Question 1

Fourteen years ago William put money in his account at First National Bank.William 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?

Accepted Answer

According to the rule of 70, we divide 70 by the number of years it takes for an investment to double in value. In this case, since William's money has quadrupled (doubled twice), we divide 70 by 14 (2 times 7). This gives us a number of 5. Therefore, William's investment had an average annual rate of return of 5%. However, we need to divide this by the number of doubling periods (2) to get the average annual rate of return for each doubling period, which is 2.5%. Since William's investment doubled twice (quadrupled), we multiply this rate by 2 to get 5%. To get from a doubling period rate of 5% to an annual rate of 10%, we use the formula (1 + r)^(number of doubling periods) = 1 + annual rate of return. Plugging in our values, we get (1 + 0.05)^2 = 1 + r, which simplifies to 1.1025 = 1 + r. Solving for r, we get r = 0.1025 or 10.25%. However, since the answer choices only provide whole numbers, the closest answer is C) 10%.

Question 2

Figure 27-1.The figure shows a utility function. 
-Refer to Figure 27-1.What is measured along the vertical axis?

Accepted Answer

The vertical axis measures the level of utility. Therefore, the best choice is to choose the option that maximizes utility, which is at point A on the graph. Any point below A would result in less utility, and any point above A would not be feasible given the budget constraint.

Question 3

What is the present value of a payment of $2,000 to be received two years from today if the interest rate is 5%?

Accepted Answer

The answer of What is the present value of a...

Question 4

The future value of $500 saved for two years at an interest rate of 5% is

Accepted Answer

To calculate the future value, we use the formula FV = PV(1 + r)^n, where PV is the present value (in this case, $500), r is the interest rate (5% or 0.05), and n is the number of compounding periods (2 years or 2). Plugging in these values, we get FV = 500(1 + 0.05)^2 = $551.25. Therefore, the best choice is C.

Question 5

Albert Einstein once referred to compounding as

Accepted Answer

Albert Einstein referred to compounding as "the greatest mathematical discovery of all time."

Question 6

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?

Accepted Answer

The answer of On the Internet you find the following...

Question 7

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 the $1 in change,this person had deposited it into a bank and earned 2 percent interest every year for 140 years,how much would be in the account today according to the rule of 70?

Accepted Answer

According to the rule of 70, we divide 70 by the interest rate to find the approximate number of years it takes for the money to double.
In this case, the interest rate is 2%, so 70/2 = 35.
This means that the $1 would have doubled every 35 years, meaning it would have doubled 140/35 = 4 times.
So, $1 doubled 4 times is $16, which is the final amount in the account today. Therefore, the correct choice is C.

Question 8

You receive $500 today which you plan to save for two years.Also,in two years you will be given another $500.If the interest rate is 5 percent,what is the present value of the payment of $500 today and the $500 in two years?

Accepted Answer

The answer of You receive $500 today which you plan...

Question 9

According to the rule of 70,if a person's saving doubles in 10 years,what interest rate were they earning?

Accepted Answer

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

Question 10

Which of the following has the highest future value?

Accepted Answer

The answer of Which of the following has the highest...

Question 11

Risk aversion helps to explain various things we observe in the economy,including

Accepted Answer

Risk aversion leads individuals to diversify their investments (adherence to the old adage,"Don't put all your eggs in one basket"), purchase insurance to mitigate potential losses, and accept a lower return on investments with lower risk (the risk-return trade-off).

Question 12

If you put $1,000 in the bank today at an interest rate of 6% what is its value in two years?

Accepted Answer

To calculate the value after two years, we need to multiply the initial amount by the annual interest rate plus 1, raised to the power of the number of years. Therefore, the calculation is $1,000(1.06)^2 = $1,123.60. Choice C is the only option that correctly represents this calculation.

Question 13

If you deposit $900 into an account for two years and the interest rate is 4%,how much do you have at the end of the two years?

Accepted Answer

This question can be solved using the formula A = P(1+r/n)^(nt), where A is the final amount, P is the principal amount (in this case, $900), r is the annual interest rate (4%), n is the number of times the interest is compounded per year (assumed to be once per year), and t is the time period in years (2 in this case). Plugging in these values, we get A = 900(1+0.04/1)^(1*2) = $973.44.

Question 14

For a risk averse person,

Accepted Answer

A risk averse person is someone who prefers a certain outcome rather than an uncertain one with the same expected value. This means that they would feel more pain from losing $1,000 on a bet than the pleasure they would feel from winning $1,000 on the same bet. Therefore, option B is the best choice. Options A, C, and D do not necessarily hold true for all risk averse individuals.

Question 15

Using the rule of 70,about how much would $100 be worth after 50 years if the interest rate were 7 percent?

Accepted Answer

The answer of Using the rule of 70,about how much...

Question 16

What is the present value of a payment of $1,000 two years from now if the interest rate is 6%?

Accepted Answer

The answer of What is the present value of a...

Question 17

Figure 27-1.The figure shows a utility function. 
-Refer to Figure 27-1.The utility function that is shown exhibits the property of diminishing

Accepted Answer

The utility function shown exhibits the property of diminishing marginal utility. This means that as more units of a good or service are consumed, the additional satisfaction or utility gained from each additional unit decreases.

Question 18

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

Accepted Answer

Based on Rosie's risk aversion, option A is the best choice because it is a risk-free investment that guarantees a 5% return for two years. Option B is a low-risk investment, but it still involves some level of risk and uncertainty, while option C is a high-risk investment that offers higher potential returns but also carries a higher risk of loss. Therefore, given her risk aversion, Rosie should choose option A.

Question 19

Economists have developed models of risk aversion using the concept of

Accepted Answer

Economists use the concept of utility to model risk aversion, and the associated assumption is that of diminishing marginal utility. This means that as individuals attain more and more of a good or service, the additional utility (satisfaction) they derive from each additional unit of that good or service decreases. This is relevant to risk aversion because individuals may be willing to pay a premium to avoid risk because the loss of a certain amount of money may result in a greater decrease in utility than the gain in utility from obtaining a certain amount of money.

Question 20

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?

Accepted Answer