macro chap 14

Refer to Figure 27-1 . From the appearance of the utility function, we know that a. the property of diminishing marginal utility does not apply to Britney. b. Britney gains more satisfaction when her wealth increases by X dollars than she loses in satisfaction when her wealth decreases by X dollars. c. Britney enjoys engaging in risky behavior. d. Britney is risk averse

d, Britney is risk adverse

If the interest rate is 7.5 percent, then what is the present value of $4,000 to be received in 6 years? a. $2,591.85 b. $2,420.68 c. $3,040.63 d. $2,996.33

a, 2591.85

On the Internet you find the following offers for opening an online account. Which of them is the best offer if you have $2,000 to save for two years? a. An interest rate of 5 percent, with the bank charging you a $15 processing fee at the time you open your account b. An interest rate of 3.5 percent, with the bank giving you a $35 bonus to open your account c. An interest rate of 4 percent, with the bank giving you a $20 bonus at the time you open your account d. An interest rate of 4.5 percent, with no processing fee and no bonus

a, an interest rate of 5 percent with the bank charging you a 15 processing fee at the time you open your account

When you were 10 years old, your grandparents put $500 into an account for you paying 7 percent interest. Now that you are 18 years old, your grandparents tell you that you can take the money out of the account. What is the balance to the nearest cent? a. $1,111.77 b. $859.09 c. $1,200.00 d. $983.58

b, 859.09

Suppose you are deciding whether or not to buy a particular bond for $5,980.17. If you buy the bond and hold it for 5 years, then at that time you will receive a payment of $10,000. You will buy the bond today if the interest rate is a. no greater than 9.48 percent. b. no less than 10.83 percent. c. no less than 9.48 percent. d. no greater than 10.83 percent.

d, no greater than 10.83 percent

Suppose the interest rate is 7 percent. Consider four payment options:Option A: $500 today.Option B: $550 one year from today.Option C: $575 two years from today.Option D: $600 three years from today.Which of the payments has the highest present value today? a. Option A b. Option D c. Option C d. Option B

d, option b

Which of the following best illustrates diversification? a. A person decides to purchase only stocks that have paid high dividends in the past. b. Instead of holding only the stocks of companies engaged in the banking business, a person decides to hold stock in a number of different companies producing different goods and services. c. A company that produces many different products decides to produce fewer. d. After selling stock, corporate management spends funds on projects with greater risks than shareholders had anticipated.

B instead of holding only the stocks of companies engaged in the banking business, a person decides to hold stock in a number of different companies producing different goods and services

Hector puts $150 into an account when the interest rate is 4 percent. Later he checks his balance and finds he has about $168.73. How long did Hector wait to check his balance? a. 3.5 years b. 3 years c. 4 years d. 4.5 years

b, 3 years

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? a. Broker A: "There are risks in holding stocks, even in a highly diversified portfolio. " b. Broker C: "Stocks with greater risks offer lower average returns. " c. They all gave her correct advice. d. Broker B: "Portfolios with smaller standard deviations have lower risk. "

b, broker c, "stocks with greater risks offer lower average returns

Which of the following best illustrates diversification? a. A person decides to purchase only stocks that have paid high dividends in the past. b. Instead of holding only the stocks of companies engaged in the banking business, a person decides to hold stock in a number of different companies producing different goods and services. c. A company that produces many different products decides to produce fewer. d. After selling stock, corporate management spends funds on projects with greater risks than shareholders had anticipated.

b, instead of holding only the stocks of companies engaged in the banking buisness, a person decides to hold stock in a number of different companies producing different goods and services

Recently, Lisa's wealth increased by $500. If her wealth were to increase by another $500 in the near future, then her utility would increase, but not by as much as it increased with the recent increase to her wealth. Based on this information, and graphing wealth on each horizontal axis, Lisa's utility function a. and marginal utility function are both upward sloping. b. is upward sloping and her marginal utility function is downward sloping. c. and marginal utility function are both downward sloping. d. is downward sloping and her marginal utility function is upward sloping.

b, is upward sloping and her marginal utility function is downward sloping

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 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.

b, marginal utility diminishes as wealth rises so he must be risk adverse

For a risk averse person, a. the utility function exhibits the property of constant marginal utility of wealth. b. the pain of losing $1,000 on a bet exceeds the pleasure of winning $1,000 on a bet. c. the pleasure of winning $1,000 on a bet exceeds the pain of losing $1,000 on a bet. d. the utility function exhibits the property of increasing marginal utility of wealth.

b, the pain of losing 1000 on a bet exceeds the pleasure of winning 1000 on a bet

Refer to Figure 27-1 . Suppose Britney begins with $1,050 in wealth. Starting from there, a. she would be willing to accept a coin-flip bet that would result in her winning $300 if the result was "heads" or losing $300 if the result was "tails. " b. the pain of losing $300 of her wealth would exceed the pleasure of adding $300 to her wealth. c. the pleasure of adding $300 to her wealth would exceed the pain of losing $300 of her wealth. d. the pain of losing $300 of her wealth would equal the pleasure of adding $300 to her wealth.

b, the pain of losing 300 of her wealth would exceed the pleasure of adding 300 to her wealth

Mary Beth is risk averse and has $1,000 with which to make a financial investment. She has three options. Option A is a risk-free government bond that pays 5 percent interest each year for two years. Option B is a low-risk stock that analysts expect to be worth about $1,102.50 in two years. Option C is a high-risk stock that is expected to be worth about $1,200 in four years. Mary Beth should choose a. option C. b. either A or B because they are the same to her. c. option A. d. option B.

c, option a

Kurt decided to increase the number of stocks in his portfolio. In doing so, Kurt reduced a. both the firm-specific risk and the market risk of his portfolio. b. the market risk, but not the firm-specific risk of his portfolio. c. the firm-specific risk, but not the market risk of his portfolio. d. neither the market risk nor the firm-specific risk of his portfolio.

c, the firm specific risk but not the market rise of his portfolio

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 than a. $8,225.06. b. $7,672.58. c. $6,998.98. d. $7,920.94.

d, 7920.94

Sari puts $100 into an account with an interest rate of 10 percent. According to the rule of 70, about how much does she have at the end of 21 years? a. $300 b. $210 c. $1,010 d. $800

d, 800

If the interest rate is 4 percent, then you would be equally happy if you received a gift of either $100 today or a gift of a. $116.00 four years from today. b. $110.00 two years from today. c. $123.67 five years from today. d. $112.49 three years from today

d, 112.49 three years from today

An automobile manufacturer unexpectedly announces that it has hired a new chief executive officer. It is widely believed that the presence of this individual will raise the profitability of the corporation. At the same time interest rates unexpectedly rise. Which of the above would tend to make the price of the stock rise? a. The rise in interest rates, but not the announcement b. Neither the announcement nor the rise in interest rates c. The announcement and the rise in interest rates d. The announcement but not the rise in interest rates

d, the announcement but not the rise in interest rates