Question 1

The problem of moral hazard arises because

Accepted Answer

A)  life is full of all sorts of risks.
B)  after people buy insurance,they have less incentive to be careful about their risky behavior.
C)  a high-risk person is more likely to apply for insurance than is a low-risk person.
D)  insurance companies go to great effort to avoid paying claims to their policy holders.E) C) and D)
F) B) and C)

Question 2

The future value of a deposit in a savings account will be smaller

Accepted Answer

A)  the longer a person waits to withdraw the funds.
B)  the lower the interest rate is.
C)  the larger the initial deposit is.
D)  All of the above are correct.E) A) and D)
F) B) and D)

Question 3

Suppose that interest rates unexpectedly rise and that Carter Corporation announces that revenues from last quarter were down but not as much as the public had anticipated they would be down.According to the efficient markets hypothesis,which of the these things make the price of Carter Corporation Stock fall?

Accepted Answer

A)  both the interest rate rising and the revenue announcement
B)  neither the interest rate rising nor the revenue announcement
C)  only the interest rate rising
D)  only the revenue announcementE) None of the above
F) B) and D)

Question 4

If more people think a corporation's stock is overvalued than think it is undervalued then there is a

Accepted Answer

A)  surplus,so its price will rise.
B)  surplus,so its price will fall.
C)  shortage,so its price will rise.
D)  shortage,so its price will fall.E) A) and D)
F) A) and C)

Question 5

Fourteen years ago William put money in his account at First National Bank.William decides to cash in his account and is told that his money has quadrupled.According to the rule of 70,what rate of interest did Alfred earn?

Accepted Answer

A)  5 percent
B)  7 percent
C)  10 percent
D)  14 percentE) A) and D)
F) B) and C)

Question 6

Figure 27-1.The figure shows a utility function. 
-Refer to Figure 27-1.What is measured along the vertical axis?

Accepted Answer

A)  risk aversion
B)  marginal utility
C)  utility
D)  the number of units of a good that can be purchasedE) A) and B)
F) C) and D)

Question 7

Which of the following statements best describes the economist's view of finance and the financial system?

Accepted Answer

A)  The financial system is very important to the functioning of the economy,and the tools of finance are often helpful to us as individuals when we find ourselves making certain decisions.
B)  The financial system,while interesting,is not very important to the functioning of the economy; however,the tools of finance are often helpful to us as individuals when we find ourselves making certain decisions.
C)  The financial system is very important to the functioning of the economy; however,the tools of finance are not particularly helpful to us as individuals since we seldom make decisions for which those tools are useful.
D)  The field of finance is intimately concerned with the financial system and the tools of finance,and financial economists see great importance in them; however,the "mainstream" economist sees little value in studying financial markets or the tools of finance.E) None of the above
F) A) and D)

Question 8

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

Accepted Answer

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

Question 9

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) B) and D)

Question 10

The present value of any future sum of money is the amount that would be needed today,at current interest rates,to produce that future sum.

Accepted Answer

A) True 
 B)False

Question 11

An asset market is said to experience a speculative bubble when

Accepted Answer

A)  the price of the asset rises above what appears to be its fundamental value.
B)  the price of the asset appears to follow a random walk.
C)  the market cannot establish an equilibrium price for the asset.
D)  the asset is a natural resource and its supply is manipulated by foreign nations and foreign firms.E) B) and C)
F) B) and D)

Question 12

If the efficient market hypothesis is correct,then

Accepted Answer

A)  index funds should typically beat managed funds,and usually do.
B)  index fund should typically beat managed funds,but usually do not.
C)  mutual funds should typically beat index funds,and usually do.
D)  mutual funds should typically beat index funds,but usually do not.E) A) and D)
F) All of the above

Question 13

In effect,an annuity provides insurance

Accepted Answer

A)  against the risk of dying and leaving one's family without a regular income.
B)  against the risk of living too long.
C)  to people who are not risk-averse.
D)  to people whose utility functions do not display the usual properties.E) All of the above
F) None of the above

Question 14

What's the difference between firm-specific risk and market risk?
 Will diversification eliminate one or both?
 Explain.

Accepted Answer

Market risk refers to economywide risk c...

Question 15

Eloise deposits 250 dollars into an account and one year later has 272.50.What interest rate was paid on Eloise's deposit?

Accepted Answer

A)  8 percent
B)  9 percent
C)  10 percent
D)  None of the above is correct.E) B) and C)
F) A) and D)

Question 16

You are given three options.You may have the balance in an account that has been collecting 5 percent interest for 20 years,the balance in an account that has been collecting 10 percent interest for 10 years,or the balance in an account that has been collecting 20 percent interest for five years.Each account had the same original balance.Which account now has the lowest balance?

