Question 1

The interest rate charged on a risk-free loan exceeds the rate on a risky loan.

Accepted Answer

A) True 
 B)False  False

Question 2

Corporations can obtain investment funds by

Accepted Answer

A) buying government securities 
B) selling stock 
C) increasing dividends 
D) purchasing more capital 
E) buying back stock 
A) buying government securities 
B) selling stock 
C) increasing dividends 
D) purchasing more capital 
E) buying back stock B

Question 3

The benefit of the production of capital is

Accepted Answer

A) decreased current production of consumption goods 
B) increased future production of consumption goods 
C) the amount of roundabout production 
D) abundant capital accumulation 
E) the decreased amount of future capital available 
A) decreased current production of consumption goods 
B) increased future production of consumption goods 
C) the amount of roundabout production 
D) abundant capital accumulation 
E) the decreased amount of future capital available B

Question 4

Compared to the present value of a high school education, the present value of at least a college education is

Accepted Answer

A) 100 times as great 
B) nearly double 
C) the same 
D) about half 
E) Present value cannot be used to analyze education 
A) 100 times as great 
B) nearly double 
C) the same 
D) about half 
E) Present value cannot be used to analyze education

Question 5

If you are to receive a payment of $200 at the end of the first year and a payment of $250 at the end of the second year and the market interest rate is 5 percent, the present value of this income stream is

Accepted Answer

A) $400.37 
B) $417.23 
C) $450.00 
D) $475.37 
E) $490.13 
A) $400.37 
B) $417.23 
C) $450.00 
D) $475.37 
E) $490.13

Question 6

Which of the following is an example of roundabout production?

Accepted Answer

A) A farmer switches from growing soybeans to growing wheat, getting fewer crops per year as a result. 
B) A farmer switches from growing soybeans to growing wheat, getting more crops per year as a result. 
C) A self-employed dressmaker becomes a wage worker at a factory that makes dresses. 
D) A coal mine is sold by its owners to its workers and run as a cooperative. 
E) A telemarketing firm declares a holiday for two days while a new phone system is installed. 
A) A farmer switches from growing soybeans to growing wheat, getting fewer crops per year as a result. 
B) A farmer switches from growing soybeans to growing wheat, getting more crops per year as a result. 
C) A self-employed dressmaker becomes a wage worker at a factory that makes dresses. 
D) A coal mine is sold by its owners to its workers and run as a cooperative. 
E) A telemarketing firm declares a holiday for two days while a new phone system is installed.

Question 7

Exhibit 13-3   Exhibit 13-3 gives data on the number of tools a certain firm buys to use in its production process.Assume that the tools are expected to last indefinitely, that operating expenses are negligible, and that the price of the firm's output is expected to remain constant in the future.At an interest rate of 10 percent, the firm in Exhibit 13-3 should select

Accepted Answer

A) the maximum number of tools available because price does not decrease as output increases 
B) the minimum number of tools available because price does not increase as output increases 
C) three tools 
D) four tools 
E) five tools 
A) the maximum number of tools available because price does not decrease as output increases 
B) the minimum number of tools available because price does not increase as output increases 
C) three tools 
D) four tools 
E) five tools

Question 8

If the marginal rate of return expected from a purchase of equipment is greater than the market interest rate, the firm should

Accepted Answer

A) not purchase the equipment 
B) purchase the equipment 
C) either purchase or not purchase the equipment, depending on the marginal resource cost 
D) inform stockholders that the company expects a decrease in earnings from the purchase 
E) seek government assistance in raising market interest rates 
A) not purchase the equipment 
B) purchase the equipment 
C) either purchase or not purchase the equipment, depending on the marginal resource cost 
D) inform stockholders that the company expects a decrease in earnings from the purchase 
E) seek government assistance in raising market interest rates

Question 9

The present value of a promise to pay $100 one year from now would be greater if the interest rate were higher.

Accepted Answer

A) True 
 B)False

Question 10

The marginal rate of return on investment is found by dividing the marginal resource cost per year by the marginal revenue product.

Accepted Answer

A) True 
 B)False

Question 11

Exhibit 13-10   Consider Exhibit 13-10.Which of the lines represents the opportunity of funds available for investment?

Accepted Answer

A) a 
B) b 
C) c 
D) d 
E) none of the lines 
A) a 
B) b 
C) c 
D) d 
E) none of the lines

Question 12

Exhibit 13-5   Exhibit 13-5 shows data on the various dough-mixing machines that a donut shop is considering buying.The marginal resource cost of the machine with the three-quart mixing bowl is

Accepted Answer

A) $50 
B) $100 
C) $1, 000 
D) $3, 000 
E) $550 
A) $50 
B) $100 
C) $1, 000 
D) $3, 000 
E) $550

Question 13

Exhibit 13-2   The marginal product of the seventh copy machine listed in Exhibit 13-2 is

Accepted Answer

A) -5 copies 
B) 5 copies 
C) 25 copies 
D) 135 copies 
E) 165 copies 
A) -5 copies 
B) 5 copies 
C) 25 copies 
D) 135 copies 
E) 165 copies

Question 14

Exhibit 13-5   Exhibit 13-5 shows data on the various dough-mixing machines that a donut shop is considering buying.Assume that any dough-mixing machine is expected to last indefinitely, that operating expenses are negligible, and that the price of donuts is expected to remain constant in the future.If the interest rate is 8 percent and the firm has $3, 000 on hand, what should it do?

