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Yoyo's Frozen Yogurt,Inc.is thinking of building a new warehouse.They believe that this will give them $50,000 of additional revenue at the end of one year,$60,000 additional revenue at the end of two years,and $70,000 in additional revenue at the end of three years.If the interest rate is 5 percent,Yoyo would be willing to pay


A) $140,000,but not $150,000.
B) $150,000,but not $160,000.
C) $160,000,but not $170,000.
D) $170,000,but not $180,000.

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Lucretia puts $400 into an account when the interest rate is 10 percent.Later she checks her balance and finds it's worth about $708.62.How many years did she wait to check her balance?


A) 5 years
B) 6 years
C) 7 years
D) 8 years

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Rosie 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.Rosie should choose


A) option A.
B) option B.
C) option C.
D) either option A or option B because Rosie is indifferent between those two options and they are superior to option C.

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Risk aversion simply means that people dislike bad things to happen.

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Suppose the interest rate is 5 percent.Consider three payment options: 1.$500 today. 2) $520 one year from today. 3) $550 two years from today. Which of the following is correct?


A) 1 has the lowest present value and 3 has the highest.
B) 2 has the lowest present value and 1 has the highest.
C) 3 has the lowest present value and 2 has the highest.
D) None of the above is correct.

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Figure 19-4.The figure shows a utility function for Dexter. Figure 19-4.The figure shows a utility function for Dexter. -Refer to Figure 19-4.From the appearance of the utility function,we know that A) Dexter is risk averse. B) Dexter gains less satisfaction when his wealth increases by X dollars than he loses in satisfaction when his wealth decreases by X dollars. C) the property of diminishing marginal utility does not apply to Dexter. D) All of the above are correct. -Refer to Figure 19-4.From the appearance of the utility function,we know that


A) Dexter is risk averse.
B) Dexter gains less satisfaction when his wealth increases by X dollars than he loses in satisfaction when his wealth decreases by X dollars.
C) the property of diminishing marginal utility does not apply to Dexter.
D) All of the above are correct.

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Markovich Corporation is considering building a new plant.It will cost $1 million today to build it and it will generate revenues of $1.121 million three years from today.Of the interest rates below,which is the highest interest rate at which Markovich still would be willing to build the plant?


A) 3 percent
B) 3.5 percent
C) 4 percent
D) 4.5 percent

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Risk-averse individuals like good things more than they dislike comparable bad things.

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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 person's actions illustrates moral hazard?


A) both Nicole's and Braden's
B) Nicole's but not Braden's
C) Braden's but not Nicole's
D) neither Braden's nor Nicole's

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Svetlana is risk averse.Which of the following is correct about Svetlana?


A) Her marginal utility of wealth increases as her income increases.
B) She will always accept a bet if the probability of winning a dollar is the same as the probability of losing a dollar.
C) Her utility function is a straight line.
D) None of the above are correct.

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A car salesperson gives you four alternative ways to pay for your car.The first is to pay $18,000 today.The second is to pay $19,000 one year from today.The third is to pay $20,300 two years from today.The fourth is to pay $21,500 three years from today.If the interest rate is 6 percent,which payment option has the lowest present value and which has the highest?


A) The first is lowest; the second is highest.
B) The second is lowest; the third is highest.
C) The third is lowest; the fourth is highest.
D) The fourth is lowest; the first is highest.

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You are expecting to receive $750 at some time in the future.Which of the following would unambiguously decrease the present value of this future payment?


A) Interest rates rise and you get the payment sooner.
B) Interest rates rise and you have to wait longer for the payment.
C) Interest rates fall and you get the payment sooner.
D) Interest rates fall and you have to wait longer to get the payment.

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At which interest rate is the present value of $145.80 two years from today equal to $125 today?


A) 2 percent
B) 4 percent
C) 6 percent
D) 8 percent

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What's the difference between firm-specific risk and market risk? Will diversification eliminate one or both? Explain.

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Market risk refers to economywide risk c...

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At which interest rate is the present value of $95.40 one year from today equal to $90 today?


A) 4 percent
B) 5 percent
C) 6 percent
D) 7 percent

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The field of finance primarily studies


A) how society manages its scarce resources.
B) the implications of time and risk for allocating resources over time.
C) firms' decisions concerning how much to produce and what price to charge.
D) how society can reduce market risk.

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On the Internet you find the following offers for opening an online account.Which of them is the best offer if you have $5,000 to save for two years?


A) an interest rate of 5 percent,with the bank charging you a $50 processing fee at the time you open your account
B) an interest rate of 4 percent,with the bank giving you a $65 bonus at the time you open your account
C) an interest rate of 3.5 percent,with the bank giving you a $100 bonus to open your account
D) an interest rate of 4.5 percent,with no processing fee and no bonus

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Stock market fluctuations


A) often go hand in hand with fluctuations in the economy more broadly.
B) rarely have anything to do with fluctuations in the economy more broadly.
C) have few,if any,macroeconomic implications.
D) are attributable to the widespread belief that the efficient markets hypothesis is correct.

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Figure 19-3.The figure shows a utility function for Rob. Figure 19-3.The figure shows a utility function for Rob. -Refer to Figure 19-3.From the appearance of Rob's utility function,we know that A) the pain that Rob would experience if he lost $200 of his wealth would exceed the pleasure that he would experience if he added $200 to his wealth. B) the pleasure that Rob would experience if he added $200 to his wealth would exceed the pain that he would experience if he lost $200 of his wealth. C) the property of increasing utility does not apply to Rob. D) the property of diminishing marginal utility does not apply to Rob. -Refer to Figure 19-3.From the appearance of Rob's utility function,we know that


A) the pain that Rob would experience if he lost $200 of his wealth would exceed the pleasure that he would experience if he added $200 to his wealth.
B) the pleasure that Rob would experience if he added $200 to his wealth would exceed the pain that he would experience if he lost $200 of his wealth.
C) the property of increasing utility does not apply to Rob.
D) the property of diminishing marginal utility does not apply to Rob.

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Figure 19-4.The figure shows a utility function for Dexter. Figure 19-4.The figure shows a utility function for Dexter. -Refer to Figure 19-4.Suppose the vertical distance between the points (0,A) and (0,B) is 12.If his wealth increased from $1,300 to $1,800,then A) Dexter's subjective measure of his well-being would increase by less than 12 units. B) Dexter's subjective measure of his well-being would increase by more than 12 units. C) Dexter would change from being a risk-averse person into a person who is not risk averse. D) Dexter would forgo the insurance he bought when his wealth was $1,300. -Refer to Figure 19-4.Suppose the vertical distance between the points (0,A) and (0,B) is 12.If his wealth increased from $1,300 to $1,800,then


A) Dexter's subjective measure of his well-being would increase by less than 12 units.
B) Dexter's subjective measure of his well-being would increase by more than 12 units.
C) Dexter would change from being a risk-averse person into a person who is not risk averse.
D) Dexter would forgo the insurance he bought when his wealth was $1,300.

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