Question 1

A bubble or panic generally occurs in the stock market because of:

Accepted Answer

A) upswings in the business cycle. 
B) expansionary monetary policies undertaken by the government. 
C) irrational,or abnormal forecasts,or market valuations. 
D) an increase in the profitability of the firms. 
E) deliberate government actions to control inflation. 
A) upswings in the business cycle. 
B) expansionary monetary policies undertaken by the government. 
C) irrational,or abnormal forecasts,or market valuations. 
D) an increase in the profitability of the firms. 
E) deliberate government actions to control inflation. C

Question 2

Buying a newly issued bond implies:

Accepted Answer

A) borrowing money from a private bank. 
B) taking over the ownership of a firm. 
C) lending money to a firm. 
D) paying the price for a service rendered by a firm. 
E) borrowing funds from international organizations. 
A) borrowing money from a private bank. 
B) taking over the ownership of a firm. 
C) lending money to a firm. 
D) paying the price for a service rendered by a firm. 
E) borrowing funds from international organizations. C

Question 3

Mutual funds that are composed of corporate and government bonds are known as:

Accepted Answer

A) risk-adjusted funds. 
B) global funds. 
C) equity funds. 
D) fixed-income funds. 
E) money market funds. 
A) risk-adjusted funds. 
B) global funds. 
C) equity funds. 
D) fixed-income funds. 
E) money market funds. D

Question 4

Shane holds wealth worth $10,000.He considers investing it equally in two gambles one of which has a probability of 0.6 to yield a return of 10% and the other has a probability of 0.4 to yield a return of 20%.What will be Shane's total expected return from the two gambles?

Accepted Answer

A) $1,000 
B) $700 
C) $500 
D) $900 
E) $1,100 
A) $1,000 
B) $700 
C) $500 
D) $900 
E) $1,100

Question 5

If the number of people who want to sell of stocks are higher than those who want to buy it,the stock prices move up.

Accepted Answer

A) True 
 B)False

Question 6

The figure given below shows the demand curves [DS1U1B11 S1U1B0and DS1U1B12S1U1B0] and the supply curve [SS1U1B11S1U1B0] of capital. Figure 16.1  
- In Figure 16.1,if the price set in the market is P3 when the demand curve is D1,then:

Accepted Answer

A) the market will be in equilibrium. 
B) there will be an excess demand for capital of the amount Q4 - Q1. 
C) there will be a shortage of capital in the market by the amount Q4 - Q2. 
D) there will be a surplus of capital in the market by the amount Q3 - Q1. 
E) there will be a surplus of capital in the market by the amount Q3 - Q2. 
A) the market will be in equilibrium. 
B) there will be an excess demand for capital of the amount Q4 - Q1. 
C) there will be a shortage of capital in the market by the amount Q4 - Q2. 
D) there will be a surplus of capital in the market by the amount Q3 - Q1. 
E) there will be a surplus of capital in the market by the amount Q3 - Q2.

Question 7

NAVPS in the mutual fund table denotes:

Accepted Answer

A) the percentage change in the asset value of the mutual fund from the close of the previous day's trading. 
B) the highest and lowest values that the mutual fund has experienced over the last one year. 
C) the highest asset value at which the fund was sold during the past week. 
D) percentage change in the asset value of the mutual fund from the previous week. 
E) the value of the mutual fund divided by the number of shares of the fund. 
A) the percentage change in the asset value of the mutual fund from the close of the previous day's trading. 
B) the highest and lowest values that the mutual fund has experienced over the last one year. 
C) the highest asset value at which the fund was sold during the past week. 
D) percentage change in the asset value of the mutual fund from the previous week. 
E) the value of the mutual fund divided by the number of shares of the fund.

Question 8

A bond with a par value of $1,000 is traded at $1,500.The coupon rate offered on the bond is 10 percent.The bond matures after a period of 5 years .The coupon paid to the bond holder after the end of the first year is:

Accepted Answer

A) $150. 
B) $100. 
C) $200. 
D) $50. 
E) $250 
A) $150. 
B) $100. 
C) $200. 
D) $50. 
E) $250

Question 9

Most stock indexes use which of the following measures to weight the companies that participate in the index?

Accepted Answer

A) The company's sales volume 
B) The company's book value 
C) The current profits 
D) The available cash 
E) The market capitalization 
A) The company's sales volume 
B) The company's book value 
C) The current profits 
D) The available cash 
E) The market capitalization

Question 10

The price of stock is determined by:

Accepted Answer

A) the demand for the good produced by the firm. 
B) the number of shares of a firm's stock that is available. 
C) the performance of the stock market. 
D) the performance of the Federal Reserve. 
E) the demand for and supply of a company's shares. 
A) the demand for the good produced by the firm. 
B) the number of shares of a firm's stock that is available. 
C) the performance of the stock market. 
D) the performance of the Federal Reserve. 
E) the demand for and supply of a company's shares.

Question 11

Which of the following names is given to the corporate bonds that carry the maximum risk?

Accepted Answer

A) Risky-time bonds 
B) Failure bonds 
C) Revelation bonds 
D) Blue-chip bonds 
E) Junk bonds 
A) Risky-time bonds 
B) Failure bonds 
C) Revelation bonds 
D) Blue-chip bonds 
E) Junk bonds

Question 12

When the interest rate on the alternative investments rise,it becomes costly for the bondholders to retain their bonds with them.

Accepted Answer

A) True 
 B)False

Question 13

The amount that a risk averse person requires to take on risk is called:

Accepted Answer

A) risk arbitrage. 
B) risk bonus. 
C) risk premium. 
D) risk capital. 
E) risk rate. 
A) risk arbitrage. 
B) risk bonus. 
C) risk premium. 
D) risk capital. 
E) risk rate.

