Question 1

Figure 14-5.On the graph,x represents risk and y represents return. 
-Refer to Figure 14-5.Point A represents a situation in which

Accepted Answer

A)   all of a person's savings are allocated to a class of safe assets.
B)   the person knows with certainty that his or her return will be 3 percent.
C)   the standard deviation of the person's portfolio is zero.
D)   All of the above are correct.E) A) and B)
F) All of the above

Question 2

If asset markets are driven by the "animal spirits" of investors,then

Accepted Answer

A)   those markets reflect rational behavior.
B)   those markets reflect irrational behavior.
C)   the efficient markets hypothesis is correct.
D)   the stock market exhibits informational efficiency.E) None of the above
F) All of the above

Question 3

Managed mutual funds usually outperform mutual funds that are supposed to follow some stock index.

Accepted Answer

A) True 
 B)False

Question 4

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.M...

Question 5

Scott Adams,creator of the comic strip Dilbert,has a theory that you should

Accepted Answer

A)   buy stock in the companies you love the most.
B)   buy stock in the companies you hate the most.
C)   make use of technical analysis when you are deciding which stocks to buy.
D)   examine companies' track records when you are deciding which stocks to buy.E) A) and B)
F) A) and C)

Question 6

If the interest rate is 7.5 percent,then what is the present value of $4,000 to be received in 6 years?

Accepted Answer

A)   $2,420.68
B)   $2,591.85
C)   $2,996.33
D)   $3,040.63E) A) and B)
F) A) and C)

Question 7

Figure 14-1.The figure shows a utility function. 
-Refer to Figure 14-1.The properties exhibited by this utility function help to explain various things we observe in the economy,including

Accepted Answer

A)   the risk-return tradeoff.
B)   insurance.
C)   diversification.
D)   All of the above are correct.E) B) and D)
F) A) and C)

Question 8

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

Question 9

If you are faced with the choice of receiving $500 today or $800 6 years from today,you will be indifferent between the two possibilities if the interest rate is 8.148 percent.

Accepted Answer

A) True 
 B)False

Question 10

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 B)
F) None of the above

Question 11

PZX Corporation has the opportunity to undertake an investment project that will cost $10,000 today and yield the company $13,310 in 3 years.PZX will forgo the project if the interest rate is higher than 10 percent.

Accepted Answer

A) True 
 B)False

Question 12

Discuss the statistical evidence concerning the efficient markets hypothesis.

Accepted Answer

The evidence indicates that stock prices...

Question 13

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 B)
F) C) and D)

Question 14

The future value of $1 saved today is $1/(1 + r).

Accepted Answer

A) True 
 B)False

Question 15

You are a financial advisor and a client tells you he is concerned about the amount of risk in his portfolio.Assuming your client hasn't already done them,what two things can you suggest to reduce your client's risk? What additional information about reducing risk should you provide?

Accepted Answer

The client can reduce his risk by furthe...

Question 16

Assuming the interest rate is 6 percent,which of the following has the greatest present value?

Accepted Answer

A)   $300 paid in two years
B)   $150 paid in one year plus $140 paid in two years
C)   $100 paid today plus $100 paid in one year plus $100 paid in two years
D)   $285 todayE) A) and B)
F) C) and D)

Question 17

Risk-averse people will choose different asset portfolios than people who are not risk averse.Over a long period of time,we would expect that

Accepted Answer

A)   every risk-averse person will earn a higher rate of return than every non-risk-averse person.
B)   every risk-averse person will earn a lower rate of return than every non-risk-averse person.
C)   the average risk-averse person will earn a higher rate of return than the average non-risk-averse person.
D)   the average risk-averse person will earn a lower rate of return than the average non-risk-averse person.E) A) and B)
F) None of the above

Question 18

Whenever the price of an asset rises above what appears to be its fundamental value,the market is said to be experiencing a

Accepted Answer

A)   conjectural mistake.
B)   fundamental mishap.
C)   speculative bubble.
D)   temporary inefficiency.E) A) and D)
F) B) and D)

Question 19

Why might someone be willing to pay more than the fundamental value for a stock?

Accepted Answer

She may believe that...

Question 20

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

Exam 27: The Basic Tools of Finance

Figure 14-1.The figure shows a utility function. -Refer to Figure 14-1.The properties exhibited by this utility function help to explain various things we observe in the economy,including

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.M...View AnswerShow Answer

Managed mutual funds usually outperform mutual funds that are supposed to follow some stock index.

Correct AnswerverifiedShow Answer

Assuming the interest rate is 6 percent,which of the following has the greatest present value?

Correct AnswerverifiedShow Answer

Discuss the statistical evidence concerning the efficient markets hypothesis.

Correct AnswerverifiedThe evidence indicates that stock prices...View AnswerShow Answer

Whenever the price of an asset rises above what appears to be its fundamental value,the market is said to be experiencing a

Correct AnswerverifiedShow Answer

If you are faced with the choice of receiving $500 today or $800 6 years from today,you will be indifferent between the two possibilities if the interest rate is 8.148 percent.

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

Risk-averse people will choose different asset portfolios than people who are not risk averse.Over a long period of time,we would expect that

Correct AnswerverifiedShow Answer

If asset markets are driven by the "animal spirits" of investors,then

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

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

Scott Adams,creator of the comic strip Dilbert,has a theory that you should

Correct AnswerverifiedShow Answer

Figure 14-5.On the graph,x represents risk and y represents return. -Refer to Figure 14-5.Point A represents a situation in which

Correct AnswerverifiedShow Answer

PZX Corporation has the opportunity to undertake an investment project that will cost $10,000 today and yield the company $13,310 in 3 years.PZX will forgo the project if the interest rate is higher than 10 percent.

Correct AnswerverifiedShow Answer

If the interest rate is 7.5 percent,then what is the present value of $4,000 to be received in 6 years?

Correct AnswerverifiedShow Answer

You are a financial advisor and a client tells you he is concerned about the amount of risk in his portfolio.Assuming your client hasn't already done them,what two things can you suggest to reduce your client's risk? What additional information about reducing risk should you provide?

Correct AnswerverifiedThe client can reduce his risk by furthe...View AnswerShow 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

Why might someone be willing to pay more than the fundamental value for a stock?

Correct AnswerverifiedShe may believe that...View AnswerShow Answer

The future value of $1 saved today is $1/(1 + r).

Correct AnswerverifiedShow Answer

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Mark had more in his account.M...
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The evidence indicates that stock prices...
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The client can reduce his risk by furthe...
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She may believe that...
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Correct Answer
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