You believe in the power of compounding and decide to save 1 per day by avoiding the purchase
of a soda. You deposit the 1 at the end of each day in a bank account that pays 8 interest
compounded daily.
You are going to take a trip in 20 years with the money you have accumulated.
How much money will you have in 20 years, assuming 365 days per year?
A) 7,500 B) 18,032 C) 12,438 D) 22,456
Question 2
Based on the security market line, Robo-Tech stock has a required return of 14 and Friendly
Insurance Company has a required return of 10. Robo-Tech has a standard deviation of returns of
18. Therefore,
A) the beta for Friendly must be greater than the beta for Robo-Tech because Friendly is the
better buy for a risk-averse investor.
B) Friendly must have a standard deviation of returns of less than 18 because Friendly is less
risky than Robo-Tech.
C) all rational investors will prefer Friendly over Robo-Tech.
D) for a well-diversified investor, Friendly is less risky than Robo-Tech.
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