Question 14

As the price of capital falls,the quantity of capital that producers are willing and able to offer falls.

Accepted Answer

A) True 
 B)False

Question 15

The fixed amount that the issuer of a bond agrees to pay the bondholder each year until the bond matures is called:

Accepted Answer

A) rent. 
B) coupon. 
C) interest. 
D) load. 
E) dividend. 
A) rent. 
B) coupon. 
C) interest. 
D) load. 
E) dividend.

Question 16

What is the main difference between common and preferred stocks?

Accepted Answer

A) Common stocks pay interest whereas preferred stocks pay dividends. 
B) Preferred stocks carry voting rights whereas common stocks do not carry voting rights. 
C) Preferred stocks pay a guaranteed dividend,while common stocks may or may not pay dividends. 
D) In case of bankruptcy,preferred stockholders have a right to the company's asset,whereas common stockholders do not have such rights. 
E) Common stocks can be converted into preferred stocks while preferred stocks cannot be converted into common stocks. 
A) Common stocks pay interest whereas preferred stocks pay dividends. 
B) Preferred stocks carry voting rights whereas common stocks do not carry voting rights. 
C) Preferred stocks pay a guaranteed dividend,while common stocks may or may not pay dividends. 
D) In case of bankruptcy,preferred stockholders have a right to the company's asset,whereas common stockholders do not have such rights. 
E) Common stocks can be converted into preferred stocks while preferred stocks cannot be converted into common stocks.

Question 17

A mutual fund for which a fee is paid at the time of purchase is a:

Accepted Answer

A) no-load fund. 
B) face-end load fund. 
C) back-end load fund. 
D) fixed-end fund. 
E) front-end load fund. 
A) no-load fund. 
B) face-end load fund. 
C) back-end load fund. 
D) fixed-end fund. 
E) front-end load fund.

Question 18

Bonds are debt securities maturing within 10 years.

Accepted Answer

A) True 
 B)False

Question 19

Yield on a bond refers to:

Accepted Answer

A) the coupon-rate of the bond. 
B) the money earned by selling a bond. 
C) the return from a bond after its maturity. 
D) the difference between the face value of a bond and the bond price. 
E) the annual return until the bond matures. 
A) the coupon-rate of the bond. 
B) the money earned by selling a bond. 
C) the return from a bond after its maturity. 
D) the difference between the face value of a bond and the bond price. 
E) the annual return until the bond matures.

Question 20

The demand curve for capital:

Accepted Answer

A) shows the positive relation between capital usage and the quantity of capital demanded. 
B) shows the positive relation between aggregate output and the quantity of capital demanded. 
C) shows the negative relation between rate of inflation and the quantity of capital demanded. 
D) shows the positive relation between technological change and the quantity of capital demanded. 
E) shows the negative relation between price of capital and the quantity of capital demanded. 
A) shows the positive relation between capital usage and the quantity of capital demanded. 
B) shows the positive relation between aggregate output and the quantity of capital demanded. 
C) shows the negative relation between rate of inflation and the quantity of capital demanded. 
D) shows the positive relation between technological change and the quantity of capital demanded. 
E) shows the negative relation between price of capital and the quantity of capital demanded.

Exam 16: Capital Markets

A bubble or panic generally occurs in the stock market because of:

Buying a newly issued bond implies:

Mutual funds that are composed of corporate and government bonds are known as:

Shane holds wealth worth $10,000.He considers investing it equally in two gambles one of which has a probability of 0.6 to yield a return of 10% and the other has a probability of 0.4 to yield a return of 20%.What will be Shane's total expected return from the two gambles?

If the number of people who want to sell of stocks are higher than those who want to buy it,the stock prices move up.

The figure given below shows the demand curves [D1 and D2] and the supply curve [S1] of capital. Figure 16.1 - In Figure 16.1,if the price set in the market is P3 when the demand curve is D1,then:

NAVPS in the mutual fund table denotes:

A bond with a par value of $1,000 is traded at $1,500.The coupon rate offered on the bond is 10 percent.The bond matures after a period of 5 years .The coupon paid to the bond holder after the end of the first year is:

Most stock indexes use which of the following measures to weight the companies that participate in the index?

The price of stock is determined by:

Which of the following names is given to the corporate bonds that carry the maximum risk?

When the interest rate on the alternative investments rise,it becomes costly for the bondholders to retain their bonds with them.

The amount that a risk averse person requires to take on risk is called:

As the price of capital falls,the quantity of capital that producers are willing and able to offer falls.

The fixed amount that the issuer of a bond agrees to pay the bondholder each year until the bond matures is called:

What is the main difference between common and preferred stocks?

A mutual fund for which a fee is paid at the time of purchase is a:

Bonds are debt securities maturing within 10 years.

Yield on a bond refers to:

The demand curve for capital:

Economics: The World Around You

Choice, opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

Elasticity: Demand and Supply

Consumer Choice

Supply: The Costs of Doing Business

Profit Maximization

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Market Failures, Government Failures, and Rent Seeking

Resource Markets

The Labor Market

The Land Market and Natural Resources

Aging, Social Security and Health Care

Income Distribution,Poverty and Government Policy

World Trade Equilibrium

International Trade Restrictions

Exchange Rates and Financial Links Between Countries

Filters

The figure given below shows the demand curves [D₁and D₂] and the supply curve [S₁] of capital. Figure 16.1 - In Figure 16.1,if the price set in the market is P₃when the demand curve is D₁,then: