Question 1

Does it ever make sense to purchase a stock that has never paid a dividend? Explain.

Accepted Answer

Yes.If a firm does not pay out its profi

Question 2

Historically,when a diverse set of stocks is held over a lengthy time period,stocks have yielded a ____ rate of return,and the variation in the rate of return has been ____.

Accepted Answer

A) low;low 
B) low;high 
C) high;low 
D) high;high 
A) low;low 
B) low;high 
C) high;low 
D) high;high

Question 3

If the interest rate were 5 percent,how much would people be willing to pay for a stock that was certain to yield a $10 per share stream of net earnings continuously in the future?

Accepted Answer

A) $10 
B) $20 
C) $200 
D) $400 
E) $2,000 
A) $10 
B) $20 
C) $200 
D) $400 
E) $2,000

Question 4

During the last two centuries,after adjustment for inflation,

Accepted Answer

A) corporate bonds have yielded a real return of approximately 7 percent annually,compared to a real return of about 3 percent for corporate stocks. 
B) corporate stocks have yielded a real return of approximately 7 percent annually,compared to a real return of about 3 percent for bonds. 
C) both corporate stocks and bonds have yielded a real rate of return of about 3 percent. 
D) both corporate stocks and bonds have yielded a real rate of return of about 7 percent. 
A) corporate bonds have yielded a real return of approximately 7 percent annually,compared to a real return of about 3 percent for corporate stocks. 
B) corporate stocks have yielded a real return of approximately 7 percent annually,compared to a real return of about 3 percent for bonds. 
C) both corporate stocks and bonds have yielded a real rate of return of about 3 percent. 
D) both corporate stocks and bonds have yielded a real rate of return of about 7 percent.

Question 5

Which of the following would tend to increase the value of a future stream of income?

Accepted Answer

A) an increase in the rate of inflation 
B) an increase in the interest rate 
C) a reduction in the interest rate 
D) a reduction in the size of the expected future income 
A) an increase in the rate of inflation 
B) an increase in the interest rate 
C) a reduction in the interest rate 
D) a reduction in the size of the expected future income

Question 6

Which of the following types of mutual funds best describes one in which an "expert" seeks to pick the stock holdings in a way that maximizes the rate of return?

Accepted Answer

A) indexed equity mutual fund 
B) managed equity mutual fund 
C) supervised equity mutual fund 
D) marked equity mutual fund 
A) indexed equity mutual fund 
B) managed equity mutual fund 
C) supervised equity mutual fund 
D) marked equity mutual fund

Question 7

Which of the following is true?

Accepted Answer

A) The stock market helps channel the savings of individuals into business activities that create wealth. 
B) Individual investors can reduce their risk by holding a large share of their wealth in the form of the stock ownership of a single company. 
C) Historically,the long-term real rate of return of stocks has generally been less than that of bonds. 
D) Mutual funds that have done well in the past are more likely to outperform the market average in the future. 
A) The stock market helps channel the savings of individuals into business activities that create wealth. 
B) Individual investors can reduce their risk by holding a large share of their wealth in the form of the stock ownership of a single company. 
C) Historically,the long-term real rate of return of stocks has generally been less than that of bonds. 
D) Mutual funds that have done well in the past are more likely to outperform the market average in the future.

Question 8

Which of the following is true?

Accepted Answer

A) The P/E ratio provides information on the price of a stock relative to its current earnings. 
B) The P/E ratio provides information on the price of a stock relative to its future earnings. 
C) The P/E ratio provides information on the price of a stock relative to its past earnings. 
D) The P/E ratio average from 1950-2008 was 26. 
A) The P/E ratio provides information on the price of a stock relative to its current earnings. 
B) The P/E ratio provides information on the price of a stock relative to its future earnings. 
C) The P/E ratio provides information on the price of a stock relative to its past earnings. 
D) The P/E ratio average from 1950-2008 was 26.

Question 9

The present value of $1 million to be received in the future will

Accepted Answer

A) increase if the interest rate rises. 
B) increase if the payment is received at a more distant time in the future. 
C) be greater than $1 million. 
D) increase if the interest rate were to fall from 8 percent to 4 percent. 
A) increase if the interest rate rises. 
B) increase if the payment is received at a more distant time in the future. 
C) be greater than $1 million. 
D) increase if the interest rate were to fall from 8 percent to 4 percent.

Question 10

Which of the following provides the strongest argument for young people making regular payments into a retirement program that invests these funds in a diverse set of stocks?

