Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
25 Cards in this Set
- Front
- Back
|
You have a choice among three options. Option 1; receive $900 immediately. Option 2: receive $1,200 one year from now. Option 3: receive $2,000 five years from now. The interest rate is 15 percent. Rank these three options from highest present value to lowest present value. |
Option 2, option 3, option 1 |
|
|
According to the efficient market hypothesis, worse - than - expected news about a corporation will |
Lower the price of the stock |
|
|
At an annual interest rate of 10 percent, about how many years will it take $100 to double in value? |
7 years |
|
|
Other things the same, when the interest rate rises, the present value of future revenues from investment projects. |
Falls, so investment spending falls |
|
|
Amanda talks with several different brokers at a social gathering. She hears the following advice from brokers A, B, and C. Which broker, if any, gave her incorrect advice? |
Broker C. "Stocks with greater risk offer lower average returns". |
|
|
Abby buys health insurance because she knows that she has health risks that wouldn't be obvious to an insurance company. Brad buys home owners insurance and then is less careful to make sure he's put out his cigarettes. The example with Abby |
Illustrates adverse selection: the example with Brad illustrates moral hazard. |
|
|
David increases the number of companies in which he hold stocks |
This reduces risks standard deviation and firm - specific risk |
|
|
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 is |
$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. |
|
|
Consider the following two situations. Nicole accepts a job where she will be driving in dangerous traffic, so she seeks auto insurance. After Braden buys health insurance, he visits the gym less frequently. Which of these persons actions illustrates moral harzard? |
Bradens but not Nicoles. |
|
|
Which of the following is correct? |
Index funds typically have a higher rate of return than managed funds. This tends to support the efficient market hypothesis. |
|
|
Whenever the price of an asset rises above what appears to be it's fundamental value, the market is said to be experiencing a |
Speculative Bubble |
|
|
In the 1990s, Fed Chair Person Alan Greenspan questioned whether the stock market |
Boom at that time reflected "irrational exuberance". |
|
|
Tami knows that people in her family die young and so she buys life insurance. Preston knows he is a reckless driver and so he applies for automobile insurance. |
These are both examples of adverse selection. |
|
|
If the interest rate is 7.5 percent, then what is the present value of $4,000 to be received in 6 years? |
$2,591.85 |
|
|
What is the present value of a payment of $200 to be made one year from today if the interest rate is 10 percent? |
$181.82 |
|
|
People who hold well diversified portfolios of stocks have greatly reduced or eliminated |
Firm - specific risk, but still they have reason 5 worry about their wealth decreasing as a result of recessions. |
|
|
Which of the following actions best illustrates moral hazard? |
A person purchases homeowners insurance and then checks his smoke detector batteries less frequently. |
|
|
Which of the following is the correct expression for finding the present value of a $1000 payment one year from today if the interest rate is 6 percent? |
$1000/(1.06) |
|
|
The problem of Moral hazard arises because |
After people buy insurance, they have less incentive to be careful about their risky behavior |
|
|
If Robert is risk - averse, then he will always |
Choose not to play a game where he has a 50 percent chance of winning $1 and a 50 percent chance of losing $1. |
|
|
Ben decided to increase the number of stocks in his portfolio. In doing so, Ben reduced |
The firm - specific risk, but not the market risk of his portfolio. |
|
|
Which of the following is the correct way to compute the future value of $100 put into an account that earns 4 percent interest for 10 years? |
$100 (1+.04)^10 |
|
|
If you are convinced that stock prices are impossible to predict from available information then you probably also believe that |
The stock market is informationally efficient |
|
|
Lucky Hardware store considered building a store in a new location. The owners and their accountants decided that this was not the profitable thing to do. However, soon after they make this decision, both the interest rate and the cost of building the store changed. In which case do these changes both make it more likely that they will now build the store? |
Interest rates rise and the cost of building the store rises. |
|
|
According to the rule of 70, if the interest rate is 5 percent, how long will it take for the value of a savings account to double? |
About 14 years |
