Macro Chap 14

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. $800 b. $300 c. $1,010 d. $210

a. $800

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 years b. 3.5 years c. 4.5 years d. 4 years

a. 3 years

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 4 percent, with the bank giving you a $20 bonus at the time you open your account c. An interest rate of 4.5 percent, with no processing fee and no bonus d. An interest rate of 3.5 percent, with the bank giving you a $35 bonus to open your account

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

From the appearance of the utility function, we know that a. Britney is risk averse. 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. the property of diminishing marginal utility does not apply to Britney. d. Britney enjoys engaging in risky behavior.

a. Britney is risk averse.

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. is upward sloping and her marginal utility function is downward sloping. b. is downward sloping and her marginal utility function is upward sloping. c. and marginal utility function are both upward sloping. d. and marginal utility function are both downward sloping.

a. is upward sloping and her marginal utility function is downward sloping.

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 A. b. either A or B because they are the same to her. c. option B. d. option C.

a. option A.

c. Instead of holding only the stocks of companies engaged in the banking

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

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 less than 10.83 percent. b. no greater than 10.83 percent. c. no less than 9.48 percent. d. no greater than 9.48 percent.

b. no greater than 10.83 percent.

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 firm-specific risk, but not the market risk of his portfolio. c. neither the market risk nor the firm-specific risk of his portfolio. d. the market risk, but not the firm-specific risk of his portfolio.

b. the firm-specific risk, but not the market risk of his portfolio.

Rita puts $10,000 into each of two different assets. The first asset pays 10 percent interest and the second pays 5 percent. According to the rule of 70, what is the approximate difference in the value of the two assets after 14 years? a. $14,000 b. $15,500 c. $20,000 d. $12,000

c. $20,000

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. $983.58 c. $859.09 d. $1,200.00

c. $859.09

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

c. Instead of holding only the stocks of companies engaged in the banking

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 D b. Option C c. Option B d. Option A

c. Option B

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

c. the pain of losing $1,000 on a bet exceeds the pleasure of winning $1,000 on a bet.

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.

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

d. $2,591.85

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

d. $7,920.94.

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 B: "Portfolios with smaller standard deviations have lower risk. " c. They all gave her correct advice. d. Broker C: "Stocks with greater risks offer lower average returns. "

d. Broker C: "Stocks with greater risks offer lower average returns. "

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

Suppose Britney begins with $1,050 in wealth. Starting from there, a. the pleasure of adding $300 to her wealth would exceed the pain of losing $300 of her wealth. b. 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. " c. the pain of losing $300 of her wealth would equal the pleasure of adding $300 to her wealth. d. the pain of losing $300 of her wealth would exceed the pleasure of adding $300 to her wealth.

d. the pain of losing $300 of her wealth would exceed the pleasure of adding $300 to her wealth.