Question 1

You have a contract with someone who has agreed to pay you $20,000 in four years. She offers to pay you now instead. For which of the following interest rates and payments would you take the money today?.

Accepted Answer

A)  8 percent, $15,000
B)  7 percent, $16,000
C)  6 percent, $17,000
D)  All of the above are correct.E) A) and D)
F) None of the above

Question 2

According to the efficient market hypothesis, which of the following statements is not correct?

Accepted Answer

A)  Stock market prices tend to rise today if they rose yesterday.
B)  As judged by the typical person in the market, all stocks are fairly valued all the time.
C)  At the market price, the number of shares being offered for sale matches the number of shares people want to buy.
D)  All of the above statements are incorrect.E) A) and C)
F) A) and D)

Question 3

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

Question 4

In the 1990s, several stocks had very, very high price to earnings ratios. These stocks appeared overvalued to many observers. What might the people who bought them have been thinking?

Accepted Answer

There are several possibilities. The fir...

Question 5

Sometimes On Time (SOT)  Airlines is considering buying a new jet. SOT would be more likely to buy a new jet if there were either

Accepted Answer

A)  a decrease in the price of a new jet or a decrease in the interest rate.
B)  a decrease in the price of a new jet or an increase in the interest rate.
C)  an increase in the price of a new jet or a decrease in the interest rate.
D)  an increase in the price of a new jet or an increase in the interest rate.E) C) and D)
F) B) and D)

Question 6

If you believe the stock market is informationally efficient, then it is a waste of time to engage in fundamental analysis.

Accepted Answer

A) True 
 B)False

Question 7

Two years ago Lenny put some money into an account. He earned 6 percent interest on this account and now he has about $1,000. About how much did Lenny deposit into his account two years ago?

Accepted Answer

A)  about $860
B)  about $870
C)  about $880
D)  about $890E) None of the above
F) A) and D)

Question 8

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

Question 9

Writing in the Wall Street Journal in 2009, economist Jeremy Siegel argued that, in the years leading up to the financial crisis of 2008-2009,

Accepted Answer

A)  financial firms acted in too risky a fashion.
B)  the Federal Reserves's efforts to rein in the risky behavior of certain financial firms were inadequate.
C)  falling house prices "crashed the banks and the economy."
D)  All of the above are correct.E) A) and D)
F) B) and D)

Question 10

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 D)
F) All of the above

Question 11

What is the present value of a payment of $100 to be made one year from today?

Accepted Answer

A)  $100*(1 + r) 
B)  $100/(1 + r) 
C)  $100 - $100  r
D)  $100 - (1 + r) /$100E) C) and D)
F) A) and C)

Question 12

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 13

Other things the same, an increase in the interest rate makes the quantity of loanable funds supplied

Accepted Answer

A)  rise, and investment spending rise.
B)  rise, and investment spending fall.
C)  fall, and investment spending rise.
D)  fall, and investment spending fall.E) C) and D)
F) None of the above

Question 14

Diversification of a portfolio

Accepted Answer

A)  can eliminate market risk, but it cannot eliminate firm-specific risk.
B)  can eliminate firm-specific risk, but it cannot eliminate market risk.
C)  increases the portfolio's standard deviation.
D)  is not necessary for a person who is risk averse.E) A) and D)
F) B) and C)

Question 15

If your research leads you to believe that the present value of a stock's dividend stream and future price is less than its price then you believe the stock is

Accepted Answer

A)  overvalued so you should consider buying it.
B)  overvalued so you should not consider buying it.
C)  undervalued so you should consider buying it.
D)  undervalued so you should not consider buying it.E) None of the above
F) C) and D)

Question 16

At an annual interest rate of 10 percent, about how many years will it take $100 to double in value?

Accepted Answer

A)  5
B)  7
C)  9
D)  11E) B) and C)
F) A) and B)

Question 17

After much anticipation a company releases a new smartphone. The smartphone doesn't work as well as expected and lacks many of the features buyers had been expecting. The unexpectedly negative reaction to the smartphone would

Accepted Answer

A)  raise the present value and the price of the corporation's stock.
B)  raise the present value and reduce the price of the corporation's stock.
C)  reduce the present value and the price of the corporation's stock.
D)  reduce the present value and raise the price of the corporation's stock.E) A) and D)
F) A) and C)

Question 18

If a savings account pays 3.5% interest, then according to the rule of 70 how long will it take for the account balance to double?

Accepted Answer

Approximat...

Question 19

Risk-averse persons will take no risks.

Accepted Answer

A) True 
 B)False

Question 20

A person's subjective measure of well-being or satisfaction is called aversion.

