Question 1

There is an inverse relationship between the price of a bond and its current yield.

Accepted Answer

A) True 
 B)False

Question 2

The Dow Jones Industrial Average is an arithmetic average of ________ blue-chip industrial stocks.

Accepted Answer

A) 30 
B) 50 
C) 75 
D) 500 
A) 30 
B) 50 
C) 75 
D) 500

Question 3

If a corporation issues bonds that it cannot sell,this is an indication that

Accepted Answer

A) Expectations of future sales are low. 
B) Dividends are too low. 
C) The coupon rate is too low. 
D) The opportunity cost of the bonds is too low. 
A) Expectations of future sales are low. 
B) Dividends are too low. 
C) The coupon rate is too low. 
D) The opportunity cost of the bonds is too low.

Question 4

The purpose of an initial public offering is to

Accepted Answer

A) See if there is a demand for a company's new product. 
B) Change the membership of the board of directors. 
C) Borrow funds for investment and growth. 
D) Raise funds for investment and growth by selling shares of the company to the public. 
A) See if there is a demand for a company's new product. 
B) Change the membership of the board of directors. 
C) Borrow funds for investment and growth. 
D) Raise funds for investment and growth by selling shares of the company to the public.

Question 5

The intersection of the demand for loanable funds and the supply of loanable funds determines the

Accepted Answer

A) Real interest rate. 
B) Par value. 
C) Prevailing interest rate. 
D) Price ÷ earnings ratio. 
A) Real interest rate. 
B) Par value. 
C) Prevailing interest rate. 
D) Price ÷ earnings ratio.

Question 6

One reason why present dollars are worth more than future dollars is because income-earning investment opportunities exist.

Accepted Answer

A) True 
 B)False

Question 7

The P/E ratio,or price to earnings ratio of a stock,can be computed using which of the following formulas?

Accepted Answer

A) (Revenue per share)÷ (Price of stock share). 
B) (Price of stock share)÷ (Revenue per share). 
C) (Earnings per share)÷ (Price of stock share). 
D) (Price of stock share)÷ (Earnings per share). 
A) (Revenue per share)÷ (Price of stock share). 
B) (Price of stock share)÷ (Revenue per share). 
C) (Earnings per share)÷ (Price of stock share). 
D) (Price of stock share)÷ (Earnings per share).

Question 8

Which of the following is the equation for determining an expected value?

Accepted Answer

A) (1 - Risk factor)× PDV. 
B) (Risk factor - 1)× PDV. 
C) (1 - Risk factor)÷ PDV. 
D) (Risk factor - 1)÷ PDV. 
A) (1 - Risk factor)× PDV. 
B) (Risk factor - 1)× PDV. 
C) (1 - Risk factor)÷ PDV. 
D) (Risk factor - 1)÷ PDV.

Question 9

How does a recession impact the financial markets?

Accepted Answer

A) It decreases loanable funds. 
B) It increases loanable funds. 
C) It decreases risk. 
D) It increases stock prices. 
A) It decreases loanable funds. 
B) It increases loanable funds. 
C) It decreases risk. 
D) It increases stock prices.

Question 10

A price/earnings ratio is the price of a stock divided by the earnings per share.

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

A) Banks. 
B) The S&P 500. 
C) The U.S.Treasury. 
D) The department of finance. 
A) Banks. 
B) The S&P 500. 
C) The U.S.Treasury. 
D) The department of finance.

Question 12

When the interest rate rises,the demand for loanable funds falls and the supply of loanable funds rises.

Accepted Answer

A) True 
 B)False

Question 13

If the opportunity cost of money is zero,the expected value of future dollars is equal to their present value.

Accepted Answer

A) True 
 B)False

Question 14

A risk premium compensates people who invest in risky ventures that succeed.

Accepted Answer

A) True 
 B)False

Question 15

Suppose a company's bond sold for $100 last month and this month the price is $90.The annual interest payment is $18.The current yield on this bond is

Accepted Answer

A) 20 percent. 
B) 18 percent. 
C) 1.8 percent. 
D) 10 percent. 
A) 20 percent. 
B) 18 percent. 
C) 1.8 percent. 
D) 10 percent.

Question 16

A corporation can use an initial public offering of stock to borrow money that it must pay back.

Accepted Answer

A) True 
 B)False

Question 17

Par value is the

Accepted Answer

A) Face value of a bond;the amount to be repaid when the bond is due. 
B) Increase in the market value of an asset. 
C) Rate of return on a share of stock. 
D) Rate of interest to be paid on a bond. 
A) Face value of a bond;the amount to be repaid when the bond is due. 
B) Increase in the market value of an asset. 
C) Rate of return on a share of stock. 
D) Rate of interest to be paid on a bond.

Question 18

A bond is

Accepted Answer

A) A share in a corporation. 
B) A coupon used to collect a dividend. 
C) An insurance policy investor's purchase to protect against the possibility of falling stock prices. 
D) A certificate acknowledging a debt and the amount of interest to be paid each year until repayment;an IOU. 
A) A share in a corporation. 
B) A coupon used to collect a dividend. 
C) An insurance policy investor's purchase to protect against the possibility of falling stock prices. 
D) A certificate acknowledging a debt and the amount of interest to be paid each year until repayment;an IOU.

Question 19

Suppose Reggie has a 25 percent chance of not collecting $1,000 in one year.If the interest rate is 10 percent,what is the expected value of the future payment?

Accepted Answer

A) $750. 
B) $682. 
C) $227. 
D) $909. 
A) $750. 
B) $682. 
C) $227. 
D) $909.

Question 20

Liquidity is

Accepted Answer

A) The ability of an asset to be converted to cash. 
B) Low for cash. 
C) Not important for bondholders. 
D) The opportunity cost of purchasing a bond. 
A) The ability of an asset to be converted to cash. 
B) Low for cash. 
C) Not important for bondholders. 
D) The opportunity cost of purchasing a bond.

Exam 32: Financial Markets

There is an inverse relationship between the price of a bond and its current yield.

The Dow Jones Industrial Average is an arithmetic average of ________ blue-chip industrial stocks.

If a corporation issues bonds that it cannot sell,this is an indication that

The purpose of an initial public offering is to

The intersection of the demand for loanable funds and the supply of loanable funds determines the

One reason why present dollars are worth more than future dollars is because income-earning investment opportunities exist.

The P/E ratio,or price to earnings ratio of a stock,can be computed using which of the following formulas?

Which of the following is the equation for determining an expected value?

How does a recession impact the financial markets?

A price/earnings ratio is the price of a stock divided by the earnings per share.

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

When the interest rate rises,the demand for loanable funds falls and the supply of loanable funds rises.

If the opportunity cost of money is zero,the expected value of future dollars is equal to their present value.

A risk premium compensates people who invest in risky ventures that succeed.

Suppose a company's bond sold for $100 last month and this month the price is $90.The annual interest payment is $18.The current yield on this bond is

A corporation can use an initial public offering of stock to borrow money that it must pay back.

Par value is the

A bond is

Suppose Reggie has a 25 percent chance of not collecting $1,000 in one year.If the interest rate is 10 percent,what is the expected value of the future payment?

Liquidity is

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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