Question 1

Which of the following is a correct statement about bond prices,other things equal?

Accepted Answer

A) a lower face value leads to a higher bond price 
B) a higher risk of default leads to a higher bond price 
C) a higher risk of default leads to a lower yield 
D) fewer coupon payments lead to a higher bond price 
E) a higher price leads to a lower yield 
A) a lower face value leads to a higher bond price 
B) a higher risk of default leads to a higher bond price 
C) a higher risk of default leads to a lower yield 
D) fewer coupon payments lead to a higher bond price 
E) a higher price leads to a lower yield E

Question 2

The interest rate on U.S.government securities is often called the

Accepted Answer

A) prime rate 
B) public discount 
C) riskless rate 
D) superior rate 
E) universal discount 
A) prime rate 
B) public discount 
C) riskless rate 
D) superior rate 
E) universal discount C

Question 3

Which of the following would be most likely to cause a rightward shift of the demand for shares of Planet X,Inc.'s stock?

Accepted Answer

A) the appearance of a strong competitor in Planet X's market 
B) a ban on Planet X's product in a large export market 
C) the announcement of a profitable new product line from Planet X 
D) news of a labor strike against Planet X 
E) the announcement of a new public offering of Planet X stock 
A) the appearance of a strong competitor in Planet X's market 
B) a ban on Planet X's product in a large export market 
C) the announcement of a profitable new product line from Planet X 
D) news of a labor strike against Planet X 
E) the announcement of a new public offering of Planet X stock C

Question 4

You are thinking of buying a 10-year bond on the secondary bond market.The face value of the bond is $10,000,the interest rate is 5 percent (0.05)per year,and the bond was issued exactly eight years ago.What is the value of the bond today?

Accepted Answer

A) $5,295.43 
B) $9,070.30 
C) $10,000.00 
D) $20,000.00 
E) $100,000.00 
A) $5,295.43 
B) $9,070.30 
C) $10,000.00 
D) $20,000.00 
E) $100,000.00

Question 5

According to the efficient markets theory of stock prices,

Accepted Answer

A) fundamental analysis is a way to profit from predicting stock prices 
B) fundamental and technical analysis are largely useless 
C) technical analysis is the best approach to profit from predicting stock prices 
D) fundamental and technical analysis must be synthesized in order to profit from predicting stock prices 
E) whether fundamental and technical analysis can be profitable depends on the specific firm being analyzed 
A) fundamental analysis is a way to profit from predicting stock prices 
B) fundamental and technical analysis are largely useless 
C) technical analysis is the best approach to profit from predicting stock prices 
D) fundamental and technical analysis must be synthesized in order to profit from predicting stock prices 
E) whether fundamental and technical analysis can be profitable depends on the specific firm being analyzed

Question 6

According to the efficient markets theory of stock prices,who are the primary beneficiaries of a sudden rise in demand for a firm's stock?

Accepted Answer

A) the consumers of the firm's products 
B) the current shareholders at the time of the rise in demand 
C) the investors who buy the firm's stock shortly after the rise in demand 
D) the investors who sell their shares just before the rise in demand 
E) the investors who have been carefully watching stock price patterns 
A) the consumers of the firm's products 
B) the current shareholders at the time of the rise in demand 
C) the investors who buy the firm's stock shortly after the rise in demand 
D) the investors who sell their shares just before the rise in demand 
E) the investors who have been carefully watching stock price patterns

Question 7

Which of the following will lower the present value of a bond?

Accepted Answer

A) a fall in the interest rate 
B) an increase in the principal 
C) a shorter time to maturity 
D) an increased risk of default 
E) none of the above 
A) a fall in the interest rate 
B) an increase in the principal 
C) a shorter time to maturity 
D) an increased risk of default 
E) none of the above

Question 8

Which of the following states the relationship between a bond's price and its yield?

Accepted Answer

A) As the price falls,the yield falls. 
B) Price and yield are usually independent of each other. 
C) As the price rises,the yield rises. 
D) As the price rises,the yield falls. 
E) As the yield rises,so does the price. 
A) As the price falls,the yield falls. 
B) Price and yield are usually independent of each other. 
C) As the price rises,the yield rises. 
D) As the price rises,the yield falls. 
E) As the yield rises,so does the price.

Question 9

Claire was trying to decide if she should buy a share of stock in her favorite company or a bond issued by that same company.She discussed the dilemma with her father.Her father made the following five statements.All of them are accurate except for one.Which one is the exception?

Accepted Answer

A) "If you buy a share of stock you will own a piece of the company" 
B) "If you buy a bond you will own a piece of the company" 
C) "If you buy a bond and change your mind you can sell it on the secondary bond market" 
D) "You should be careful because if you buy a share of stock you could loose your original investment" 
E) "If you buy a stock it may be worth more in the future" 
A) "If you buy a share of stock you will own a piece of the company" 
B) "If you buy a bond you will own a piece of the company" 
C) "If you buy a bond and change your mind you can sell it on the secondary bond market" 
D) "You should be careful because if you buy a share of stock you could loose your original investment" 
E) "If you buy a stock it may be worth more in the future"

Question 10

A newly issued bond with a face value of $8,000 and no coupon payments is priced at $7,000.The bond will mature in one year.What is the yield on this bond?