Accepted Answer

A) True 
 B)False

Exam 27: Tools of Finance

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

Correct Answer
verified

Other things the same, an increase in the interest rate makes the quantity of loanable funds supplied

Correct Answer
verified

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

Sometimes On Time (SOT) Airlines is considering buying a new jet. SOT would be more likely to buy a new jet if there were either

Correct Answer
verified

If you believe the stock market is informationally efficient, then it is a waste of time to engage in fundamental analysis.

Correct Answer
verified

According to the efficient market hypothesis, which of the following statements is not correct?

Correct Answer
verified

If your research leads you to believe that the present value of a stock's dividend stream and future price is less than its price then you believe the stock is

Correct Answer
verified

Writing in the Wall Street Journal in 2009, economist Jeremy Siegel argued that, in the years leading up to the financial crisis of 2008-2009,

Correct Answer
verified

If a savings account pays 3.5% interest, then according to the rule of 70 how long will it take for the account balance to double?

Correct Answer
verified
Approximat...
View Answer

At an annual interest rate of 10 percent, about how many years will it take $100 to double in value?

Correct Answer
verified

What is the present value of a payment of $100 to be made one year from today?

Correct Answer
verified

Two years ago Lenny put some money into an account. He earned 6 percent interest on this account and now he has about $1,000. About how much did Lenny deposit into his account two years ago?

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

You have a contract with someone who has agreed to pay you $20,000 in four years. She offers to pay you now instead. For which of the following interest rates and payments would you take the money today?.

Correct Answer
verified

Diversification of a portfolio

Correct Answer
verified

In the 1990s, several stocks had very, very high price to earnings ratios. These stocks appeared overvalued to many observers. What might the people who bought them have been thinking?

Correct Answer
verified
There are several possibilities. The fir...
View Answer

Risk-averse persons will take no risks.

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

A person's subjective measure of well-being or satisfaction is called aversion.

Correct Answer
verified

After much anticipation a company releases a new smartphone. The smartphone doesn't work as well as expected and lacks many of the features buyers had been expecting. The unexpectedly negative reaction to the smartphone would

Correct Answer
verified

Exam 27: Tools of Finance

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

Correct AnswerverifiedShow Answer

Other things the same, an increase in the interest rate makes the quantity of loanable funds supplied

Correct AnswerverifiedShow Answer

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

Sometimes On Time (SOT) Airlines is considering buying a new jet. SOT would be more likely to buy a new jet if there were either

Correct AnswerverifiedShow Answer

If you believe the stock market is informationally efficient, then it is a waste of time to engage in fundamental analysis.

Correct AnswerverifiedShow Answer

According to the efficient market hypothesis, which of the following statements is not correct?

Correct AnswerverifiedShow Answer

If your research leads you to believe that the present value of a stock's dividend stream and future price is less than its price then you believe the stock is

Correct AnswerverifiedShow Answer

Writing in the Wall Street Journal in 2009, economist Jeremy Siegel argued that, in the years leading up to the financial crisis of 2008-2009,

Correct AnswerverifiedShow Answer

If a savings account pays 3.5% interest, then according to the rule of 70 how long will it take for the account balance to double?

Correct AnswerverifiedApproximat...View AnswerShow Answer

At an annual interest rate of 10 percent, about how many years will it take $100 to double in value?

Correct AnswerverifiedShow Answer

What is the present value of a payment of $100 to be made one year from today?

Correct AnswerverifiedShow Answer

Two years ago Lenny put some money into an account. He earned 6 percent interest on this account and now he has about $1,000. About how much did Lenny deposit into his account two years ago?

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

You have a contract with someone who has agreed to pay you $20,000 in four years. She offers to pay you now instead. For which of the following interest rates and payments would you take the money today?.

Correct AnswerverifiedShow Answer

Diversification of a portfolio

Correct AnswerverifiedShow Answer

In the 1990s, several stocks had very, very high price to earnings ratios. These stocks appeared overvalued to many observers. What might the people who bought them have been thinking?

Correct AnswerverifiedThere are several possibilities. The fir...View AnswerShow Answer

Risk-averse persons will take no risks.

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

A person's subjective measure of well-being or satisfaction is called aversion.

Correct AnswerverifiedShow Answer

After much anticipation a company releases a new smartphone. The smartphone doesn't work as well as expected and lacks many of the features buyers had been expecting. The unexpectedly negative reaction to the smartphone would

Correct AnswerverifiedShow Answer

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

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
verified
Approximat...
View Answer

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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There are several possibilities. The fir...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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