Question 1

Figure 32.1 represents the market for loanable funds.Which of the following is true at the equilibrium interest rate?

Accepted Answer

A) The rate of return on capital equals the interest rate. 
B) The rate of return on capital is less than the interest rate. 
C) The rate of return on capital is greater than the interest rate. 
D) There is no relationship between the rate of return on capital and the interest rate. 
A) The rate of return on capital equals the interest rate. 
B) The rate of return on capital is less than the interest rate. 
C) The rate of return on capital is greater than the interest rate. 
D) There is no relationship between the rate of return on capital and the interest rate.

Question 2

Which of the following is not a reason to hold stock?

Accepted Answer

A) To receive payments on the firm's debt. 
B) To receive potential capital gains. 
C) To take part in the selection of the board of directors. 
D) To receive potential dividends. 
A) To receive payments on the firm's debt. 
B) To receive potential capital gains. 
C) To take part in the selection of the board of directors. 
D) To receive potential dividends.

Question 3

Bonds may be issued by all of the following except

Accepted Answer

A) Corporations. 
B) The federal government. 
C) Local governments. 
D) Individuals. 
A) Corporations. 
B) The federal government. 
C) Local governments. 
D) Individuals.

Question 4

The price of a stock will decrease,ceteris paribus,for all of the following reasons except

Accepted Answer

A) There is a surplus of the stock at the current price. 
B) The demand for the stock decreases. 
C) The supply of the stock increases. 
D) Consumer confidence increases. 
A) There is a surplus of the stock at the current price. 
B) The demand for the stock decreases. 
C) The supply of the stock increases. 
D) Consumer confidence increases.

Question 5

Stock prices will increase,ceteris paribus,when the prevailing interest rate increases.

Accepted Answer

A) True 
 B)False

Question 6

The present discounted value of $100 to be received one year from now,if the interest rate is 2.5 percent,is closest to

Accepted Answer

A) $98. 
B) $100. 
C) $103. 
D) $95. 
A) $98. 
B) $100. 
C) $103. 
D) $95.

Question 7

Financial intermediaries

Accepted Answer

A) Increase search and information costs for savers and investors. 
B) Transfer purchasing power from spenders to savers. 
C) Spread the risk of investment failure over many individuals. 
D) Always allocate funds to the least productive investments. 
A) Increase search and information costs for savers and investors. 
B) Transfer purchasing power from spenders to savers. 
C) Spread the risk of investment failure over many individuals. 
D) Always allocate funds to the least productive investments.

Question 8

As the uncertainty attached to a future payment ________,the expected value ________.

Accepted Answer

A) decreases;decreases 
B) increases;stays the same 
C) decreases;increases 
D) increases;becomes positive 
A) decreases;decreases 
B) increases;stays the same 
C) decreases;increases 
D) increases;becomes positive

Question 9

Suppose you purchase shares in Papa's Pizza for $20 per share.The company believes there is a 40 percent chance it will fail to earn a discounted future profit of $2.59.What is the expected rate of return on your investment?

Accepted Answer

A) 5.8 percent. 
B) 7.77 percent. 
C) 5.2 percent. 
D) 15.17 percent. 
A) 5.8 percent. 
B) 7.77 percent. 
C) 5.2 percent. 
D) 15.17 percent.

Question 10

There is an inverse relationship between the price of an existing bond and its

Accepted Answer

A) Par value. 
B) Risk yield. 
C) Liquidity yield. 
D) Current yield. 
A) Par value. 
B) Risk yield. 
C) Liquidity yield. 
D) Current yield.

Question 11

According to "Where Do Start-Ups Get Their Money?" venture capital is not an option for most entrepreneurs.Where does the majority of funding come from for start-ups?

Accepted Answer

A) Second mortgages on personal homes. 
B) Business and personal credit cards. 
C) Personal savings. 
D) Bank business loans. 
A) Second mortgages on personal homes. 
B) Business and personal credit cards. 
C) Personal savings. 
D) Bank business loans.

Question 12

When a corporation issues a bond,it is borrowing funds.

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

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

Question 14

If the present discounted value of a payment is $1,000,000 and there is a 40 percent chance that the payment will not occur,then the expected value is

Accepted Answer

A) $600,000. 
B) $400,000. 
C) $1,000,000. 
D) $1,400,000. 
A) $600,000. 
B) $400,000. 
C) $1,000,000. 
D) $1,400,000.

Question 15

The supply of loanable funds is determined by all of the following except

Accepted Answer

A) Time preferences. 
B) Demand for loanable funds. 
C) Interest rates. 
D) Risk. 
A) Time preferences. 
B) Demand for loanable funds. 
C) Interest rates. 
D) Risk.

Question 16

The risk premium is the

Accepted Answer

A) Interest rate paid to savers. 
B) Interest rate charged to borrowers. 
C) Difference in rates of return on safe and risky investments. 
D) Interest rate divided by the expected value. 
A) Interest rate paid to savers. 
B) Interest rate charged to borrowers. 
C) Difference in rates of return on safe and risky investments. 
D) Interest rate divided by the expected value.

Question 17

Explain the concept of a risk premium.What purpose do risk premiums serve?

Accepted Answer

A risk premium is the difference in rate

Question 18

Financial intermediaries reduce search and information costs.

Accepted Answer

A) True 
 B)False

Question 19

The possibility of nonpayment is taken into account in the calculation of the present discounted value.

Accepted Answer

A) True 
 B)False

Question 20

The demand for loanable funds increases when the expected rate of return increases.

Accepted Answer

A) True 
 B)False

Exam 32: Financial Markets

Figure 32.1 represents the market for loanable funds.Which of the following is true at the equilibrium interest rate?

Which of the following is not a reason to hold stock?

Bonds may be issued by all of the following except

The price of a stock will decrease,ceteris paribus,for all of the following reasons except

Stock prices will increase,ceteris paribus,when the prevailing interest rate increases.

The present discounted value of $100 to be received one year from now,if the interest rate is 2.5 percent,is closest to

Financial intermediaries

As the uncertainty attached to a future payment ________,the expected value ________.

Suppose you purchase shares in Papa's Pizza for $20 per share.The company believes there is a 40 percent chance it will fail to earn a discounted future profit of $2.59.What is the expected rate of return on your investment?

There is an inverse relationship between the price of an existing bond and its

According to "Where Do Start-Ups Get Their Money?" venture capital is not an option for most entrepreneurs.Where does the majority of funding come from for start-ups?

When a corporation issues a bond,it is borrowing funds.

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

If the present discounted value of a payment is $1,000,000 and there is a 40 percent chance that the payment will not occur,then the expected value is

The supply of loanable funds is determined by all of the following except

The risk premium is the

Explain the concept of a risk premium.What purpose do risk premiums serve?

Financial intermediaries reduce search and information costs.

The possibility of nonpayment is taken into account in the calculation of the present discounted value.

The demand for loanable funds increases when the expected rate of return increases.

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

Filters

As the uncertainty attached to a future payment ,the expected value .