rise by $3,000 the first year, $2,500 the second year, $1,500 the third year and have no effect after then. If the interest rate is 5%, should Jack's remodel? Defend your answer by showing your work.

Accepted Answer

Jack's should remodel. The pre...

Question 5

Which of the following is the correct way to compute the future value of $1 put into an account that earns 5 percent interest for 16 years?

Accepted Answer

A)   
B)   
C)   
D)   E) None of the above
F) All of the above A

Question 6

In which of the following instances is the present value of the future payment the largest?

Accepted Answer

A)   You will receive $1,000 in 5 years and the annual interest rate is 5 percent.
B)   You will receive $1,000 in 10 years and the annual interest rate is 3 percent.
C)   You will receive $2,000 in 10 years and the annual interest rate is 10 percent.
D)   You will receive $2,400 in 15 years and the annual interest rate is 8 percent.E) All of the above
F) B) and C)

Question 7

Hector puts $150 into an account when the interest rate is 4 percent. Later he checks his balance and finds he has about $168.73. How long did Hector wait to check his balance?

Accepted Answer

A)   3 years
B)   3.5 years
C)   4 years
D)   4.5 yearsE) None of the above
F) A) and B)

Question 8

Figure 27-2. The figure shows a utility function for Britney. 
-Refer to Figure 27-2. From the appearance of the utility function, we know that

Accepted Answer

A)   Britney is risk averse.
B)   Britney 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 Britney.
D)   All of the above are correct.E) B) and D)
F) A) and C)

Question 9

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

Accepted Answer

A)   5 percent
B)   4 percent
C)   3 percent
D)   2 percentE) None of the above
F) All of the above

Question 10

Write the formula for finding the future value in n years of $x today.

Accepted Answer

$x1+ r)n

Question 11

Which of the following concepts is most helpful in explaining why investment increases when the interest rate falls?

Accepted Answer

A)   deadweight loss
B)   present value
C)   economic growth
D)   financial intermediationE) A) and B)
F) A) and C)

Question 12

Anthony closes out his account in which he deposited $500 five years ago at an interest rate of 5%. Mark closes out his account in which he deposited $500 ten years ago at an interest rate of 5%. Who had more in their account? About how much more did he have?

Accepted Answer

Mark had more in his account. ...

Question 13

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

Question 14

Kyle puts a greater proportion of his portfolio into government bonds. Kyle's action

Accepted Answer

A)   increases both risk and the average rate of return.
B)   decreases both risk and the average rate of return.
C)   increases risk, but decreases the average rate of return.
D)   decreases risk, but increases the average rate of return.E) A) and B)
F) A) and C)

Question 15

Write the formula for finding the future value of $1,000 today in 10 years if the interest rate is 4 percent.

Accepted Answer

The answer of Write the formula for finding the future...

Question 16

Diminishing marginal utility of wealth implies that the utility function

Accepted Answer

A)   has increasing slope and a person is risk averse.
B)   has increasing slope and a person is not risk averse.
C)   has decreasing slope and a person is risk averse
D)   has decreasing slope and a person is not risk averse.E) A) and B)
F) All of the above C

Question 17

Risk aversion simply means that people dislike bad things to happen.

Accepted Answer

A) True 
 B)False

Question 18

If the interest rate is 4 percent, then you would be equally happy if you received a gift of either $100 today or a gift of

Accepted Answer

A)   $110.00 two years from today.
B)   $112.49 three years from today.
C)   $116.00 four years from today.
D)   $123.67 five years from today.E) B) and D)
F) A) and C)

Question 19

Shawn determines that if Lexall Corporation has high revenues, then Waters Corporation will have low revenues, and that if Lexall Corporation has low revenues, then Waters Corporation will have high revenues. Shawn buys stock in both corporations.

Accepted Answer

A)   He has reduced firm-specific risk but not market risk.
B)   He has reduced market risk, but not firm-specific risk.
C)   He had reduce both firm-specific risk and market risk.
D)   He has reduced neither firm-specific risk nor market risk.E) B) and D)
F) C) and D)

Question 20

If stock prices follow a random walk, it means

Accepted Answer

A)   long periods of declining prices are followed by long periods of rising prices.
B)   the greater the number of consecutive days of price declines, the greater the probability prices will increase the following day.
C)   stock prices are unrelated to random events that shock the economy.
D)   stock prices are just as likely to rise as to fall at any given time.E) C) and D)
F) A) and D)

Exam 19: The Basic Tools of Finance

Mixster Concrete Company is considering buying a new cement truck. The owners and their accountants decide that this is the profitable thing to do. Before they can buy the truck, the interest rate and price of trucks change. In which case do these changes both make them less likely to buy the truck?

