Question 1

Treasury bonds typically have lower coupon rates than corporate bonds because

Accepted Answer

A) The U.S.Treasury does not earn profits. 
B) There is a lower risk that the U.S.Treasury will default. 
C) Government regulations keep interest rates on Treasury bonds below market rates. 
D) The opportunity cost of purchasing Treasury bonds is lower than the opportunity cost of buying corporate bonds. 
A) The U.S.Treasury does not earn profits. 
B) There is a lower risk that the U.S.Treasury will default. 
C) Government regulations keep interest rates on Treasury bonds below market rates. 
D) The opportunity cost of purchasing Treasury bonds is lower than the opportunity cost of buying corporate bonds.

Question 2

The value of future payments is affected by

Accepted Answer

A) The level of dividends. 
B) Capital gains. 
C) The par value. 
D) The possibility of nonpayment. 
A) The level of dividends. 
B) Capital gains. 
C) The par value. 
D) The possibility of nonpayment.

Question 3

The present discounted value of $60,000 to be received at the end of three years when the interest rate is 10 percent is closest to

Accepted Answer

A) $45,079. 
B) $49,587. 
C) $60,000. 
D) $79,860. 
A) $45,079. 
B) $49,587. 
C) $60,000. 
D) $79,860.

Question 4

A corporation can elect to divide corporate profits into either dividends or retained earnings.

Accepted Answer

A) True 
 B)False

Question 5

Potential investors expect to be compensated for additional risk by above-average interest rates.

Accepted Answer

A) True 
 B)False

Question 6

As the interest rate increases,ceteris paribus,the trade-off between present and future consumption

Accepted Answer

A) Makes it more appealing to sacrifice current consumption. 
B) Is not affected. 
C) Encourages less saving. 
D) Makes it less appealing to sacrifice present consumption. 
A) Makes it more appealing to sacrifice current consumption. 
B) Is not affected. 
C) Encourages less saving. 
D) Makes it less appealing to sacrifice present consumption.

Question 7

Venture capitalists

Accepted Answer

A) Share in the risks but not the rewards of entrepreneurial ideas. 
B) Provide entrepreneurial ideas. 
C) Are a critical link between entrepreneurial ideas and market reality. 
D) Are always willing to lend money to new businesses. 
A) Share in the risks but not the rewards of entrepreneurial ideas. 
B) Provide entrepreneurial ideas. 
C) Are a critical link between entrepreneurial ideas and market reality. 
D) Are always willing to lend money to new businesses.

Question 8

Which of the following statements about money is not true?

Accepted Answer

A) Income-earning investment opportunities exist. 
B) Present dollars are worth more than future dollars. 
C) There is an opportunity cost of holding money. 
D) When interest rates are positive,future dollars are more valuable than present dollars. 
A) Income-earning investment opportunities exist. 
B) Present dollars are worth more than future dollars. 
C) There is an opportunity cost of holding money. 
D) When interest rates are positive,future dollars are more valuable than present dollars.

Question 9

All of the following statements about banks in Zimbabwe in 2009 are true except

Accepted Answer

A) Political instability increased the risk of bank failures. 
B) Banks were paying 100,000 percent interest on deposits. 
C) Few people deposited their money into Zimbabwe banks. 
D) The risk of losing deposits at Zimbabwe banks,even if they failed,was low because of deposit insurance. 
A) Political instability increased the risk of bank failures. 
B) Banks were paying 100,000 percent interest on deposits. 
C) Few people deposited their money into Zimbabwe banks. 
D) The risk of losing deposits at Zimbabwe banks,even if they failed,was low because of deposit insurance.

Question 10

Changes in expectations or opportunity costs

Accepted Answer

A) Shift the bond supply and demand curves. 
B) Shift the bond supply curve but not the bond demand curve. 
C) Shift the bond demand curve but not the bond supply curve. 
D) Do not shift the bond supply and demand curves. 
A) Shift the bond supply and demand curves. 
B) Shift the bond supply curve but not the bond demand curve. 
C) Shift the bond demand curve but not the bond supply curve. 
D) Do not shift the bond supply and demand curves.

Question 11

An initial public offering

Accepted Answer

A) Allows a company to borrow funds for investment and growth. 
B) Allows a company to raise money without increasing debt. 
C) Indicates the demand for a company's new product. 
D) Increases the percentage of the company owned by the management and original entrepreneurs. 
A) Allows a company to borrow funds for investment and growth. 
B) Allows a company to raise money without increasing debt. 
C) Indicates the demand for a company's new product. 
D) Increases the percentage of the company owned by the management and original entrepreneurs.

Question 12

The par value is the amount to be repaid when a bond matures.

Accepted Answer

A) True 
 B)False

Question 13

Higher interest rates

Accepted Answer

A) Decrease the quantity of loanable funds. 
B) Decrease the level of risk. 
C) Increase the quantity of loanable funds. 
D) Increase the level of risk. 
A) Decrease the quantity of loanable funds. 
B) Decrease the level of risk. 
C) Increase the quantity of loanable funds. 
D) Increase the level of risk.

