Question 1

You are tearing down a building and find $1 in change that someone lost when working on the building 140 years ago.If instead of being careless with their change,this person had deposited their $1 in a bank and earned 2 percent interest,how much would be in the account today according to the rule of 70?
A)$4
B)$16
C)$32
D)None of the above is correct.

Accepted Answer

The rule of 70 estimates the doubling time of an investment by dividing 70 by the interest rate. At 2% interest, the money doubles approximately every 35 years (70/2). Over 140 years, the money would double 4 times (140/35), resulting in $16 ($1 doubled 4 times: $2, $4, $8, $16).

Question 2

A measure of the volatility of a variable is its
A)present value.
B)future value.
C)return.
D)standard deviation.

Accepted Answer

Standard deviation is a statistical measure of the amount of variability or dispersion in a set of data. It is commonly used as a measure of volatility in finance and investment. A higher standard deviation indicates more volatility, while a lower standard deviation indicates less volatility. Therefore, D is the correct choice as it directly relates to the measure of volatility.

Question 3

Nancy would like to double the money in her retirement account in five years.According to the rule of 70,what rate of interest would she need to obtain her goal?
A)5 percent
B)7 percent
C)10 percent
D)14 percent

Accepted Answer

The rule of 70 is a way to estimate the number of years required to double the investment at a given annual rate of return. It states that you divide 70 by the annual interest rate to get the doubling time. To double in 5 years, the rate would be 70/5 = 14 percent.

Question 4

Twenty years ago,Dr.Montgomery borrowed money from her parents to pay her tuition at graduate school.Now she wants to pay them back.She gives them double what they gave her.According to the rule of 70,what interest rate would have given her parents the same amount of money if they had put it in the bank rather than lending it to their daughter?
A)3.5 percent
B)4.5 percent
C)5 percent
D)7 percent

Accepted Answer

The answer of Twenty years ago,Dr.Montgomery borrowed money from her...

Question 5

According to the rule of 70,if the interest rate is 5 percent,how long will it take for the value of a savings account to double?
A)about 3.5 years
B)about 6.3 years
C)about 12 years
D)about 14 years

Accepted Answer

The answer of According to the rule of 70,if the...

Question 6

Sari puts $100 in 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)$210
B)$300
C)$800
D)$1,010

Accepted Answer

Using the rule of 70, we divide 70 by the interest rate (10% = 0.1) to find the number of years it takes for the investment to double: 
70/0.1 = 700 years.

Since Sari is investing for 21 years, we can estimate that her money will approximately double twice: 
$100 x 2 = $200 (after 10 years)
$200 x 2 = $400 (after 20 years)

At this point, we can estimate that she has slightly more than doubled her money again in the last year, bringing her total to approximately $800. Therefore, the best choice is C.

Question 7

A risk averse person
A)has a utility curve where the slope increases with wealth, and might take a bet with a 60 percent chance of wining $100 and a 40 per chance of losing $100.
B)has a utility curve where the slope increases with wealth, and would never take a bet with a 60 percent chance of wining $100 and a 40 per cent chance of losing $100.
C)has a utility curve where the slope decreases with wealth, and might take a bet with a 60 percent chance of wining $100 and a 40 per chance of losing $100.
D)has a utility curve where the slope decreases with wealth, and would never take a bet with a 60 percent chance of wining $100 and a 40 per cent chance of losing $100.

Accepted Answer

The answer of A risk averse person
A)has a utility curve...

Question 8

What is the future value in two years of $100 saved today and the present value of a promise of $100 to be paid two years from today if the interest rate is 10%?
A)$121.00, about $82.65
B)$121.00, $80.00
C)$120.00, about $82.65
D)$120,00, $80.00

Accepted Answer

The future value of $100 saved today at a 10% interest rate for two years is $100 * (1 + 0.10)^2 = $121.00. The present value of $100 to be paid in two years at a 10% interest rate is $100 / (1 + 0.10)^2, which is approximately $82.65.

Question 9

Kramer's Frozen Sandwiches is thinking of building a new warehouse.They believe that this will given 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,they 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.

Accepted Answer

The answer of Kramer's Frozen Sandwiches is thinking of building...

Question 10

Which of the following is the correct way to state the rule of 70? A variable with a growth rate of X percent
A)doubles every 70/x years.
B)doubles every 70(1 - 1/x) years.
C)doubles every 70/x² years.
D)doubles every 70/(1 - x) years.

Accepted Answer

The rule of 70 is a way to estimate the number of years it takes for a quantity to double, given a constant annual growth rate. It is calculated by dividing 70 by the annual growth rate percentage.

Question 11

Which of the following is the largest?
A)the future value of $250 with 3% interest for 2 years
B)the future value of $250 at 2% interest for 3 years
C)the present value of $250 to be paid in two years when the interest rate is 3%
D)the present value of $250 to be paid in three years when the interest rate is 2%

Accepted Answer

The answer of Which of the following is the largest?
A)the...

Question 12

Robert is risk averse and has $1,000 with which to make a financial investment.He 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.Robert should choose
A)option a.
B)option B.
C)option C.
D)either A or B because they are the same to him.

