Question 1

The owners of a corporation are

Accepted Answer

A) Liable for its debts. 
B) Those people who own the bonds issued by the corporation. 
C) The shareholders of the corporation's stock. 
D) The board of directors. 
A) Liable for its debts. 
B) Those people who own the bonds issued by the corporation. 
C) The shareholders of the corporation's stock. 
D) The board of directors.

Question 2

Suppose the Martin Microchip Corporation earns a profit of $20 per share of stock.If the prevailing interest rate is 10 percent and the stock is currently selling for $100 per share,what is the current price/earnings ratio?

Accepted Answer

A) 5. 
B) 0.20. 
C) 20. 
D) 10. 
A) 5. 
B) 0.20. 
C) 20. 
D) 10.

Question 3

The interest rate set for a bond at the time of issuance is the

Accepted Answer

A) Coupon rate. 
B) Par value. 
C) Liquidity rate. 
D) Default rate. 
A) Coupon rate. 
B) Par value. 
C) Liquidity rate. 
D) Default rate.

Question 4

The price of a stock will increase,ceteris paribus,when

Accepted Answer

A) Future earnings expectations decrease. 
B) Consumer confidence increases. 
C) The interest rate increases. 
D) Terrorists cause people to be fearful. 
A) Future earnings expectations decrease. 
B) Consumer confidence increases. 
C) The interest rate increases. 
D) Terrorists cause people to be fearful.

Question 5

Lower interest rates

Accepted Answer

A) Lower the present value of future payments. 
B) Raise the future value of current dollars. 
C) Reflect a lower opportunity cost of money. 
D) Reflect a higher opportunity cost of money. 
A) Lower the present value of future payments. 
B) Raise the future value of current dollars. 
C) Reflect a lower opportunity cost of money. 
D) Reflect a higher opportunity cost of money.

Question 6

Suppose Carlos has a 60 percent chance of not collecting $100,000 when his rich uncle dies in 10 years.Juanita wants to buy the rights to this possible inheritance from Carlos.How much is the possible inheritance currently worth to Carlos? Assume the interest rate is 9 percent.

Accepted Answer

A) $94,695. 
B) $25,345. 
C) $16,896. 
D) $142,042. 
A) $94,695. 
B) $25,345. 
C) $16,896. 
D) $142,042.

Question 7

The longer one has to wait for a future payment,the greater the present value it has.

Accepted Answer

A) True 
 B)False

Question 8

The lower the cost of funds,the greater the amount of loanable funds demanded.

Accepted Answer

A) True 
 B)False

Question 9

The initial bond purchaser

Accepted Answer

A) Earns par value on the bond. 
B) Borrows funds directly from the bond issuer. 
C) Lends funds directly to the bond issuer. 
D) Shares in the company's profits. 
A) Earns par value on the bond. 
B) Borrows funds directly from the bond issuer. 
C) Lends funds directly to the bond issuer. 
D) Shares in the company's profits.

Question 10

Venture capital increases the pace of innovation.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following is an example of a financial intermediary?

Accepted Answer

A) Stock markets. 
B) Flea markets. 
C) Real estate markets. 
D) Gun shows. 
A) Stock markets. 
B) Flea markets. 
C) Real estate markets. 
D) Gun shows.

Question 12

An initial public offering occurs when a stock is first sold to the general public.

Accepted Answer

A) True 
 B)False

Question 13

Calculate the current yield on a bond that has an annual interest payment of $200 and a resale price of $1,550.What is the relationship between bond prices and yield?

Accepted Answer

The current yield on a bond that has an

Question 14

Financial intermediaries change the mix of output by transferring financial capital from savers to dissavers (borrowers).