Correct Answer
verified

A person who is risk averse might accept a 50% chance of losing $100 today in exchange for a 50% chance of winning $125 in two years if the interest rate was

Correct Answer
verified

The value of a stock is based on the

Correct Answer
verified

Correct Answer
verified
Jack's should remodel. The pre...
View Answer

Which of the following is the correct way to compute the future value of $1 put into an account that earns 5 percent interest for 16 years?

Correct Answer
verified
A

In which of the following instances is the present value of the future payment the largest?

Correct Answer
verified

Hector puts $150 into an account when the interest rate is 4 percent. Later he checks his balance and finds he has about $168.73. How long did Hector wait to check his balance?

Correct Answer
verified

Figure 27-2. The figure shows a utility function for Britney. -Refer to Figure 27-2. From the appearance of the utility function, we know that

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. Among the following interest rates, which is the highest one at which Dobson would find this project profitable?

Correct Answer
verified

Write the formula for finding the future value in n years of $x today.

Correct Answer
verified
$x1+ r)n

Which of the following concepts is most helpful in explaining why investment increases when the interest rate falls?

Correct Answer
verified

Anthony closes out his account in which he deposited $500 five years ago at an interest rate of 5%. Mark closes out his account in which he deposited $500 ten years ago at an interest rate of 5%. Who had more in their account? About how much more did he have?

Correct Answer
verified
Mark had more in his account. ...
View 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 Answer
verified

Kyle puts a greater proportion of his portfolio into government bonds. Kyle's action

Correct Answer
verified

Write the formula for finding the future value of $1,000 today in 10 years if the interest rate is 4 percent.

Correct Answer
verified

Diminishing marginal utility of wealth implies that the utility function

Correct Answer
verified
C

Risk aversion simply means that people dislike bad things to happen.

Correct Answer
verified

If the interest rate is 4 percent, then you would be equally happy if you received a gift of either $100 today or a gift of

Correct Answer
verified

Shawn determines that if Lexall Corporation has high revenues, then Waters Corporation will have low revenues, and that if Lexall Corporation has low revenues, then Waters Corporation will have high revenues. Shawn buys stock in both corporations.

Correct Answer
verified

If stock prices follow a random walk, it means

Correct Answer
verified

Exam 19: The Basic Tools of Finance

Correct AnswerverifiedShow Answer

A person who is risk averse might accept a 50% chance of losing $100 today in exchange for a 50% chance of winning $125 in two years if the interest rate was

Correct AnswerverifiedShow Answer

The value of a stock is based on the

Correct AnswerverifiedShow Answer

Correct AnswerverifiedJack's should remodel. The pre...View AnswerShow Answer

Which of the following is the correct way to compute the future value of $1 put into an account that earns 5 percent interest for 16 years?

Correct AnswerverifiedA

In which of the following instances is the present value of the future payment the largest?

Correct AnswerverifiedShow Answer

Hector puts $150 into an account when the interest rate is 4 percent. Later he checks his balance and finds he has about $168.73. How long did Hector wait to check his balance?

Correct AnswerverifiedShow Answer

Figure 27-2. The figure shows a utility function for Britney. -Refer to Figure 27-2. From the appearance of the utility function, we know that

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. Among the following interest rates, which is the highest one at which Dobson would find this project profitable?

Correct AnswerverifiedShow Answer

Write the formula for finding the future value in n years of $x today.

Correct Answerverified$x1+ r)n

Which of the following concepts is most helpful in explaining why investment increases when the interest rate falls?

Correct AnswerverifiedShow Answer

Anthony closes out his account in which he deposited $500 five years ago at an interest rate of 5%. Mark closes out his account in which he deposited $500 ten years ago at an interest rate of 5%. Who had more in their account? About how much more did he have?

Correct AnswerverifiedMark had more in his account. ...View AnswerShow 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

Kyle puts a greater proportion of his portfolio into government bonds. Kyle's action

Correct AnswerverifiedShow Answer

Write the formula for finding the future value of $1,000 today in 10 years if the interest rate is 4 percent.

Correct AnswerverifiedShow Answer

Diminishing marginal utility of wealth implies that the utility function

Correct AnswerverifiedC

Risk aversion simply means that people dislike bad things to happen.

Correct AnswerverifiedShow Answer

If the interest rate is 4 percent, then you would be equally happy if you received a gift of either $100 today or a gift of

Correct AnswerverifiedShow Answer

Shawn determines that if Lexall Corporation has high revenues, then Waters Corporation will have low revenues, and that if Lexall Corporation has low revenues, then Waters Corporation will have high revenues. Shawn buys stock in both corporations.

Correct AnswerverifiedShow Answer

If stock prices follow a random walk, it means

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Jack's should remodel. The pre...
View Answer

Correct Answer
verified
A

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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$x1+ r)n

Correct Answer
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Correct Answer
verified
Mark had more in his account. ...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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C

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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