Question 1

According to the efficient markets hypothesis, at any moment in time, the market price is the best estimate of the company's value based on publicly available information.

Accepted Answer

A) True 
 B)False

Question 2

A person who believes strongly in the use of fundamental analysis to choose a portfolio of stocks

Accepted Answer

A)   has a better chance of outperforming the market if stock prices follow a random walk than if they do not follow a random walk.
B)   almost always chooses to hold index funds in his or her portfolio rather than actively-managed funds.
C)   is spending his or her time wisely if the efficient markets hypothesis is correct.
D)   is interested in the likely ability of a corporation to pay dividends in the future.E) A) and C)
F) None of the above

Question 3

The largest reduction in a portfolio's risk is achieved when the number of stocks in the portfolio is increased from

Accepted Answer

A)   80 to 100.
B)   40 to 80.
C)   10 to 20.
D)   1 to 10.E) A) and B)
F) B) and C)

Question 4

Suppose the interest rate is 10 percent. Which of the following payments has the largest present value?

Accepted Answer

A)   You receive $90.91 two years from today.
B)   You receive $82.64 one year from today.
C)   You receive $75.13 today.
D)   All of these payments have the same present value to the nearest cent.E) B) and C)
F) C) and D)

Question 5

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 6

Which of the following is adverse selection?

Accepted Answer

A)   the risk associated with selecting stocks in only a few specific companies
B)   the risk that a person will become overconfident in his ability to select stocks
C)   a high-risk person being more likely to apply for insurance
D)   after obtaining insurance a person having less incentive to be carefulE) None of the above
F) A) and B)

Question 7

Economists have developed models of risk aversion using the concept of

Accepted Answer

A)   utility and the associated assumption of diminishing marginal utility.
B)   utility and the associated assumption of increasing marginal utility.
C)   income and the associated assumption of diminishing marginal wealth.
D)   income and the associated assumption of increasing marginal wealth.E) A) and C)
F) B) and D)

Question 8

Manufacturers of Weightbegone are concerned that genetic advances in weight control might reduce the demand for their diet snacks. This is an example of

Accepted Answer

A)   firm­specific risk, which will likely raise shareholders' demand for higher return.
B)   firm­specific risk, which will likely not likely raise shareholders' demand for higher return.
C)   market risk, which will likely raise shareholders' demand for higher return.
D)   market risk, which will likely not raise shareholders' demand for higher return.E) A) and B)
F) B) and D)

Question 9

Zoey wants to have about $750,000 when she retires in 10 years. She has $300,000 to deposit now. At which of the following interest rates would Zoey's deposit come closest to $750,000 after 10 years?

Accepted Answer

A)   9.6 percent
B)   9.9 percent
C)   10.2 percent
D)   10.5 percentE) A) and C)
F) B) and D)

Question 10

An automobile manufacturer unexpectedly announces that it has hired a new chief executive officer. It is widely believed that the presence of this individual will raise the profitability of the corporation. At the same time interest rates unexpectedly rise. Which of the above would tend to make the price of the stock rise?

Accepted Answer

A)   the announcement and the rise in interest rates
B)   the announcement but not the rise in interest rates
C)   the rise in interest rates, but not the announcement
D)   neither the announcement nor the rise in interest ratesE) A) and B)
F) None of the above

Exam 9: The Basic Tools of Finance

Zoey wants to have about $750,000 when she retires in 10 years. She has $300,000 to deposit now. At which of the following interest rates would Zoey's deposit come closest to $750,000 after 10 years?

Correct Answer
verified

Correct Answer
verified

According to the efficient markets hypothesis, at any moment in time, the market price is the best estimate of the company's value based on publicly available information.

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

Economists have developed models of risk aversion using the concept of

Correct Answer
verified

A person who believes strongly in the use of fundamental analysis to choose a portfolio of stocks

Correct Answer
verified

The largest reduction in a portfolio's risk is achieved when the number of stocks in the portfolio is increased from

Correct Answer
verified

Manufacturers of Weightbegone are concerned that genetic advances in weight control might reduce the demand for their diet snacks. This is an example of

Correct Answer
verified

Which of the following is adverse selection?

Correct Answer
verified

Suppose the interest rate is 10 percent. Which of the following payments has the largest present value?

Correct Answer
verified

Exam 9: The Basic Tools of Finance

Zoey wants to have about $750,000 when she retires in 10 years. She has $300,000 to deposit now. At which of the following interest rates would Zoey's deposit come closest to $750,000 after 10 years?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

According to the efficient markets hypothesis, at any moment in time, the market price is the best estimate of the company's value based on publicly available information.

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

Economists have developed models of risk aversion using the concept of

Correct AnswerverifiedShow Answer

A person who believes strongly in the use of fundamental analysis to choose a portfolio of stocks

Correct AnswerverifiedShow Answer

The largest reduction in a portfolio's risk is achieved when the number of stocks in the portfolio is increased from

Correct AnswerverifiedShow Answer

Manufacturers of Weightbegone are concerned that genetic advances in weight control might reduce the demand for their diet snacks. This is an example of

Correct AnswerverifiedShow Answer

Which of the following is adverse selection?

Correct AnswerverifiedShow Answer

Suppose the interest rate is 10 percent. Which of the following payments has the largest present value?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified