5. $500 ten years from now, discounted at 4%, would be worth _____ today. A. $275 B. $338 C. $702 D. $496 6. Revive Beverage Company (RBC) is considering buying new bottling equipment for its factories. It will take one year to order and install the equipment. The second year they will gain $2 million in revenues. The third year they will gain $3 million in revenues. At the start of the fourth year they will scrap the equipment and a salvage company will haul it away for free but with no payment to RBC. At which of the following prices and interest rates would RBC find the equipment profitable? A. 4.85 million and 6% B. 4.65 million and 7% C. 4.35 million and 8% D. All of these combinations are profitable. 7. A person who is risk averse has utility which Harry and Dell are both investing. A. is constant as wealth increases. B. increases with wealth and the addition to utility from an additional dollar increases as wealth increases. C. increases with wealth but the addition to utility from an additional dollar is constant. D. increases with wealth but the addition to utility from an additional dollar decreases as wealth increases. 8. If a person exchanged some portion of stocks in their portfolio for government bonds, then A. risk and return would rise. B. risk and return would fall. C. risk would rise and return would fall. D. risk would fall and return would rise. 9. Gregs portfolio includes only stock in Boston Organic Ice Cream. If he diversified A. he could reduce both firm-specific and market risk. B. he could reduce neither firm-specific nor market risk. C. he could reduce firm-specific but not market risk. D. he could reduce market but not firm specific risk 10. If the efficient markets hypothesis is true, then A. stock prices do not respond to unanticipated news about a corporation. B. an index fund will tend to have a lower return than an actively managed fund. C. changes in stock prices can be predicted using publicly available information. D. stock prices would follow a random walk. 11. Suppose that interest rates rise unexpectedly. Suppose also that IBM announces that revenues from last quarter were down, but that the decline was exactly what the public and analysts had expected. According to the efficient markets hypothesis, which of these events would cause the price of IBM stock to change? A. Only the interest rate rising B. Only the revenue announcement C. Both the interest rate rising and the revenue announcement D. Neither the interest rate rising nor the revenue announcement 12. Which of the following phrases is sound advice based on the efficient markets hypothesis? It shifts right by $100 billion. A. Buy low and sell high B. Buy broadly and hold C. If you churn, you earn D. Day traders win daily