EABD_chapter 1

1. The higher the interest rate:
a. the greater the present value of a future amount.
b. the smaller the present value of a future amount.
c. the greater the level of inflation.
d. None of the statements associated with this question are correct.

• a

• b

• c

• d

2. The opportunity cost of receiving $10 in the future as opposed to getting that $10 today is:
a. the foregone interest that could be earned if you had the money today.
b. the taxes paid on any earnings.
c. the value of $10 relative to the total income of that person.
d. the value of $10 relative to the total income of all persons.

• a

• b

• c

• d

a. 250
b. 70
c. 0
d. 90

• a

• b

• c

• d

4. Given the cost function C(Y) = 6Y2, what is the marginal cost?
a. 6Y
b. Y2
c. 3Y
d. 12Y

• a

• b

• c

• d

• a

• b

• c

• d

Which of the following is an implicit cost to a firm that produces a good or service?

a)      Labor costs

b)      Costs of operating production machinery

c)      Foregone profits of producing a different good or service

d)      Costs of renting or buying land for a production site

• a

• b

• c

• d

Basic principles that comprise good management include:

a)      identifying goals and constraints.

b)      recognizing the nature and importance of profits.

c)      understanding incentives.

d)      All of the statements associated with this question are correct.

• a

• b

• c

• d

Pam, when she turned 25, made an investment of $20,000 at an interest rate of 6.5% compounded semi-annually. Now that she is 50 years old, how much is the investment worth now.

A) $53,250

B) $44,491.96

C) $32,500

D) $98,976.71

• a

• b

• c

• d

Sam, a friend of Pam, made a similar investment of  $20,000 at a much later date when he turned 35. Now that  he is also 50, what is his investment worth if his investment also an earned an interest rate of 6.5% compounded semi-annually.

A) $52,207.37

B) $44,491.96

C) $32,500

D) None of these

• a

• b

• c

• d

Tom Watson promises to deposit a sum of $100,000 for his granddaughter’s college education 18 years from now. If he invests $20,000 today, what should be return on investment he should get to be able keep up the promise?  Assume interest is compounded yearly.

A) 9.35%

B) 8.52%

C) 10.04%

D) 7.65%        

• a

• b

• c

• d