Accepted Answer

A) $1,000 
B) 12.5 percent 
C) 14.3 percent 
D) $272.73 
E) It depends on the interest rate 
A) $1,000 
B) 12.5 percent 
C) 14.3 percent 
D) $272.73 
E) It depends on the interest rate

Question 11

Crazy Cryptography is a software corporation that has 1,000 shares of stock in existence.The corporation has just surprised the market by announcing a new software package that will increase the company's after-tax profit by $500,000 each year,forever.If the interest rate is 8 percent (0.08)per year,by how much will the value of a single share of stock increase?

Accepted Answer

A) $500.00 
B) $6,250.00 
C) $5,000.00 
D) $10,000.000 
E) $8,333.33 
A) $500.00 
B) $6,250.00 
C) $5,000.00 
D) $10,000.000 
E) $8,333.33

Question 12

The price/earnings (PE)ratio of a stock is found by

Accepted Answer

A) dividing the most recent year's dividend by the current stock price 
B) dividing the current stock price by the after-tax profit per share 
C) dividing the most recent year's dividend by retained earnings 
D) dividing the current stock price by the Dow Jones Industrial Average 
E) dividing the current stock price by the present value of the firm 
A) dividing the most recent year's dividend by the current stock price 
B) dividing the current stock price by the after-tax profit per share 
C) dividing the most recent year's dividend by retained earnings 
D) dividing the current stock price by the Dow Jones Industrial Average 
E) dividing the current stock price by the present value of the firm

Question 13

On a secondary stock market,such as the New York Stock Exchange,

Accepted Answer

A) firms sell new issues of stock 
B) firms make initial public offerings 
C) previously issued bonds are sold and resold 
D) previously issued shares of corporations are sold and resold 
E) firms sell newly issued bonds 
A) firms sell new issues of stock 
B) firms make initial public offerings 
C) previously issued bonds are sold and resold 
D) previously issued shares of corporations are sold and resold 
E) firms sell newly issued bonds

Question 14

Suppose $X is the present value of $Y to be received next year.If you have $X and let it earn interest at r percent annually,how much money do you expect to have after one year?

Accepted Answer

A) $Y 
B) $Y/(1 + r) 
C) $Y(1 + r) 
D) $X/(1 + r) 
E) $X/r 
A) $Y 
B) $Y/(1 + r) 
C) $Y(1 + r) 
D) $X/(1 + r) 
E) $X/r

Question 15

A new pinball machine will generate $3,000 in additional revenue each year for a game arcade.It has a useful life of three years.Assume that each year's income is received at the end of the year.If the interest rate is 10 percent (0.10)per year,,what is the present value of a new pinball machine to the arcade?

Accepted Answer

A) $6,761.83 
B) $8,181.82 
C) $9,000.00 
D) $7,460.56 
E) $8,206.61 
A) $6,761.83 
B) $8,181.82 
C) $9,000.00 
D) $7,460.56 
E) $8,206.61

Question 16

Stretchy Socks,Inc. ,is expected to earn $2,000,000 in after-tax profits each year forever.The interest rate is 0.1.What is the total value of all shares of stock in Stretchy Socks?

Accepted Answer

A) $1,818,182 
B) $2,000,000 
C) $16,528,926 
D) $18,181,818 
E) $20,000,000 
A) $1,818,182 
B) $2,000,000 
C) $16,528,926 
D) $18,181,818 
E) $20,000,000

Question 17

A car rental company will earn a net income of $6,000 per year on a new car for the first three years of its life.After three years,the car will be worthless.If the interest rate is 10 percent (0.10)per ear,what is the present value of the car to the car rental company? (Assume that each year's income is received at the end of the year. )

Accepted Answer

A) $16,413.22 
B) $14,921.11 
C) $18,000.00 
D) $16,363.62 
E) $13,523.67 
A) $16,413.22 
B) $14,921.11 
C) $18,000.00 
D) $16,363.62 
E) $13,523.67

Question 18

The table below shows the total number of tickets a movie theater can sell per year with different numbers of screens.The market for movie tickets is perfectly competitive,with a market price of $8 per ticket.What is the marginal revenue product of the second screen?

Accepted Answer

A) 50,000 tickets 
B) $240,000 
C) $400,000 
D) 125,000 tickets 
E) $1,000,000 
A) 50,000 tickets 
B) $240,000 
C) $400,000 
D) 125,000 tickets 
E) $1,000,000

Question 19

The total value of dividends paid out to shareholders by a firm is equal to

Accepted Answer

A) its total after-tax profits 
B) its total after-tax profits minus its retained earnings 
C) its total after-tax profits minus its bond payments 
D) its total after-tax profits plus its retained earnings 
E) the present value of the firm 
A) its total after-tax profits 
B) its total after-tax profits minus its retained earnings 
C) its total after-tax profits minus its bond payments 
D) its total after-tax profits plus its retained earnings 
E) the present value of the firm

Question 20

A higher interest rate will lead a firm to purchase less capital because the higher interest rate

Accepted Answer

A) lowers the marginal product of capital goods 
B) causes technological change to cease 
C) lowers the present value of capital goods 
D) causes economies of scale to be exhausted 
E) causes the capital market become monopolized 
A) lowers the marginal product of capital goods 
B) causes technological change to cease 
C) lowers the present value of capital goods 
D) causes economies of scale to be exhausted 
E) causes the capital market become monopolized

Which of the following is a correct statement about bond prices,other things equal?

