Question 1

Tonya put $250 into an account three years ago. The first year he earned 6 percent interest, the second year 7 percent, and the third year 8 percent. About how about much does Tonya have in her account now?

Accepted Answer

A)  $302.50
B)  $306.23
C)  $308.67
D)  $309.39E) None of the above
F) A) and C)

Question 2

Which of the following approaches to investing does not rely on fundamental analysis to choose the stocks in your portfolio?​

Accepted Answer

A)  ​Choosing stocks based on research and analysis you do yourself
B)  ​Relying on advice from Wall Street analysts
C)  ​Buying shares of an actively managed mutual fund
D)  ​Buying shares of an index fund that purchases all stocks in a particular stock indexE) A) and B)
F) B) and C)

Question 3

Which of the following is a source of market risk?

Accepted Answer

A)  Holding stocks in many companies carries the risk of a reduced average return.
B)  Real GDP varies over time and sales and profits move with real GDP.
C)  When a paper producer has declining sales, it is likely that so will other paper producers.
D)  If stockholders become aggravated with the way a CEO runs a company, the price of that company's stock might fall in the stock market.E) B) and D)
F) A) and C)

Question 4

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) A) and C)

Question 5

Which of the following pairs of portfolios exemplifies the risk-return tradeoff?

Accepted Answer

A)  For Portfolio A, the average return is 6 percent and the standard deviation is 15 percent; for Portfolio B, the average return is 6 percent and the standard deviation is 25 percent.
B)  For Portfolio A, the average return is 5 percent and the standard deviation is 15 percent; for Portfolio B, the average return is 8 percent and the standard deviation is 15 percent.
C)  For Portfolio A, the average return is 5 percent and the standard deviation is 25 percent; for Portfolio B, the average return is 8 percent and the standard deviation is 15 percent.
D)  For Portfolio A, the average return is 5 percent and the standard deviation is 15 percent; for Portfolio B, the average return is 8 percent and the standard deviation is 25 percent.E) A) and B)
F) C) and D)

Question 6

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) A) and C)

Question 7

List three different ways that a risk-averse person can reduce financial risk.

Accepted Answer

A risk-averse person can reduce risk by ...

Question 8

Figure 27-6. On the graph, x represents risk and y represents return. 
-Refer to Figure 27-6. Which of the following statements is correct?

Accepted Answer

A)  At point A the standard deviation of the portfolio is 3.
B)  A risk averse person always will choose to be at point A.
C)  At point D the portfolio consists of about 15 percent stocks and 85 percent safe assets.
D)  The figure shows that the greater the risk, the greater the return.E) A) and B)
F) A) and C)

Question 9

Matt's Utility Function
Wealth
Utility
$50,000
7000
51,000
7250
52,000
7499
53,000
7746
If Matt's current wealth is $51,000, then

Accepted Answer

A)  his gain in utility from gaining $1,000 is greater than his loss in utility from losing $1,000. Matt is risk averse.
B)  his gain in utility from gaining $1,000 is greater than his loss in utility from losing $1,000. Matt is not risk averse.
C)  his gain in utility from gaining $1,000 is less than his loss in utility from losing $1,000. Matt is risk averse.
D)  his gain in utility from gaining $1,000 is less than his loss in utility from losing $1,000. Matt is not risk averse.E) A) and B)
F) A) and C)

Question 10

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

Question 11

Daniel 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 Daniel open his account?

Accepted Answer

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

Question 12

David recently received an inheritance, and he is planning to invest the inheritance in one of four stock portfolios. Which of these portfolios would you expect to have the lowest risk?​

Accepted Answer

A)  ​A portfolio with an average annual rate of return of 5%.
B)  ​​A portfolio with an average annual rate of return of 8%.
C)  ​​A portfolio with an average annual rate of return of 10%.
D)  ​​A portfolio with an average annual rate of return of 14%.E) A) and B)
F) A) and C)

Question 13

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

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

Question 14

In answering which of the following questions would you find it necessary to calculate a future value?

Accepted Answer

A)  If Jill puts $5,000 today into a bank account that pays 3 percent interest, then how much will she have in the account after 2 years?
B)  Should ABC Corporation buy a factory today for $2 million, knowing that the factory will yield the corporation $3 million after 5 years?
C)  As the winner of a lottery, should Michael choose an immediate payment of $250,000 or should he choose annual payments of $30,000 for each of the next 10 years?
D)  You would find it necessary to calculate a future value in order to answer all of these questions.E) All of the above
F) A) and D)

Question 15

You have been promised a payment of $400 in the future. In which of the following cases is the present value of this payment the lowest?