Question 14

Par value is the

Accepted Answer

A) Rate of interest to be paid on a bond. 
B) Increase in the market value of an asset. 
C) Amount to be repaid when the bond is due. 
D) Same as the risk premium on a bond. 
A) Rate of interest to be paid on a bond. 
B) Increase in the market value of an asset. 
C) Amount to be repaid when the bond is due. 
D) Same as the risk premium on a bond.

Question 15

An increased willingness to lend money to a company can be shown by the

Accepted Answer

A) Demand for loanable funds shifting to the right. 
B) Demand for loanable funds shifting to the left. 
C) Supply of loanable funds shifting to the right. 
D) Supply of loanable funds shifting to the left. 
A) Demand for loanable funds shifting to the right. 
B) Demand for loanable funds shifting to the left. 
C) Supply of loanable funds shifting to the right. 
D) Supply of loanable funds shifting to the left.

Question 16

Capital gains are

Accepted Answer

A) The only motive for purchasing stock. 
B) Profits used for investment in new plants and equipment. 
C) An increase in the market value of an asset. 
D) The amount of corporate profit paid out for each share of stock. 
A) The only motive for purchasing stock. 
B) Profits used for investment in new plants and equipment. 
C) An increase in the market value of an asset. 
D) The amount of corporate profit paid out for each share of stock.

Question 17

Ceteris paribus,the price of a stock will definitely increase when the

Accepted Answer

A) Supply of the stock increases. 
B) Prevailing interest rate increases. 
C) Demand for the stock increases. 
D) Demand for the stock and supply of the stock both decrease. 
A) Supply of the stock increases. 
B) Prevailing interest rate increases. 
C) Demand for the stock increases. 
D) Demand for the stock and supply of the stock both decrease.

Question 18

As the prevailing interest rate decreases,the opportunity cost of spending money

Accepted Answer

A) Increases for both saver and borrower. 
B) Increases for the borrower and decreases for the saver. 
C) Decreases for both saver and borrower. 
D) Decreases for the borrower and increases for the saver. 
A) Increases for both saver and borrower. 
B) Increases for the borrower and decreases for the saver. 
C) Decreases for both saver and borrower. 
D) Decreases for the borrower and increases for the saver.

Question 19

As the price of an existing bond increases,

Accepted Answer

A) The current yield decreases. 
B) The par value decreases. 
C) The coupon rate decreases. 
D) There is increased risk that the U.S.Treasury will default on the bond. 
A) The current yield decreases. 
B) The par value decreases. 
C) The coupon rate decreases. 
D) There is increased risk that the U.S.Treasury will default on the bond.

Question 20

Which of the following is not true of venture capitalists?

Accepted Answer

A) They share in any profits that may result. 
B) They incur risk. 
C) They may experience losses. 
D) They have the same financial liability as corporate stockholders. 
A) They share in any profits that may result. 
B) They incur risk. 
C) They may experience losses. 
D) They have the same financial liability as corporate stockholders.

Exam 32: Financial Markets

Treasury bonds typically have lower coupon rates than corporate bonds because

The value of future payments is affected by

The present discounted value of $60,000 to be received at the end of three years when the interest rate is 10 percent is closest to

A corporation can elect to divide corporate profits into either dividends or retained earnings.

Potential investors expect to be compensated for additional risk by above-average interest rates.

As the interest rate increases,ceteris paribus,the trade-off between present and future consumption

Venture capitalists

Which of the following statements about money is not true?

All of the following statements about banks in Zimbabwe in 2009 are true except

Changes in expectations or opportunity costs

An initial public offering

The par value is the amount to be repaid when a bond matures.

Higher interest rates

Par value is the

An increased willingness to lend money to a company can be shown by the

Capital gains are

Ceteris paribus,the price of a stock will definitely increase when the

As the prevailing interest rate decreases,the opportunity cost of spending money

As the price of an existing bond increases,

Which of the following is not true of venture capitalists?

Economics: the Core Issues

The Useconomy: a Global View

Supply and Demand

The Role of Government

National Income Accounting

Unemployment

Inflation

The Business Cycle

Aggregate Demand

Self-Adjustment or Instability

Fiscal Policy

Deficits and Debt

Money and Banks

The Federal Reserve System

Monetary Policy

Supply-Side Policy: Short-Run Options

Growth and Productivity: Long-Run Possibilities

Theory Versus Reality

Consumer Choice

Elasticity

The Costs of Production

The Competitive Firm

Competitive Markets

Monopoly

Oligopoly

Monopolistic Competition

Natural Monopolies: Deregulation

Environmental Protection

The Farm Problem

The Labor Market

Labor Unions

Taxes: Equity Versus Efficiency

Transfer Payments: Welfare and Social Security

International Trade

International Finance

Global Poverty

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