Accepted Answer

As Robert is risk-averse, he would prefer a low-risk investment option. Option A is a risk-free government bond that guarantees a 5% return each year for two years. On the other hand, option B is a low-risk stock, but it still carries some amount of risk, which might not suit Robert. Option C is a high-risk stock with a long horizon, which is not suitable for Robert. Therefore, Robert should choose option A as it offers a guaranteed return without any risk.

Question 13

If the interest rate is r% then the rule of 70 says that your savings will double about every
A)70/(1-r) years.
B)70/(1+r) years.
C)70/r years.
D)70(1+r)/r years.

Accepted Answer

The rule of 70 is a way to estimate the number of years it takes for an investment to double at a given annual interest rate. It is calculated by dividing 70 by the interest rate (r) expressed as a percentage.

Question 14

Other things the same,an increase in the interest rate makes the quantity of loanable funds supplied
A)rise, and investment spending rise.
B)rise, and investment spending fall.
C)fall, and investment spending rise.
D)fall, and investment spending fall.

Accepted Answer

An increase in the interest rate leads to higher returns for savers, so they will be willing to save more and supply a larger quantity of loanable funds. This increase in supply will lead to a decrease in the interest rate, but other things the same, the quantity of loanable funds demanded by borrowers will decrease, as they will find it more expensive to borrow. This decrease in demand for loanable funds will lead to a decrease in the quantity of investment spending. Therefore, an increase in the interest rate makes the quantity of loanable funds supplied rise and the quantity of investment spending fall.

Question 15

If a person is risk averse,then she has
A)diminishing marginal utility of wealth, implying that her utility function gets flatter as wealth increases.
B)diminishing marginal utility of wealth, implying that her utility function gets steeper as wealth increases.
C)increasing marginal utility of wealth, implying that her utility function gets flatter as wealth increases.
D)increasing marginal utility of wealth, implying that her utility function gets steeper as wealth increases.

Accepted Answer

A risk-averse person is less willing to take risks and will require a higher expected return to compensate for any given level of risk. This implies that the person values wealth more highly than expected returns, which indicates that their utility function is flatter as wealth increases. Therefore, they have diminishing marginal utility of wealth.

Question 16

According to the rule of 70,if the interest rate is 10 percent,about how long will it take for the value of a savings account to double?
A)about 6.3 years
B)about 7 years
C)about 7.7 years
D)about 10 years

Accepted Answer

The answer of According to the rule of 70,if the...

Question 17

Rita puts $10,000 into to two different assets.The first pays 10% and the second pays 5%.According to the rule of 70,what is the approximate difference in the value of the two assets after 14 years?
A)$12,000
B)$14,000
C)$17,000
D)$20,000

Accepted Answer

The answer of Rita puts $10,000 into to two different...

Question 18

Fourteen years ago Alfred put money in his account at First National Bank.Alfred decides to cash in his account and is told that his money has quadrupled.According to the rule of 70,what rate of interest did Alfred earn?
A)5 percent
B)7 percent
C)10 percent
D)14 percent

Accepted Answer

The rule of 70 states that to find the annual rate of interest, divide 70 by the number of years it takes for the investment to double. In this case, the investment quadrupled, which is equivalent to doubling twice. So, we divide 70 by 2 to get 35. Then, we divide 35 by 2 again to get 17.5. Therefore, the annual rate of interest is 17.5%.

Question 19

Other things the same,an increase in the interest rate makes the quantity of loanable funds demanded
A)rise, and investment spending rise.
B)rise, and investment spending fall.
C)fall, and investment spending rise.
D)fall, and investment spending fall.

Accepted Answer

An increase in the interest rate makes borrowing more expensive, which decreases the quantity of loanable funds demanded and reduces investment spending, as firms are less likely to borrow money for investment projects when interest rates are high.

Question 20

Norne 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 Norne would still be willing to build the plant?
A)3 percent
B)3.5 percent
C)4 percent
D)4.5 percent

Accepted Answer

The answer of Norne Corporation is considering building a new...

Quiz 27: The Basic Tools of Finance

A measure of the volatility of a variable is its

Nancy would like to double the money in her retirement account in five years.According to the rule of 70,what rate of interest would she need to obtain her goal?

According to the rule of 70,if the interest rate is 5 percent,how long will it take for the value of a savings account to double?

Sari puts $100 in 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 risk averse person

What is the future value in two years of $100 saved today and the present value of a promise of $100 to be paid two years from today if the interest rate is 10%?

Which of the following is the correct way to state the rule of 70? A variable with a growth rate of X percent

Which of the following is the largest?

If the interest rate is r% then the rule of 70 says that your savings will double about every

Other things the same,an increase in the interest rate makes the quantity of loanable funds supplied

If a person is risk averse,then she has

According to the rule of 70,if the interest rate is 10 percent,about how long will it take for the value of a savings account to double?

Rita puts $10,000 into to two different assets.The first pays 10% and the second pays 5%.According to the rule of 70,what is the approximate difference in the value of the two assets after 14 years?

Fourteen years ago Alfred put money in his account at First National Bank.Alfred decides to cash in his account and is told that his money has quadrupled.According to the rule of 70,what rate of interest did Alfred earn?

Other things the same,an increase in the interest rate makes the quantity of loanable funds demanded

Norne 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 Norne would still be willing to build the plant?