You have won a contest and are allowed to choose between two prizes. One option is to receive $200 today and another $200 one year from now. The second option is $100 today and an additional $325 one year from now
At what interest rate (if any) is the present value of the two prizes identical? A) 0 percent
B) 5 percent
C) 10 percent
D) 25 percent
E) none of the above
D
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A firm that acquires a substitute product can try to reduce inter-product cannibalization by
a. Doing nothing b. Repositioning its product or the substitute so that they do not directly compete with each other c. Pricing each product at the same level d. Lowering the prices on both the products
Derivatives:
a. can be used to reduce risk b. can be a source of risk c. made the financial crisis of 2007-2009 not as bad as it would otherwise have been d. a and b only e. all of these
Which of the following examples would make banks most likely to give loans?
a. A bank receives $10 million from the Fed; interest rates are at 1 percent. b. A bank receives $5 million from the Fed; interest rates are at 7 percent. c. A bank receives $2 million from the Fed; interest rates are at 4 percent. d. A bank receives $1 million from the Fed; interest rates are at 5 percent.
Arbitrage causes all financial assets:
A. of the same risk level to have the same price. B. to have the same expected rate of return. C. to have the same beta. D. of the same risk level to have the save average expected rate of return.