Accepted Answer

A) True 
 B)False

Question 15

Market participants are likely to save a portion of current income if they

Accepted Answer

A) Place a higher value on future consumption than on current consumption. 
B) Place a higher value on current consumption than on future consumption. 
C) Believe that banks might fail. 
D) Believe that money will lose much of its value in the future.In deciding to save rather than spend,people effectively reallocate their spending over time.That is,people save now in order to spend more in the future. 
A) Place a higher value on future consumption than on current consumption. 
B) Place a higher value on current consumption than on future consumption. 
C) Believe that banks might fail. 
D) Believe that money will lose much of its value in the future.In deciding to save rather than spend,people effectively reallocate their spending over time.That is,people save now in order to spend more in the future.

Question 16

Lenders are typically compensated for the risk of default with

Accepted Answer

A) Shares of the company's profits. 
B) Dividend payments. 
C) Bonds. 
D) Above-average interest rates. 
A) Shares of the company's profits. 
B) Dividend payments. 
C) Bonds. 
D) Above-average interest rates.

Question 17

Risk premiums do all of the following except

Accepted Answer

A) Help explain why banks charge different customers different interest rates. 
B) Allocate limited resources only to the safest investors. 
C) Are the difference in the rates of return on risky and safe investments. 
D) Compensate people who finance risky ventures. 
A) Help explain why banks charge different customers different interest rates. 
B) Allocate limited resources only to the safest investors. 
C) Are the difference in the rates of return on risky and safe investments. 
D) Compensate people who finance risky ventures.

Question 18

The present discounted value of a future payment can be calculated using which of the following formulas?

Accepted Answer

A) [(1 + Interest rate)N] ÷ (Current payment). 
B) (Current payment)÷ [(1 + Interest rate)N]. 
C) [(1 + Interest rate)N] ÷ (Future payment). 
D) (Future payment)÷ [(1 + Interest rate)N]. 
A) [(1 + Interest rate)N] ÷ (Current payment). 
B) (Current payment)÷ [(1 + Interest rate)N]. 
C) [(1 + Interest rate)N] ÷ (Future payment). 
D) (Future payment)÷ [(1 + Interest rate)N].

Question 19

Why do businesses incorporate,and why do investors buy stocks?

Accepted Answer

Businesses seek limited liability to pro

Question 20

The price of a stock will decrease,ceteris paribus,when

Accepted Answer

A) There is a shortage of the stock at the current price. 
B) The interest rate increases. 
C) The supply of the stock decreases. 
D) Future earnings expectations increase. 
A) There is a shortage of the stock at the current price. 
B) The interest rate increases. 
C) The supply of the stock decreases. 
D) Future earnings expectations increase.

Exam 32: Financial Markets

The owners of a corporation are

Suppose the Martin Microchip Corporation earns a profit of $20 per share of stock.If the prevailing interest rate is 10 percent and the stock is currently selling for $100 per share,what is the current price/earnings ratio?

The interest rate set for a bond at the time of issuance is the

The price of a stock will increase,ceteris paribus,when

Lower interest rates

Suppose Carlos has a 60 percent chance of not collecting $100,000 when his rich uncle dies in 10 years.Juanita wants to buy the rights to this possible inheritance from Carlos.How much is the possible inheritance currently worth to Carlos? Assume the interest rate is 9 percent.

The longer one has to wait for a future payment,the greater the present value it has.

The lower the cost of funds,the greater the amount of loanable funds demanded.

The initial bond purchaser

Venture capital increases the pace of innovation.

Which of the following is an example of a financial intermediary?

An initial public offering occurs when a stock is first sold to the general public.

Calculate the current yield on a bond that has an annual interest payment of $200 and a resale price of $1,550.What is the relationship between bond prices and yield?

Financial intermediaries change the mix of output by transferring financial capital from savers to dissavers (borrowers).

Market participants are likely to save a portion of current income if they

Lenders are typically compensated for the risk of default with

Risk premiums do all of the following except

The present discounted value of a future payment can be calculated using which of the following formulas?

Why do businesses incorporate,and why do investors buy stocks?

The price of a stock will decrease,ceteris paribus,when

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

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