The field of finance primarily studies:a. how society manages its scarce resources.b. the implications of time and risk for allocating resources over time.c. firms’ decisions concerning how much to produce and what price to charge.d. how society can reduce market risk. | b. the implications of time and risk for allocating resources over time. |

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 isa. $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. | 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. |

Suppose you are deciding whether to buy a particular bond. If you buy the bond and hold it for 4 years, then at that time you will receive a payment of $10,000. If the interest rate is 6 percent, you will buy the bond if its price today is no greater thana. $8,225.06.b. $7,920.94.c. $7,672.58.d. $6,998.98. | b. $7,920.94. |

Which of the following is the correct way to compute the future value of $1 put into an account that earns 5 percent interest for 16 years?a. $1(1 + .05)16b. $1(1 + .05 x 16) x 16c. $1(1 + .05 x 16)d. $1(1 + 16/.05)16 | a. $1(1 + .05)16 |

At an annual interest rate of 10 percent, about how many years will it take $100 to double in value?a. 5b. 7c. 9d. 11 | b. 7 |

You put $75 in the bank one year ago and forgot about it. The bank sends you a notice that you now have $81 in your account. What interest rate did you earn?a. 5 percentb. 6 percentc. 7 percentd. 8 percent | d. 8 percent |

If you put $125 into an account that paid 3.25 percent interest, then how much money would you have in the account after 20 years?a. $285.83b. $236.98c. $202.04d. $145.65 | b. $236.98 |

Your financial advisor tells you that if you earn the historical rate of return on a certain mutual fund, then in three years your $20,000 will grow to $23,152.50. What rate of interest does your financial advisor expect you to earn?a. 5 percentb. 6 percentc. 7 percentd. 8 percent | a. 5 percent |

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?a. about $860b. about $870c. about $880d. about $890 | d. about $890 |

Cleo promises to pay Jacques $1,000 in two years. If the interest rate is 6 percent, how much is this future payment worth today?a. $883.60b. $887.97c. $890.00d. None of the above are correct to the nearest cent. | c. $890.00 |

A judge requires Harry to make a payment to Sally. The judge says that Harry can pay her either $10,000 today or $11,000 two years from today. Of the following interest rates, which is the lowest one at which Harry would be better off paying $11,000 two years from today?a. 2 percentb. 3 percentc. 4 percentd. 5 percent | d. 5 percent |

Yoyo’s Frozen Yogurt, Inc. is thinking of building a new warehouse. They believe that this will give them $50,000 of additional revenue at the end of one year, $60,000 additional revenue at the end of two years, and $70,000 in additional revenue at the end of three years. If the interest rate is 5 percent, Yoyo would be willing to paya. $140,000, but not $150,000.b. $150,000, but not $160,000.c. $160,000, but not $170,000.d. $170,000, but not $180,000. | c. $160,000, but not $170,000. |

Greg’s Tasty Ice Cream is considering building a new ice cream factory that costs $8.3 million. The company accountants believe that, not accounting for interest costs, building the factory will increase profits by $5 million the first year, $4 million the second year and have no value thereafter. Greg’s Tasty Ice Cream should build the factory if the interest rate isa. 3% but not if it is 4%.b. 4% but not if it is 5%.c. 5% but not if it is 6%.d. 6% but not if it is 7%. | c. 5% but not if it is 6%. |

Diversification of a portfolioa. 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. | b. can eliminate firm-specific risk, but it cannot eliminate market risk. |

If a person is risk averse, then as wealth increases, total utility of wealtha. increases at an increasing rate.b. increases at a decreasing rate.c. decreases at an increasing rate.d. decreases at a decreasing rate. | b. increases at a decreasing rate. |

Fundamental analysis shows that stock in Cedar Valley Furniture Corporation has a price that exceeds its present value.a. This stock is overvalued; you should consider adding it to your portfolio.b. This stock is overvalued; you shouldn’t consider adding it to your portfolio.c. This stock is undervalued; you should consider adding it to your portfolio.d. This stock is undervalued; you shouldn’t consider adding it to your portfolio. | b. This stock is overvalued; you shouldn’t consider adding it to your portfolio. |

The efficient markets hypothesis says that beating the market consistently isa. impossible. Many studies find that beating the market is, at best, extremely difficult.b. impossible. Many studies find that beating the market is relatively easy.c. relatively easy. Many studies find that beating the market is, at best, extremely difficult.d. relatively easy. Many studies find that beating the market is relatively easy. | a. impossible. Many studies find that beating the market is, at best, extremely difficult. |

Which of the following methods of picking stocks is not consistent with fundamental analysis?a. doing research such as thoroughly reading and analyzing companies’ annual reportsb. choosing mutual funds that are managed by individuals with good reputationsc. viewing individual stock prices as unpredictabled. relying upon the advice of Wall Street analysts | c. viewing individual stock prices as unpredictable |

The value of a stock is based on thea. present values of the dividend stream and final price. As a result, the value of a stock rises when interest rates rise.b. present values of the dividend stream and final price. As a result, the value of a stock falls when interest rates rise.c. future values of the dividend stream and final price. As a result, the value of a stock rises when interest rates rises.d. future values of the dividend stream and final price. As a result, the value of a stock falls when interest rates rise. | b. present values of the dividend stream and final price. As a result, the value of a stock falls when interest rates rise. |

The possibility of speculative bubbles in the stock market arises in part becausea. stock prices may not depend at all on psychological factors.b. fundamental analysis may be the correct way to evaluate the value of stocks.c. future streams of dividend payments are very hard to estimate.d. the value of shares of stock depends not only on the future stream of dividend payments but also on the price at which the stock will be sold. | d. the value of shares of stock depends not only on the future stream of dividend payments but also on the price at which the stock will be sold. |

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