Question 1

Portfolio diversification

Accepted Answer

A) means that one should own at least 10 different stocks. 
B) means that one should own at least two different stocks whose prices do not always move in the same direction. 
C) means that one should own at least two different stocks. 
D) is something that can be achieved only by the very wealthy. 
E) means that one should own at least five different stocks whose prices do not always move in the same direction. 
A) means that one should own at least 10 different stocks. 
B) means that one should own at least two different stocks whose prices do not always move in the same direction. 
C) means that one should own at least two different stocks. 
D) is something that can be achieved only by the very wealthy. 
E) means that one should own at least five different stocks whose prices do not always move in the same direction.

Question 2

An increase in stock price is called

Accepted Answer

A) corporate earnings. 
B) a capital gain. 
C)  income. 
D) a rate of return. 
E) a dividend yield. 
A) corporate earnings. 
B) a capital gain. 
C)  income. 
D) a rate of return. 
E) a dividend yield.

Question 3

Suppose a stock has the same expected rate of return as a bank account. Explain why this is not an equilibrium situation.

Accepted Answer

The stock is more risky, so all risk-ave

Question 4

If the interest rate at which a firm can borrow or lend is 10 percent, then the firm will own

Accepted Answer

A) all units of capital with a marginal revenue product below 10 percent. 
B) all units of capital with a marginal revenue product above 10 percent. 
C) all units of capital with an average revenue product below 10 percent. 
D) all units of capital with an average revenue product above 10 percent. 
E) no capital at all. 
A) all units of capital with a marginal revenue product below 10 percent. 
B) all units of capital with a marginal revenue product above 10 percent. 
C) all units of capital with an average revenue product below 10 percent. 
D) all units of capital with an average revenue product above 10 percent. 
E) no capital at all.

Question 5

Which of the following asset markets offers the least systematic risk?

Accepted Answer

A) U.S.banking industry 
B) U.S.oil industry 
C) Worldwide market in all marketable securities 
D) U.S.market in corporate bonds 
E) U.S.stock market 
A) U.S.banking industry 
B) U.S.oil industry 
C) Worldwide market in all marketable securities 
D) U.S.market in corporate bonds 
E) U.S.stock market

Question 6

The percentage rate used to calculate the value of a future sum is called the

Accepted Answer

A) discount rate. 
B) calculation rate. 
C) interest rate. 
D) future rate. 
E) present rate. 
A) discount rate. 
B) calculation rate. 
C) interest rate. 
D) future rate. 
E) present rate.

Question 7

Label each of the following as financial capital or physical capital.

Accepted Answer

The answer of Label each of the following as financial...

Question 8

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

Accepted Answer

A) the price of the stock will rise and the expected rate of return will decrease. 
B) the price of the stock will fall and the interest rate will decrease. 
C) the price of the stock will fall and the expected rate of return will increase. 
D) the price of the stock will fall and the expected rate of return will decrease. 
E) Not enough information is given to determine the return on the stock. 
A) the price of the stock will rise and the expected rate of return will decrease. 
B) the price of the stock will fall and the interest rate will decrease. 
C) the price of the stock will fall and the expected rate of return will increase. 
D) the price of the stock will fall and the expected rate of return will decrease. 
E) Not enough information is given to determine the return on the stock.

Question 9

Suppose the U.S. government issues a two-year Treasury note with a face value of $4,000 and an 8-percent coupon.

Accepted Answer

The answer of Suppose the U.S. government issues a two-year...

Question 10

Discounting is the process of calculating how much future sums of money are worth today.

Accepted Answer

A) True 
 B)False

Question 11

The federal government borrows funds by obtaining bank loans.

Accepted Answer

A) True 
 B)False

Question 12

With zero inflation, a dollar received today is worth ____ a dollar received one year from now.

Accepted Answer

A) the same as 
B) more than 
C) less than 
D) is not enough information provided to answer this question. 
A) the same as 
B) more than 
C) less than 
D) is not enough information provided to answer this question.

Question 13

Suppose an investor buys a share of stock for $40 and sells it for $45 after one year. At the end of that year, the dividend per stock is $1. The company has 100,000 shares outstanding and a total profit for the year of $500,000. Calculate the price-earnings ratio for this firm at the time the stock was sold.

Accepted Answer

The answer of Suppose an investor buys a share of...

Question 14

The present discounted value is today's value of future payments.

Accepted Answer

A) True 
 B)False

Question 15

When a firm owns its capital,

Accepted Answer

A) depreciation is the only capital cost. 
B) the marginal product of capital must be zero. 
C) it still pays an implicit rent. 
D) firms that must rent capital cannot compete. 
E) the capital is considered free. 
A) depreciation is the only capital cost. 
B) the marginal product of capital must be zero. 
C) it still pays an implicit rent. 
D) firms that must rent capital cannot compete. 
E) the capital is considered free.

Question 16

One major aspect of bank regulation is to require banks to keep

Accepted Answer

A) a minimum amount of capital. 
B) a given amount of loans. 
C) a variety of investment options. 
D) a fixed set of interest rates. 
E) All of these 
A) a minimum amount of capital. 
B) a given amount of loans. 
C) a variety of investment options. 
D) a fixed set of interest rates. 
E) All of these

Question 17

Equity and debt are two different names for the same thing.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following is an example of an equity contract?

Accepted Answer

A) Mortgage 
B) Dividends 
C) Stocks 
D) Interest 
E) Bonds 
A) Mortgage 
B) Dividends 
C) Stocks 
D) Interest 
E) Bonds

Question 19

The dividend yield for a stock is the dividend divided by the price of the stock.

Accepted Answer

A) True 
 B)False

Question 20

Suppose a friend wants to borrow $500 and offers to pay you back over the next five years by paying $100 at the end of two years, $200 at the end of three years, $150 at the end of four years, and $125 at the end of five years. You want to at least break even over the five years, and you could earn 7 percent interest on the money if you kept it. Should you make the loan? (Hint: Calculate the present discounted value of the payments. Show your work.)

Accepted Answer

The answer of Suppose a friend wants to borrow $500...

Exam 16: Capital and Financial Markets

Portfolio diversification

An increase in stock price is called

Suppose a stock has the same expected rate of return as a bank account. Explain why this is not an equilibrium situation.

If the interest rate at which a firm can borrow or lend is 10 percent, then the firm will own

Which of the following asset markets offers the least systematic risk?

The percentage rate used to calculate the value of a future sum is called the

Label each of the following as financial capital or physical capital.

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

Suppose the U.S. government issues a two-year Treasury note with a face value of $4,000 and an 8-percent coupon.

Discounting is the process of calculating how much future sums of money are worth today.

The federal government borrows funds by obtaining bank loans.

With zero inflation, a dollar received today is worth ____ a dollar received one year from now.

The present discounted value is today's value of future payments.

When a firm owns its capital,

One major aspect of bank regulation is to require banks to keep

Equity and debt are two different names for the same thing.

Which of the following is an example of an equity contract?

The dividend yield for a stock is the dividend divided by the price of the stock.

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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