Question 1

Which of the following investments offer the highest rate of return?

Accepted Answer

A) U.S.Treasury bills 
B) Long-term corporate bonds 
C) Large-company stocks 
D) Small-company stocks 
E) Time deposits 
A) U.S.Treasury bills 
B) Long-term corporate bonds 
C) Large-company stocks 
D) Small-company stocks 
E) Time deposits

Question 2

Which of the following statements about the housing market is not true?

Accepted Answer

A) The demand curve for housing is negatively sloped. 
B) Many experts believe that one of the factors contributing to the housing bust of 2006 was that interest rates had been too high since the year 2000. 
C) The quantity of housing demanded is negatively related to the rental price of housing. 
D) For many people, the house they live in is the largest capital item they rent or own. 
E) All of these are true. 
A) The demand curve for housing is negatively sloped. 
B) Many experts believe that one of the factors contributing to the housing bust of 2006 was that interest rates had been too high since the year 2000. 
C) The quantity of housing demanded is negatively related to the rental price of housing. 
D) For many people, the house they live in is the largest capital item they rent or own. 
E) All of these are true.

Question 3

The SEC is a governmental institution responsible for preventing securities violations. It also regulates certain investment management firms, such as mutual funds, under the Investment Act of 1940 to promote accurate financial reporting. What does SEC stand for?

Accepted Answer

A) Securities and Economic Commission. 
B) Securities and Exchange Commission. 
C) Single Equity Cooperation. 
D) Single Equity Control. 
E) None of these. 
A) Securities and Economic Commission. 
B) Securities and Exchange Commission. 
C) Single Equity Cooperation. 
D) Single Equity Control. 
E) None of these.

Question 4

What happens to the price of a bond with a $100 face value and an infinite maturity date when interest rates rise from 5 percent to 10 percent and the coupon paid on the bond is $20?

Accepted Answer

A) The price falls by $100. 
B) The price rises by $200. 
C) The price rises by $100. 
D) The price falls by $1. 
E) The price falls by $200. 
A) The price falls by $100. 
B) The price rises by $200. 
C) The price rises by $100. 
D) The price falls by $1. 
E) The price falls by $200.

Question 5

Which of the following is an example of physical capital?

Accepted Answer

A) A checking deposit 
B) A car loan 
C) A firm's stock shares 
D) A firm's bond 
E) A new truck 
A) A checking deposit 
B) A car loan 
C) A firm's stock shares 
D) A firm's bond 
E) A new truck

Question 6

Calculate the expected return on an asset for which there is a 60-percent chance that its value will increase by $100 and a 40-percent chance that its value will fall by $100.

Accepted Answer

Expected return = (0

Question 7

The value of a sum of money or an asset to be paid or received in the future is called the

Accepted Answer

A) rated value. 
B) present calculated value. 
C) future present value. 
D) present rated value. 
E) present discounted value. 
A) rated value. 
B) present calculated value. 
C) future present value. 
D) present rated value. 
E) present discounted value.

Question 8

The implicit rental price of a piece of capital

Accepted Answer

A) depends on the interest rate only if the firm must borrow money. 
B) depends on the interest rate and depreciation. 
C) is the same as the rental price of a piece of capital. 
D) depends on the interest rate only. 
E) depends on the opportunity cost of the purchase if the firm must borrow money. 
A) depends on the interest rate only if the firm must borrow money. 
B) depends on the interest rate and depreciation. 
C) is the same as the rental price of a piece of capital. 
D) depends on the interest rate only. 
E) depends on the opportunity cost of the purchase if the firm must borrow money.

Question 9

The efficient market hypothesis is simply the idea that there are unexploited profit opportunities in the stock market in the short run but not in the long run.

Accepted Answer

A) True 
 B)False

Question 10

Investors diversify because they are risk-averse.

Accepted Answer

A) True 
 B)False

Question 11

Suppose a stock has a lower expected rate of return than a bank account. Then

Accepted Answer

A) there will be an excess supply of the stock and its price will rise. 
B) there will be an excess supply of the stock and its price will fall. 
C) there will be an excess demand for the stock and its price will rise. 
D) individuals will choose indifferently between the stock and the bank account. 
E) risk-averse individuals will prefer the stock. 
A) there will be an excess supply of the stock and its price will rise. 
B) there will be an excess supply of the stock and its price will fall. 
C) there will be an excess demand for the stock and its price will rise. 
D) individuals will choose indifferently between the stock and the bank account. 
E) risk-averse individuals will prefer the stock.

Question 12

When capital loses value over time because of use and wear, we call this

Accepted Answer

A) depreciation. 
B) wear and tear. 
C) creative destruction. 
D) capital utilization. 
E) decapitalization. 
A) depreciation. 
B) wear and tear. 
C) creative destruction. 
D) capital utilization. 
E) decapitalization.

