Homework of Chapter 27
1、Mary talked to several stockbrokers and made the following conclusions. Which,
if any, of her conclusions are correct?___a______
A、All of Mary’s conclusions are correct
B 、It is relatively easy to reduce firm-specific risk by increasing the number of
companies one holds stock in
C、Stock prices, even if not exactly a random walk, are very close to it
D、Some people have made a lot of money in the stock market by using insider
information, but these cases are not contrary to the efficient markets hypothesis
2 、 Suppose that Thom experiences a greater loss in utility if he loses $50 than he
would gain in utility if he wins $50. This implies that Thom’s_____b____
A、marginal utility increases as wealth rises, so he must be risk averse
B、marginal utility diminishes as wealth rises, so he must be risk averse
C、marginal utility diminishes as wealth rises, but we can’t tell from this if he is
risk averse
D、marginal utility increases as wealth rises, but we can’t tell from this if he is risk
averse
3 、 You are expecting to receive $750 at some time in the future. Which of the
following would unambiguously increase the present value of this future payment?
____a_____
A、Interest rates rise and you have to wait longer for the payment
B、Interest rates rise and you get the payment sooner
C、Interest rates fall and you have to wait longer to get the payment
D、Interest rates fall and you get the payment sooner
4、The efficient markets hypothesis implies that____a_____
A、None of the other are correct
B、if a stock rose in price last year, it is likely to rise in price this year
C、managed mutual funds should generally outperform indexed mutual funds
D 、 building a portfolio based on a published list of the “most respected”
companies is likely to produce a better-than-average return
5、A measure of the volatility of a variable is its___c______
A、future value
B、return
C、standard deviation
D、present value
6、At which interest rate is the present value of $162.24 two years from today equal
to $150 today?___c______
A、6 percent
B、None of the other would give a present value within a cent of $162.24
C、4 percent
D、5 percent
7、For a risk averse person, ____a_____
A、the pain of losing $1,000 on a bet exceeds the pleasure of winning $1,000 on a
bet
B、the utility function gets steeper as wealth increases
C、the utility function exhibits the property of increasing marginal utility
D、the pleasure of winning $1,000 on a bet exceeds the pain of losing $1,000 on a
bet
8、Imagine that someone offers you $X today or $1,500 in 5 years. If the interest rate
is 6 percent, then you would pRefer to take the $X today if and only if__c_______
A、X < 1,213.33
B、X < 1,120.89
C、X < 1,338.26
D、X < 1,055.56
9、According to the efficient markets hypothesis, better-than-expected news about a
corporation will_____b____
A、have no effect on it's stock price
B、raise the price of the stock
C、change the price of the stock in a random direction
D、lower the price of the stock
10 、 Sally buys health insurance because she knows that she has health risks that
wouldn’t be obvious to an insurance company. Edward buys home owners insurance
and then is less careful to make sure he’s put out his cigarettes. The example with
Sally ___c______
A、and the example with Edward illustrate adverse selection
B、illustrates moral hazard; the example with Edward illustrates adverse selection
C、illustrates adverse selection; the example with Edward illustrates moral hazard
D、and the example with Sally illustrate moral hazard
11、Which of the following is correct concerning a risk-averse person?____b_____
A、She might not buy health insurance if she thinks her risks are low
B、All of the other are correct
C、Her marginal utility of wealth decreases as her income increases
D、She would not play games where the probability of winning and losing a dollar
are the same
12 、 U.S. Phones is considering buying new equipment to build a factory. If the
interest rate rises,____a_____
A、the present value of the returns from the factory will fall, so U.S. Phones will
be less likely to build the factory
B、the present value of the returns from the factory will rise, so U.S. Phones will
be more likely to build the factory
C、the present value of the returns from the factory will rise, so U.S. Phones will
be less likely to build the factory
D、the present value of the returns from the factory will fall, so U.S. Phones will
be more likely to build the factory
13 、 The price of a bond is equal to the sum of the present values of its future
payments. Suppose a certain bond pays $50 one year from today and $1,050 two years
from today. What is the price of the bond if the interest rate is 5 percent?__c_______
A、$1,050.00
B、$1,045.35
C、$1,000.00
D、$945.35
14、A manufacturing company is thinking about building a new factory. The factory,
if built, will yield the company $300 million in 7 years, and it would cost $220
million today to build. The company will decide to build the factory if the interest rate
is____b_____
A、no less than 4.53 percent
B、no greater than 4.53 percent
C、no greater than 5.81 percent
D、no less than 5.81 percent
15、Compounding refers directly to ___c______
A、finding the future value of a present sum of money
B、finding the present value of a future sum of money
C、interest being earned on previously-earned interest
D、changes in the interest rate over time on a bank account or a similar savings
vehicle
16、At an annual interest rate of 10 percent, about how many years will it take $100
to double in value?__a_______
A、7
B、9
C、5
D、11
17 、 Your parents put $500 into an account paying 7 percent interest for you when
you were ten. Ten years later they tell you that you can take the money out of the
account. What is the balance to the nearest cent?___a______
A、$983.58
B、$1,111.77
C、$850.00
D、$1,200.00
18、Imagine that someone offers you $1,000 today or $1,500 in 5 years. You would
pRefer to take the $1,500 in 5 years if the interest rate is___b______
A、10 percent
B、All of the other are correct
C、7 percent
D、12 percent
19、If you put $250 into an account with a 4 percent interest rate, how many years
would you have to wait to have $370.06?____c_____
A、20
B、17
C、10
D、14
20 、 George has $300 in a bank account. Some years ago he put $213.20 into this
account, and it has earned 5 percent interest every year since then. How many years
ago did he open his account?____b_____
A、7 years
B、5 years
C、6 years
D、4 years
