CHAPTER 27 - Chapter27 TheBasicTools ofFinance 1. Theamount...

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Chapter 27 The Basic Tools of Finance 1. The amount  of money that someone would  pay today  for the right to receive a future payment  is  called the a. present value of the future payment. b. determinate  value of the future payment. c. market interest rate. d. principal. ANSWER: a present value of the future payment. SECTION:  OBJECTIVE:  2. Which of the following  changes would  increase the present value of a future payment? 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 rate ANSWER: d a decrease in the interest rate SECTION:  OBJECTIVE:  3. You have a bond  that you can redeem  for $10,000 one year from now. The interest rate is 10 percent  per year. How  much is the bond  worth  today? a. $9,091.01 b. $10,000.00 c. $8,264.46 d. 9,523.81 ANSWER: a $9,091.01 SECTION:  OBJECTIVE:  4. A snowplow  will generate a net income of $2,000 per year for its owner. After 8 years, the plow   will break down  and  have zero value. The maximum  amount  of money anyone would  pay for the  plow  is a. less than  $2,000. b. $2000. c. between  $2,000 and  $16,000. d. $16,000. ANSWER: c between  $2,000 and  $16,000. SECTION:  OBJECTIVE:  5. 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%  per year. Rank these three options from highest present  value to lowest present  value. a. Option  1; Option 2; Option 3 b. Option  3; Option 2; Option 1 c. Option  2; Option 3; Option 1 d. Option  3; Option 1; Option 2 ANSWER: c Option  2; Option 3; Option 1 SECTION:  OBJECTIVE:  159
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160 Chapter 27/The Basic Tools of Finance 6. Someone who cares only about  expected  return  and  doesn’t worry about risk is someone who is a. risk averse. b. risk neutral. c. risk seeking. d. irrational. ANSWER: b risk neutral. SECTION:  OBJECTIVE:  7. Diversification has the advantage  of a. reducing expected  return. b.
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This note was uploaded on 10/22/2010 for the course BUSINESS BAIU09 taught by Professor Mr.ken during the Spring '10 term at American InterContinental University Dunwoody.

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CHAPTER 27 - Chapter27 TheBasicTools ofFinance 1. Theamount...

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