Accepted Answer

A)  the first one
B)  the second one
C)  the third one
D)  They all have the same balance.E) A) and B)
F) B) and D)

Question 17

Compounding refers directly to

Accepted Answer

A)  finding the present value of a future sum of money.
B)  finding the future value of a present sum of money.
C)  changes in the interest rate over time on a bank account or a similar savings vehicle.
D)  interest being earned on previously-earned interest.E) B) and C)
F) A) and C)

Question 18

What is the future value of 375 dollars at an interest rate of 3 percent one year from today?

Accepted Answer

A)  371.75
B)  386.25
C)  393.33
D)  None of the above are correct to the nearest cent.E) B) and D)
F) All of the above

Question 19

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

Accepted Answer

A)  5
B)  7
C)  9
D)  11E) None of the above
F) B) and C)

Question 20

Which of the following is correct concerning a risk-averse person?

Accepted Answer

A)  She would not play games where the probability of winning and losing a dollar are the same.
B)  She might not buy health insurance if she thinks her risks are low.
C)  Her marginal utility of wealth decreases as her income increases.
D)  All of the above are correct.E) A) and B)
F) A) and C)

Exam 27: The Basic Tools of Finance

The future value of a deposit in a savings account will be smaller

Correct Answer
verified

What's the difference between firm-specific risk and market risk? Will diversification eliminate one or both? Explain.

Correct Answer
verified
Market risk refers to economywide risk c...
View Answer

Which of the following statements best describes the economist's view of finance and the financial system?

Correct Answer
verified

An asset market is said to experience a speculative bubble when

Correct Answer
verified

Figure 27-1.The figure shows a utility function. -Refer to Figure 27-1.What is measured along the vertical axis?

Correct Answer
verified

If more people think a corporation's stock is overvalued than think it is undervalued then there is a

Correct Answer
verified

The present value of any future sum of money is the amount that would be needed today,at current interest rates,to produce that future sum.

Correct Answer
verified

Correct Answer
verified

Eloise deposits 250 dollars into an account and one year later has 272.50.What interest rate was paid on Eloise's deposit?

Correct Answer
verified

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

Correct Answer
verified

In effect,an annuity provides insurance

Correct Answer
verified

If the efficient market hypothesis is correct,then

Correct Answer
verified

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

Correct Answer
verified

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

Which of the following is correct concerning a risk-averse person?

Correct Answer
verified

Fourteen years ago William put money in his account at First National Bank.William decides to cash in his account and is told that his money has quadrupled.According to the rule of 70,what rate of interest did Alfred earn?

Correct Answer
verified

The problem of moral hazard arises because

Correct Answer
verified

Compounding refers directly to

Correct Answer
verified

Correct Answer
verified

What is the future value of 375 dollars at an interest rate of 3 percent one year from today?

Correct Answer
verified

Exam 27: The Basic Tools of Finance

The future value of a deposit in a savings account will be smaller

Correct AnswerverifiedShow Answer

What's the difference between firm-specific risk and market risk? Will diversification eliminate one or both? Explain.

Correct AnswerverifiedMarket risk refers to economywide risk c...View AnswerShow Answer

Which of the following statements best describes the economist's view of finance and the financial system?

Correct AnswerverifiedShow Answer

An asset market is said to experience a speculative bubble when

Correct AnswerverifiedShow Answer

Figure 27-1.The figure shows a utility function. -Refer to Figure 27-1.What is measured along the vertical axis?

Correct AnswerverifiedShow Answer

If more people think a corporation's stock is overvalued than think it is undervalued then there is a

Correct AnswerverifiedShow Answer

The present value of any future sum of money is the amount that would be needed today,at current interest rates,to produce that future sum.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Eloise deposits 250 dollars into an account and one year later has 272.50.What interest rate was paid on Eloise's deposit?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In effect,an annuity provides insurance

Correct AnswerverifiedShow Answer

If the efficient market hypothesis is correct,then

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow 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

Which of the following is correct concerning a risk-averse person?

Correct AnswerverifiedShow Answer

Fourteen years ago William put money in his account at First National Bank.William decides to cash in his account and is told that his money has quadrupled.According to the rule of 70,what rate of interest did Alfred earn?

Correct AnswerverifiedShow Answer

The problem of moral hazard arises because

Correct AnswerverifiedShow Answer

Compounding refers directly to

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

What is the future value of 375 dollars at an interest rate of 3 percent one year from today?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
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Market risk refers to economywide risk c...
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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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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A risk-averse person can reduce risk by ...
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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