The interest rate on U.S.government securities is often called the

Which of the following would be most likely to cause a rightward shift of the demand for shares of Planet X,Inc.'s stock?

You are thinking of buying a 10-year bond on the secondary bond market.The face value of the bond is $10,000,the interest rate is 5 percent (0.05)per year,and the bond was issued exactly eight years ago.What is the value of the bond today?

According to the efficient markets theory of stock prices,

According to the efficient markets theory of stock prices,who are the primary beneficiaries of a sudden rise in demand for a firm's stock?

Which of the following will lower the present value of a bond?

Which of the following states the relationship between a bond's price and its yield?

Claire was trying to decide if she should buy a share of stock in her favorite company or a bond issued by that same company.She discussed the dilemma with her father.Her father made the following five statements.All of them are accurate except for one.Which one is the exception?

A newly issued bond with a face value of $8,000 and no coupon payments is priced at $7,000.The bond will mature in one year.What is the yield on this bond?

The price/earnings (PE)ratio of a stock is found by

On a secondary stock market,such as the New York Stock Exchange,

Suppose $X is the present value of $Y to be received next year.If you have $X and let it earn interest at r percent annually,how much money do you expect to have after one year?

Stretchy Socks,Inc. ,is expected to earn $2,000,000 in after-tax profits each year forever.The interest rate is 0.1.What is the total value of all shares of stock in Stretchy Socks?

The table below shows the total number of tickets a movie theater can sell per year with different numbers of screens.The market for movie tickets is perfectly competitive,with a market price of $8 per ticket.What is the marginal revenue product of the second screen?

The total value of dividends paid out to shareholders by a firm is equal to

A higher interest rate will lead a firm to purchase less capital because the higher interest rate

What Is Economics

Scarcity, choice, and Economic Systems

Supply and Demand

Working With Supply and Demand

Elasticity

Consumer Choice

Production and Cost

How Firms Make Decisions: Profit Maximization

Perfect Competition

B:Perfect Competition

Monopolistic Competition and Oligopoly

Monopoly

Labor Markets

B: Labor Markets

Economic Efficiency and the Competitive Ideal

Governments Role in Economic Efficiency

Comparative Advantage and the Gains From International Trade

Filters

Exam 14: Capital and Financial Markets

Which of the following is a correct statement about bond prices,other things equal?

The interest rate on U.S.government securities is often called the

Which of the following would be most likely to cause a rightward shift of the demand for shares of Planet X,Inc.'s stock?

You are thinking of buying a 10-year bond on the secondary bond market.The face value of the bond is $10,000,the interest rate is 5 percent (0.05)per year,and the bond was issued exactly eight years ago.What is the value of the bond today?

According to the efficient markets theory of stock prices,

According to the efficient markets theory of stock prices,who are the primary beneficiaries of a sudden rise in demand for a firm's stock?

Which of the following will lower the present value of a bond?

Which of the following states the relationship between a bond's price and its yield?

Claire was trying to decide if she should buy a share of stock in her favorite company or a bond issued by that same company.She discussed the dilemma with her father.Her father made the following five statements.All of them are accurate except for one.Which one is the exception?

A newly issued bond with a face value of $8,000 and no coupon payments is priced at $7,000.The bond will mature in one year.What is the yield on this bond?

The price/earnings (PE)ratio of a stock is found by

On a secondary stock market,such as the New York Stock Exchange,

Suppose $X is the present value of $Y to be received next year.If you have $X and let it earn interest at r percent annually,how much money do you expect to have after one year?

Stretchy Socks,Inc. ,is expected to earn $2,000,000 in after-tax profits each year forever.The interest rate is 0.1.What is the total value of all shares of stock in Stretchy Socks?

The table below shows the total number of tickets a movie theater can sell per year with different numbers of screens.The market for movie tickets is perfectly competitive,with a market price of $8 per ticket.What is the marginal revenue product of the second screen?

The total value of dividends paid out to shareholders by a firm is equal to

A higher interest rate will lead a firm to purchase less capital because the higher interest rate

What Is Economics

Scarcity, choice, and Economic Systems

Supply and Demand

Working With Supply and Demand

Elasticity

Consumer Choice

Production and Cost

How Firms Make Decisions: Profit Maximization

Perfect Competition

B:Perfect Competition

Monopolistic Competition and Oligopoly

Monopoly

Labor Markets

B: Labor Markets

Economic Efficiency and the Competitive Ideal

Governments Role in Economic Efficiency

Comparative Advantage and the Gains From International Trade

Filters