Accepted Answer

A)  You receive the payment 4 years from now and the interest rate is 4 percent.
B)  You receive the payment 4 years from now and the interest rate is 5 percent.
C)  You receive the payment 5 years from now and the interest rate is 4 percent.
D)  You receive the payment 5 years from now and the interest rate is 5 percent.E) B) and C)
F) A) and D)

Question 16

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

Question 17

At about what number of companies does the reduction in risk from adding stocks of more companies to a portfolio do little to reduce risk?

Accepted Answer

The reduct...

Question 18

What is the future value of $750 one year from today if the interest rate is 2.5 percent?

Accepted Answer

A)  $766.50
B)  $768.75
C)  $770.23
D)  None of the above are correct to the nearest cent.E) A) and B)
F) A) and C)

Question 19

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

Question 20

At which interest rate is the present value of $196.85 three years from today equal to $175 today?

Accepted Answer

A)  2 percent
B)  4 percent
C)  6 percent
D)  8 percentE) A) and B)
F) All of the above

Exam 27: Tools of Finance

Tonya put $250 into an account three years ago. The first year he earned 6 percent interest, the second year 7 percent, and the third year 8 percent. About how about much does Tonya have in her account now?

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 about what number of companies does the reduction in risk from adding stocks of more companies to a portfolio do little to reduce risk?

Correct Answer
verified
The reduct...
View Answer

List three different ways that a risk-averse person can reduce financial risk.

Correct Answer
verified
A risk-averse person can reduce risk by ...
View Answer

What is the future value of $750 one year from today if the interest rate is 2.5 percent?

Correct Answer
verified

Which of the following is a source of market risk?

Correct Answer
verified

In answering which of the following questions would you find it necessary to calculate a future value?

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

At which interest rate is the present value of $196.85 three years from today equal to $175 today?

Correct Answer
verified

Figure 27-6. On the graph, x represents risk and y represents return. -Refer to Figure 27-6. Which of the following statements is correct?

Correct Answer
verified

Which of the following approaches to investing does not rely on fundamental analysis to choose the stocks in your portfolio?

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

Which of the following pairs of portfolios exemplifies the risk-return tradeoff?

Correct Answer
verified

Daniel 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 Daniel open his account?

Correct Answer
verified

Matt's Utility Function Wealth Utility $50,000 7000 51,000 7250 52,000 7499 53,000 7746 If Matt's current wealth is $51,000, then

Correct Answer
verified

David recently received an inheritance, and he is planning to invest the inheritance in one of four stock portfolios. Which of these portfolios would you expect to have the lowest risk?

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

You have been promised a payment of $400 in the future. In which of the following cases is the present value of this payment the lowest?

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

Exam 27: Tools of Finance

Tonya put $250 into an account three years ago. The first year he earned 6 percent interest, the second year 7 percent, and the third year 8 percent. About how about much does Tonya have in her account now?

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 about what number of companies does the reduction in risk from adding stocks of more companies to a portfolio do little to reduce risk?

Correct AnswerverifiedThe reduct...View AnswerShow Answer

List three different ways that a risk-averse person can reduce financial risk.

Correct AnswerverifiedA risk-averse person can reduce risk by ...View AnswerShow Answer

What is the future value of $750 one year from today if the interest rate is 2.5 percent?

Correct AnswerverifiedShow Answer

Which of the following is a source of market risk?

Correct AnswerverifiedShow Answer

In answering which of the following questions would you find it necessary to calculate a future value?

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

At which interest rate is the present value of $196.85 three years from today equal to $175 today?

Correct AnswerverifiedShow Answer

Figure 27-6. On the graph, x represents risk and y represents return. -Refer to Figure 27-6. Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Which of the following approaches to investing does not rely on fundamental analysis to choose the stocks in your portfolio?​

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following pairs of portfolios exemplifies the risk-return tradeoff?

Correct AnswerverifiedShow Answer

Daniel 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 Daniel open his account?

Correct AnswerverifiedShow Answer

Matt's Utility Function Wealth Utility $50,000 7000 51,000 7250 52,000 7499 53,000 7746 If Matt's current wealth is $51,000, then

Correct AnswerverifiedShow Answer

David recently received an inheritance, and he is planning to invest the inheritance in one of four stock portfolios. Which of these portfolios would you expect to have the lowest risk?​

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

You have been promised a payment of $400 in the future. In which of the following cases is the present value of this payment the lowest?

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

Correct Answer
verified

Correct Answer
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Correct Answer
verified
The reduct...
View Answer

Correct Answer
verified
A risk-averse person can reduce risk by ...
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
verified

Which of the following approaches to investing does not rely on fundamental analysis to choose the stocks in your portfolio?

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
verified

David recently received an inheritance, and he is planning to invest the inheritance in one of four stock portfolios. Which of these portfolios would you expect to have the lowest risk?

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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