Question 13

The efficient market hypothesis implies that some stockholders always can earn excessive returns on the stock market.

Accepted Answer

A) True 
 B)False

Question 14

Why does diversification reduce risk?

Accepted Answer

Frequently, when one industry

Question 15

Bond prices and bond yields are positively related.

Accepted Answer

A) True 
 B)False

Question 16

One key reason for the federal government to regulate banks is that

Accepted Answer

A) it will lose profit tax revenue if a bank fails. 
B) taxpayers' money will be used to pay off losses in bank deposits if a bank fails. 
C) it wants to ensure that people can borrow as much as they want. 
D) it tries to protect domestic banks from foreign competition. 
E) it tries to keep interest rates at low levels. 
A) it will lose profit tax revenue if a bank fails. 
B) taxpayers' money will be used to pay off losses in bank deposits if a bank fails. 
C) it wants to ensure that people can borrow as much as they want. 
D) it tries to protect domestic banks from foreign competition. 
E) it tries to keep interest rates at low levels.

Question 17

A tax on renting capital equipment will always decrease the quantity of capital supplied.

Accepted Answer

A) True 
 B)False

Question 18

A bond that matures in one year has a $500 face value and a $60 coupon What is the price of the bond if the interest rate is 6 percent and the bond was purchased by the present owner for $450?

Accepted Answer

A) $103.77 
B) $481.13 
C) $528.30 
D) $500 
E) $1,000 
A) $103.77 
B) $481.13 
C) $528.30 
D) $500 
E) $1,000

Question 19

Which of the following is true?

Accepted Answer

A) The bond yield is fixed for the life of the bond, but the bond price can vary. 
B) The bond yield and bond price are positively related. 
C) The bond price is fixed for the life of the bond, but the bond yield can vary. 
D) The bond yield and the bond price are inversely related. 
E) The bond yield and bond price are both fixed for the life of the bond. 
A) The bond yield is fixed for the life of the bond, but the bond price can vary. 
B) The bond yield and bond price are positively related. 
C) The bond price is fixed for the life of the bond, but the bond yield can vary. 
D) The bond yield and the bond price are inversely related. 
E) The bond yield and bond price are both fixed for the life of the bond.

Question 20

Suppose you are considering purchasing stock from two firms, firm A and firm B. The expected return is the same for both stocks; however, the return on stock A is more variable than the return on stock B. Which stock would you buy? Why? What do you think other investors will do? What will be the effect of investors' behavior on the relative prices of these two stocks?

Accepted Answer

Because stock A is riskier than stock B,

Exam 16: Capital and Financial Markets

Which of the following investments offer the highest rate of return?

Which of the following statements about the housing market is not true?

The SEC is a governmental institution responsible for preventing securities violations. It also regulates certain investment management firms, such as mutual funds, under the Investment Act of 1940 to promote accurate financial reporting. What does SEC stand for?

What happens to the price of a bond with a $100 face value and an infinite maturity date when interest rates rise from 5 percent to 10 percent and the coupon paid on the bond is $20?

Which of the following is an example of physical capital?

Calculate the expected return on an asset for which there is a 60-percent chance that its value will increase by $100 and a 40-percent chance that its value will fall by $100.

The value of a sum of money or an asset to be paid or received in the future is called the

The implicit rental price of a piece of capital

The efficient market hypothesis is simply the idea that there are unexploited profit opportunities in the stock market in the short run but not in the long run.

Investors diversify because they are risk-averse.

Suppose a stock has a lower expected rate of return than a bank account. Then

When capital loses value over time because of use and wear, we call this

The efficient market hypothesis implies that some stockholders always can earn excessive returns on the stock market.

Why does diversification reduce risk?

Bond prices and bond yields are positively related.

One key reason for the federal government to regulate banks is that

A tax on renting capital equipment will always decrease the quantity of capital supplied.

A bond that matures in one year has a $500 face value and a $60 coupon What is the price of the bond if the interest rate is 6 percent and the bond was purchased by the present owner for $450?

Which of the following is true?

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

Subtleties of the Supply and Demand Model

The Demand Curve and the Behavior of Consumers

The Supply Curve and the Behavior of Firms

The Efficiency of Markets

Costs and the Changes at Firms Over Time

The Rise and Fall of Industries

Monopoly

Product Differentiation, Monopolistic Competition, and Oligopoly

Antitrust Policy and Regulation

Labor Markets

Taxes, Transfers, and Income Distribution

Public Goods, Externalities, and Government Behavior

Macroeconomics: the Big Picture

Measuring the Production, Income, and Spending of Nations

The Spending Allocation Model

Unemployment and Employment

Productivity and Economic Growth

Money and Inflation

The Nature and Causes of Economic Fluctuations

The Economic Fluctuations Model

Using the Economic Fluctuations Model

Fiscal Policy

Monetary Policy

Economic Growth Around the World

International Trade

International Finance

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