Question 1

The insurance market demonstrates the problem of adverse selection when those that are sicker than average seek health insurance.

Accepted Answer

A) True 
 B)False

Question 2

Why is an understanding of the concept called present value so critical for those who want to understand finance.

Accepted Answer

The present value of any future sum of m...

Question 3

Investors need to realize that _______ average returns that they want to enjoy comes at the price of ________ risk.

Accepted Answer

A)   higher, lower.
B)   lower, higher.
C)   higher, higher.
D)   none of the above.E) A) and C)
F) A) and B)

Question 4

Dividends are the cash payments that a company makes to its _____________

Accepted Answer

A)   customers.
B)   employees.
C)   stakeholders.
D)   shareholders.E) C) and D)
F) All of the above

Question 5

What factors does a company's profitability depend on and whose job is it to take these factors into account?

Accepted Answer

A company's profitability depends on a l...

Question 6

An increase in the prevailing interest rate

Accepted Answer

A)   increases the present value of future returns from investment, and increases investment.
B)   decreases the present value of future returns from investment, and decreases investment.
C)   decreases the present value of future returns from investment, and increases investment.
D)   increases the present value of future returns from investment, and decreases investment.E) C) and D)
F) B) and D)

Question 7

You have three ways to use fundamental analysis in pick a stock portfolio: 1)  do all the necessary research yourself, 2)  seek out the advice of a financial analysts, or:

Accepted Answer

A)   put your money into a savings account.
B)   buy into index funds.
C)   buy stocks that you like.
D)   buy into an investment fund that conducts fundamental analysis.E) B) and C)
F) A) and C)

Question 8

You have a bond that you can redeem for €10,000 one year from now. The interest rate is 10 per cent per year. How much is the bond worth today?

Accepted Answer

A)   €9,090.91
B)   €11,000.00
C)   €9,000.00
D)   €,523.81E) B) and D)
F) A) and D)

Question 9

Diversification is the reduction of risk achieved by replacing a single risk with a large number of

Accepted Answer

A)   greater risks.
B)   smaller unrelated risks.
C)   risk-free investments.
D)   risk-free purchases.E) A) and C)
F) C) and D)

Question 10

If people are risk averse, the utility gained from winning €1,000 is equal to the utility lost from losing a €1,000 bet.

Accepted Answer

A) True 
 B)False

Question 11

Diversification has the advantage of

Accepted Answer

A)   reducing expected return.
B)   reducing actual return.
C)   reducing risk.
D)   reducing the profits of insurance companies.E) B) and D)
F) All of the above

Question 12

If a depositor puts €100 in a bank account that earns 4 per cent interest compounded annually, how much will be in the account after five years?

Accepted Answer

A)   €104.00
B)   €120.00
C)   €121.67
D)   €123.98
E)   €400.00F) A) and D)
G) C) and D)

Question 13

Which of the following changes would increase the present value of a future payment?

Accepted Answer

A)   a decrease in the size of the payment
B)   a decrease in the certainty of the payment actually being received
C)   an increase in the amount of time that elapses before receiving the payment
D)   a decrease in the interest rateE) None of the above
F) A) and B)

Question 14

Government bonds are preferred to shares by individual investors who

Accepted Answer

A)   need to have immediate access to their money.
B)   wish to diversify their investments.
C)   prefer a less risky lower return to a more risky higher return.
D)   prefer a more risky higher return to a less risky lower return.E) All of the above
F) A) and B)

Question 15

The study of a company's accounting statements and future prospects to determine its value is known as

Accepted Answer

A)   information analysis.
B)   risk management.
C)   fundamental analysis.
D)   diversification.E) A) and B)
F) B) and C)

Question 16

Risk is the probability of something happening which results in a ___________________.

Accepted Answer

A)   overvalued share.
B)   loss or some degree of hazard or damage.
C)   optimal level
D)   returns from investing in shares.
E)   a poor investment.F) B) and D)
G) A) and E)

Question 17

Diversification cannot eliminate idiosyncratic risk, which is the uncertainty associated with the specific companies.

Accepted Answer

A) True 
 B)False

Question 18

Idiosyncratic risk is the

Accepted Answer

A)   uncertainty associated with the entire economy.
B)   uncertainty associated with specific companies.
C)   risk associated with adverse selection.
D)   risk associated with moral hazard.E) A) and B)
F) A) and C)

Question 19

A snow plough will generate a net income of €2,000 per year for its owner. After 8 years, the plough will be worn out and have zero value. The owner has worked out the present value of the net income the snow plough will generate using an interest rate of 10%. Which of the following statements is NOT true?

Accepted Answer

A)   The present value of the final year's net income is less than €1,100.
B)   The owner would sell the snow plough if she received an offer of €13,000 for it.
C)   The owner would sell the snow plough if she received an offer of €3,500.
D)   The present value of the income of the net income the snow plough will generate over the 8 year period is more than €10,000.E) A) and D)
F) B) and D)

Question 20

Which of the following should cause the price of a share of stock to rise?