Accepted Answer

A) Buy the machine with the three-quart bowl, which costs $3, 000. 
B) Save $3, 000 at the interest rate of 8 percent. 
C) Buy the machine with the one-quart bowl and save the extra $2, 000. 
D) Buy the machine with the two-quart bowl and save the extra $1, 000. 
E) Buy two machines, with one-quart and two-quart bowls. 
A) Buy the machine with the three-quart bowl, which costs $3, 000. 
B) Save $3, 000 at the interest rate of 8 percent. 
C) Buy the machine with the one-quart bowl and save the extra $2, 000. 
D) Buy the machine with the two-quart bowl and save the extra $1, 000. 
E) Buy two machines, with one-quart and two-quart bowls.

Question 15

The production of capital goods, which are then used to produce consumer goods, is called

Accepted Answer

A) efficient production 
B) intermediation 
C) time preferences 
D) roundabout production 
E) derived production 
A) efficient production 
B) intermediation 
C) time preferences 
D) roundabout production 
E) derived production

Question 16

Suppose that a firm's capital equipment is expected to last indefinitely, that operating expenses on the equipment are negligible, and that the price of the firm's product is expected to remain constant in the future.Under these circumstances, the firm's marginal rate of return on investment is equal to capital's

Accepted Answer

A) marginal resource cost as a percentage of its marginal revenue product 
B) marginal product as a percentage of its marginal revenue product 
C) marginal revenue product as a percentage of its marginal product 
D) marginal resource cost as a percentage of the price of capital 
E) marginal revenue product as a percentage of its marginal resource cost 
A) marginal resource cost as a percentage of its marginal revenue product 
B) marginal product as a percentage of its marginal revenue product 
C) marginal revenue product as a percentage of its marginal product 
D) marginal resource cost as a percentage of the price of capital 
E) marginal revenue product as a percentage of its marginal resource cost

Question 17

A self-employed editor and writer is thinking about purchasing a new computer to use for work.In making this investment decision, the person should take time into account.

Accepted Answer

A) True 
 B)False

Question 18

Exhibit 13-3   Exhibit 13-3 gives data on the number of tools a certain firm buys to use in its production process.Assume that the tools are expected to last indefinitely, that operating expenses are negligible, and that the price of the firm's output is expected to remain constant in the future.At an interest rate of 7 percent, the firm in Exhibit 13-3 should select

Accepted Answer

A) the maximum number of tools available because price does not decrease as output increases 
B) the minimum number of tools available because price does not increase as output increases 
C) three tools 
D) four tools 
E) five tools 
A) the maximum number of tools available because price does not decrease as output increases 
B) the minimum number of tools available because price does not increase as output increases 
C) three tools 
D) four tools 
E) five tools

Question 19

The present value of an annuity that pays $100 each year indefinitely (i.e., a perpetuity)is $2, 000 if the interest rate is 5 percent.

Accepted Answer

A) True 
 B)False

Question 20

The opportunity cost of producing capital is

Accepted Answer

A) decreased current production of consumption goods 
B) increased future production of consumption goods 
C) the amount of roundabout production 
D) abundant capital accumulation 
E) the decreased amount of future capital available 
A) decreased current production of consumption goods 
B) increased future production of consumption goods 
C) the amount of roundabout production 
D) abundant capital accumulation 
E) the decreased amount of future capital available

Exam 13: Capital, Interest, and Corporate Finance

The interest rate charged on a risk-free loan exceeds the rate on a risky loan.

Corporations can obtain investment funds by

The benefit of the production of capital is

Compared to the present value of a high school education, the present value of at least a college education is

If you are to receive a payment of $200 at the end of the first year and a payment of $250 at the end of the second year and the market interest rate is 5 percent, the present value of this income stream is

Which of the following is an example of roundabout production?

If the marginal rate of return expected from a purchase of equipment is greater than the market interest rate, the firm should

The present value of a promise to pay $100 one year from now would be greater if the interest rate were higher.

The marginal rate of return on investment is found by dividing the marginal resource cost per year by the marginal revenue product.

Exhibit 13-10 Consider Exhibit 13-10.Which of the lines represents the opportunity of funds available for investment?

Exhibit 13-5 Exhibit 13-5 shows data on the various dough-mixing machines that a donut shop is considering buying.The marginal resource cost of the machine with the three-quart mixing bowl is

Exhibit 13-2 The marginal product of the seventh copy machine listed in Exhibit 13-2 is

The production of capital goods, which are then used to produce consumer goods, is called

A self-employed editor and writer is thinking about purchasing a new computer to use for work.In making this investment decision, the person should take time into account.

The present value of an annuity that pays $100 each year indefinitely (i.e., a perpetuity)is $2, 000 if the interest rate is 5 percent.

The opportunity cost of producing capital is

The Art and Science of Economic Analysis

Appendix--Understanding Graphs

Economic Tools and Economics Systems

Economic Decision Makers

Demand, Supply, and Markets

Elasticity of Demand and Supply

Appendix--Price Elasticity and Tax Incidence

Consumer Choice and Demand

Appendix--Indifference Curves and Utility Maximization

Production and Cost in the Firm

A--Perfect Competition

B--Perfect Competition

A--Monopoly

B--Monopoly

Monopolistic Competition and Oligopoly

Resource Markets

Labor Markets and Labor Unions

Transaction Costs, Imperfect Information, and Behavioral Economics

Economic Regulation and Antitrust Policy

Public Goods and Public Choice

Externalities and the Environment

Income Distribution and Poverty

International Trade

International Finance

Economic Development

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