Accepted Answer

A) The prices of stocks tend to fluctuate more than the prices of bonds. 
B) Over short periods of time,variation in the real rate of return of stocks is greater than bonds. 
C) When held over lengthy periods like 30 or 40 years,historically,the rate of return on stocks has been both higher and less variable than that of bonds. 
D) Lower interest rates will lead to higher bond prices. 
A) The prices of stocks tend to fluctuate more than the prices of bonds. 
B) Over short periods of time,variation in the real rate of return of stocks is greater than bonds. 
C) When held over lengthy periods like 30 or 40 years,historically,the rate of return on stocks has been both higher and less variable than that of bonds. 
D) Lower interest rates will lead to higher bond prices.

Question 11

Historically,when a diverse set of stocks are held over a lengthy time period,stocks have yielded a ____ rate of return and the variation in the rate of return has been ____.(Fill in the blanks. )

Accepted Answer

A) low;low 
B) low;high 
C) high;low 
D) high;high 
A) low;low 
B) low;high 
C) high;low 
D) high;high

Question 12

Jane is a 22-year-old college graduate.She has just started working at a job that pays her $75,000 per year.Since you have had an economics course,Jane asks you for advice on where to invest the money she is saving for her retirement.What do you recommend?

Accepted Answer

History indicates that the stock market

Question 13

A firm's stock price will be higher when the interest rate is ____ and the value of the firm's expected future profits are ____.

Accepted Answer

A) lower;larger 
B) lower;smaller 
C) higher;larger 
D) higher;smaller 
A) lower;larger 
B) lower;smaller 
C) higher;larger 
D) higher;smaller

Question 14

Which of the following represents a method for a firm to obtain funds for growth and product development?

Accepted Answer

A) use of retained earnings 
B) borrowing money 
C) selling stock 
D) all of the above 
A) use of retained earnings 
B) borrowing money 
C) selling stock 
D) all of the above

Question 15

Since 1802,the average annual compound return for stock holdings,adjusted for inflation,has been approximately

Accepted Answer

A) 2 percent. 
B) 7 percent. 
C) 15 percent. 
D) 30 percent. 
A) 2 percent. 
B) 7 percent. 
C) 15 percent. 
D) 30 percent.

Question 16

During the 1970s,the price/earnings ratio of stocks in the S&P 500 was relatively low.This low P/E ratio was

Accepted Answer

A) surprising because the inflation rate was high during the 1970s. 
B) not surprising because interest rates were low during the inflationary 1970s. 
C) not surprising because interest rates were high during the inflationary 1970s. 
D) surprising because the inflation rate was low during the 1970s. 
A) surprising because the inflation rate was high during the 1970s. 
B) not surprising because interest rates were low during the inflationary 1970s. 
C) not surprising because interest rates were high during the inflationary 1970s. 
D) surprising because the inflation rate was low during the 1970s.

Question 17

Which of the following is an implication of the random walk theory?

Accepted Answer

A) Experts will be able to make money by picking and choosing the best stocks. 
B) There is a systematic pattern to the movement of prices in the stock market. 
C) Stock market investors can expect to earn a fairly steady real rate of return of about 7 percent annually. 
D) Even experts will be unable to predict the future movement of stock prices with any degree of accuracy. 
A) Experts will be able to make money by picking and choosing the best stocks. 
B) There is a systematic pattern to the movement of prices in the stock market. 
C) Stock market investors can expect to earn a fairly steady real rate of return of about 7 percent annually. 
D) Even experts will be unable to predict the future movement of stock prices with any degree of accuracy.

Question 18

Which of the following indicates why the role of vigilant investors and investment fund managers is important for the efficient operation of an economy?

Accepted Answer

A) These investors generally serve on the boards of directors of corporations. 
B) These investors tend to buy and sell stocks in a way that rewards good management. 
C) These investors help allocate capital efficiently among firms and among investment projects. 
D) Both b and c are true. 
A) These investors generally serve on the boards of directors of corporations. 
B) These investors tend to buy and sell stocks in a way that rewards good management. 
C) These investors help allocate capital efficiently among firms and among investment projects. 
D) Both b and c are true.

Question 19

Stock analysts often argue that lower interest rates are good for the stock market.Does this argument make sense?

Accepted Answer

A) No;lower interest rates will tend to slow down the economy and this will be bad for the stock market. 
B) Yes;the lower rates of interest will increase the value of future income (and capital gains)and stock prices will rise to reflect this factor. 
C) No;the lower rates of interest will reduce the value of future income (and capital gains)and this will cause stock prices to fall. 
D) Yes;the lower interest rates will cause inflation and inflation is generally good for the stock market. 
A) No;lower interest rates will tend to slow down the economy and this will be bad for the stock market. 
B) Yes;the lower rates of interest will increase the value of future income (and capital gains)and stock prices will rise to reflect this factor. 
C) No;the lower rates of interest will reduce the value of future income (and capital gains)and this will cause stock prices to fall. 
D) Yes;the lower interest rates will cause inflation and inflation is generally good for the stock market.