Accepted Answer

A)   None of these answers
B)   An increase in expected dividends
C)   A reduction in aggregate risk
D)   A reduction in the interest rate
E)   All of these answersF) B) and E)
G) A) and B)

Exam 25: The Basic Tools of Finance

You have three ways to use fundamental analysis in pick a stock portfolio: 1) do all the necessary research yourself, 2) seek out the advice of a financial analysts, or:

Correct Answer
verified

The insurance market demonstrates the problem of adverse selection when those that are sicker than average seek health insurance.

Correct Answer
verified

Diversification has the advantage of

Correct Answer
verified

You have a bond that you can redeem for €10,000 one year from now. The interest rate is 10 per cent per year. How much is the bond worth today?

Correct Answer
verified

Diversification cannot eliminate idiosyncratic risk, which is the uncertainty associated with the specific companies.

Correct Answer
verified

If a depositor puts €100 in a bank account that earns 4 per cent interest compounded annually, how much will be in the account after five years?

Correct Answer
verified

Dividends are the cash payments that a company makes to its _____________

Correct Answer
verified

Risk is the probability of something happening which results in a ___________________.

Correct Answer
verified

Diversification is the reduction of risk achieved by replacing a single risk with a large number of

Correct Answer
verified

Which of the following changes would increase the present value of a future payment?

Correct Answer
verified

An increase in the prevailing interest rate

Correct Answer
verified

Why is an understanding of the concept called present value so critical for those who want to understand finance.

Correct Answer
verified
The present value of any future sum of m...
View Answer

The study of a company's accounting statements and future prospects to determine its value is known as

Correct Answer
verified

If people are risk averse, the utility gained from winning €1,000 is equal to the utility lost from losing a €1,000 bet.

Correct Answer
verified

What factors does a company's profitability depend on and whose job is it to take these factors into account?

Correct Answer
verified
A company's profitability depends on a l...
View Answer

Correct Answer
verified

Which of the following should cause the price of a share of stock to rise?

Correct Answer
verified

Government bonds are preferred to shares by individual investors who

Correct Answer
verified

Idiosyncratic risk is the

Correct Answer
verified

Investors need to realize that _ average returns that they want to enjoy comes at the price of __ risk.

Correct Answer
verified

Exam 25: The Basic Tools of Finance

You have three ways to use fundamental analysis in pick a stock portfolio: 1) do all the necessary research yourself, 2) seek out the advice of a financial analysts, or:

Correct AnswerverifiedShow Answer

The insurance market demonstrates the problem of adverse selection when those that are sicker than average seek health insurance.

Correct AnswerverifiedShow Answer

Diversification has the advantage of

Correct AnswerverifiedShow Answer

You have a bond that you can redeem for €10,000 one year from now. The interest rate is 10 per cent per year. How much is the bond worth today?

Correct AnswerverifiedShow Answer

Diversification cannot eliminate idiosyncratic risk, which is the uncertainty associated with the specific companies.

Correct AnswerverifiedShow Answer

If a depositor puts €100 in a bank account that earns 4 per cent interest compounded annually, how much will be in the account after five years?

Correct AnswerverifiedShow Answer

Dividends are the cash payments that a company makes to its _____________

Correct AnswerverifiedShow Answer

Risk is the probability of something happening which results in a ___________________.

Correct AnswerverifiedShow Answer

Diversification is the reduction of risk achieved by replacing a single risk with a large number of

Correct AnswerverifiedShow Answer

Which of the following changes would increase the present value of a future payment?

Correct AnswerverifiedShow Answer

An increase in the prevailing interest rate

Correct AnswerverifiedShow Answer

Why is an understanding of the concept called present value so critical for those who want to understand finance.

Correct AnswerverifiedThe present value of any future sum of m...View AnswerShow Answer

The study of a company's accounting statements and future prospects to determine its value is known as

Correct AnswerverifiedShow Answer

If people are risk averse, the utility gained from winning €1,000 is equal to the utility lost from losing a €1,000 bet.

Correct AnswerverifiedShow Answer

What factors does a company's profitability depend on and whose job is it to take these factors into account?

Correct AnswerverifiedA company's profitability depends on a l...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Which of the following should cause the price of a share of stock to rise?

Correct AnswerverifiedShow Answer

Government bonds are preferred to shares by individual investors who

Correct AnswerverifiedShow Answer

Idiosyncratic risk is the

Correct AnswerverifiedShow Answer

Investors need to realize that _______ average returns that they want to enjoy comes at the price of ________ risk.

Correct AnswerverifiedShow Answer

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Correct Answer
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Correct Answer
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Correct Answer
verified
The present value of any future sum of m...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
A company's profitability depends on a l...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Investors need to realize that _ average returns that they want to enjoy comes at the price of __ risk.

Correct Answer
verified