Question 20

The random walk theory implies that stock prices

Accepted Answer

A) go down,then up,and then down again. 
B) follow systematic trends. 
C) can be forecast accurately by experts who are knowledgeable about how the stock market works. 
D) will change as the result of unexpected factors that are virtually impossible to forecast accurately. 
A) go down,then up,and then down again. 
B) follow systematic trends. 
C) can be forecast accurately by experts who are knowledgeable about how the stock market works. 
D) will change as the result of unexpected factors that are virtually impossible to forecast accurately.

Exam 31: The Stock Market: Its Function, Performance, and Potential As an Investment Opportunity

Does it ever make sense to purchase a stock that has never paid a dividend? Explain.

Historically,when a diverse set of stocks is held over a lengthy time period,stocks have yielded a ____ rate of return,and the variation in the rate of return has been ____.

If the interest rate were 5 percent,how much would people be willing to pay for a stock that was certain to yield a $10 per share stream of net earnings continuously in the future?

During the last two centuries,after adjustment for inflation,

Which of the following would tend to increase the value of a future stream of income?

Which of the following types of mutual funds best describes one in which an "expert" seeks to pick the stock holdings in a way that maximizes the rate of return?

Which of the following is true?

Which of the following is true?

The present value of $1 million to be received in the future will

Which of the following provides the strongest argument for young people making regular payments into a retirement program that invests these funds in a diverse set of stocks?

Historically,when a diverse set of stocks are held over a lengthy time period,stocks have yielded a ____ rate of return and the variation in the rate of return has been ____.(Fill in the blanks. )

Jane is a 22-year-old college graduate.She has just started working at a job that pays her $75,000 per year.Since you have had an economics course,Jane asks you for advice on where to invest the money she is saving for her retirement.What do you recommend?

A firm's stock price will be higher when the interest rate is ____ and the value of the firm's expected future profits are ____.

Which of the following represents a method for a firm to obtain funds for growth and product development?

Since 1802,the average annual compound return for stock holdings,adjusted for inflation,has been approximately

During the 1970s,the price/earnings ratio of stocks in the S&P 500 was relatively low.This low P/E ratio was

Which of the following is an implication of the random walk theory?

Which of the following indicates why the role of vigilant investors and investment fund managers is important for the efficient operation of an economy?

Stock analysts often argue that lower interest rates are good for the stock market.Does this argument make sense?

The random walk theory implies that stock prices

The Economic Approach

Asome Tools of the Economist

Asupply,demand,and the Market Process

Asupply and Demand: Applications and Extensions

Difficult Cases for the Market and the Role of Government

The Economics of Collective Decision-Making

Ataking the Nations Economic Pulse

Economic Fluctuations, unemployment, and Inflation

Aan Introduction to Basic Macroeconomic Markets

Dynamic Change, economic Fluctuations, and the Ad-As Model

Fiscal Policy: the Keynesian View and Historical Perspective

Fiscal Policy, incentives, and Secondary Effects

Amoney and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, output, and Employment

Creating an Environment for Growth and Prosperity

Institutions,policies,and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Consumer Choice and Elasticity

Acosts and the Supply of Goods

Aprice Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

Aprice-Searcher Markets With High Entry Barriers

The Supply of and Demand for Productive Resources

Earnings, productivity, and the Job Market

Investment, the Capital Market, and the Wealth of Nations

Income Inequality and Poverty

Government Spending and Taxation

The Economics of Social Security

Great Debates in Economics: Keynes Versus Hayek

The Crisis of 2008: Causes and Lessons for the Future

Lessons From the Great Depression

Lessons From Japan and Canada

The Federal Budget and the National Debt

The Economics of Healthcare

Education: Problems and Performance

Earnings Differences Between Men and Women

Do Labor Unions Increase the Wages of Workers

The Question of Resource Exhaustion

Difficult Environmental Cases and the Role of Government

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Historically,when a diverse set of stocks is held over a lengthy time period,stocks have yielded a rate of return,and the variation in the rate of return has been .

Historically,when a diverse set of stocks are held over a lengthy time period,stocks have yielded a rate of return and the variation in the rate of return has been .(Fill in the blanks. )

A firm's stock price will be higher when the interest rate is and the value of the firm's expected future profits are .