Question 1

Risk is typically measured:

Accepted Answer

A) by comparing the size of a firm to other firms operating in the market. 
B) by looking at the economic profit that a firm has earned in the past few years. 
C) by determining whether the bonds issued by a firm are of high or low value. 
D) by comparing how much the stock price fluctuates compared with an average firm. 
E) by comparing how much the price of the bond falls whenever the price of a firm's product rises. 
A) by comparing the size of a firm to other firms operating in the market. 
B) by looking at the economic profit that a firm has earned in the past few years. 
C) by determining whether the bonds issued by a firm are of high or low value. 
D) by comparing how much the stock price fluctuates compared with an average firm. 
E) by comparing how much the price of the bond falls whenever the price of a firm's product rises.

Question 2

Why is it unlikely for even a very successful investor to continuously outperform the market?

Accepted Answer

A) Different investors have different risk appetites. 
B) Individual investors have independent strategies. 
C) The stock market is not subject to sufficient government regulations. 
D) Investors often mimic the strategies of the successful investor. 
E) The market is always inefficient. 
A) Different investors have different risk appetites. 
B) Individual investors have independent strategies. 
C) The stock market is not subject to sufficient government regulations. 
D) Investors often mimic the strategies of the successful investor. 
E) The market is always inefficient.

Question 3

During the stock market bubbles,the price/earnings [P/E] ratio:

Accepted Answer

A) hits high levels. 
B) falls to zero. 
C) becomes negative. 
D) remains constant. 
E) declines to a very low level. 
A) hits high levels. 
B) falls to zero. 
C) becomes negative. 
D) remains constant. 
E) declines to a very low level.

Question 4

An investor who wants to diversify his portfolio will buy only bonds when both stocks and bonds are expected to yield better returns.

Accepted Answer

A) True 
 B)False

Question 5

If both demand for and supply of capital increases by equal amounts,then the equilibrium price of capital goes up,and the equilibrium quantity of capital increases.

Accepted Answer

A) True 
 B)False

Question 6

A bond that provides no interest payments but instead is issued at a value that is lower than its face value is called:

Accepted Answer

A) a no-interest bond. 
B) a load-free bond. 
C) a no-load bond. 
D) a zero-coupon bond. 
E) a coupon bond. 
A) a no-interest bond. 
B) a load-free bond. 
C) a no-load bond. 
D) a zero-coupon bond. 
E) a coupon bond.

Question 7

When you purchase a bond in the secondary market,you are lending money directly to the borrower.

Accepted Answer

A) True 
 B)False

Question 8

When a price rise of an asset can be justified by fundamental concepts and past experiences,then such a price rise does not constitute a classic bubble.

Accepted Answer

A) True 
 B)False

Question 9

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 initial demand curve is D1,the equilibrium price of capital is:

Accepted Answer

A) P2. 
B) P4. 
C) P1. 
D) P5. 
E) P3. 
A) P2. 
B) P4. 
C) P1. 
D) P5. 
E) P3.

Question 10

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 initial demand curve is D1,the capital market is in equilibrium at:

Accepted Answer

A) point a. 
B) point b. 
C) point c. 
D) point d. 
E) point f. 
A) point a. 
B) point b. 
C) point c. 
D) point d. 
E) point f.

Question 11

Bonds and stocks act as complementary goods such that a rise in the price of one raises the demand for the other.

Accepted Answer

A) True 
 B)False

Question 12

All of the following will shift the demand curve for capital,except:

Accepted Answer

A) future expectations about the demand for the good produced by a firm. 
B) technological changes. 
C) the price of capital. 
D) the entry of new firms into the market. 
E) the change in the interest rate. 
A) future expectations about the demand for the good produced by a firm. 
B) technological changes. 
C) the price of capital. 
D) the entry of new firms into the market. 
E) the change in the interest rate.

Question 13

According to the ratings given by Moody's and Standard and Poor's,_____ bonds are corporate bonds that carry the lowest risk and offer a lower yield.

Accepted Answer

A) A+ 
B) white collar 
C) AA 
D) blue chip 
E) AA+ 
A) A+ 
B) white collar 
C) AA 
D) blue chip 
E) AA+

Question 14

In order to induce risk averse people to invest in risky ventures,an additional sum of money is often paid to them along with the return.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following describes the relationship between bond prices and bond yields?

Accepted Answer

A) There is a positive relationship between the yield and the price. 
B) Every 1% increase in the bond price results in a 2% increase in the yield. 
C) When the bond price is greater than the annual interest,yield is greater than one. 
D) Bond price divided by the bid price is equal to the yield. 
E) There is an inverse relationship between the yield and the price. 
A) There is a positive relationship between the yield and the price. 
B) Every 1% increase in the bond price results in a 2% increase in the yield. 
C) When the bond price is greater than the annual interest,yield is greater than one. 
D) Bond price divided by the bid price is equal to the yield. 
E) There is an inverse relationship between the yield and the price.

Question 16

Compute the actual investment in a mutual fund carrying a front-end load of 10 percent on a sum of $10,000 invested by an individual.

Accepted Answer

A) $1,000 
B) $10,000 
C) $11,000 
D) $9,000 
E) $12,000 
A) $1,000 
B) $10,000 
C) $11,000 
D) $9,000 
E) $12,000

Question 17

The largest stock exchange in the world is:

Accepted Answer

A) the Munich Stock Exchange. 
B) the London Stock Exchange. 
C) the New York Stock Exchange. 
D) the Tokyo Stock Exchange. 
E) the Shanghai Stock Exchange. 
A) the Munich Stock Exchange. 
B) the London Stock Exchange. 
C) the New York Stock Exchange. 
D) the Tokyo Stock Exchange. 
E) the Shanghai Stock Exchange.

Question 18

A low P/E ratio of a stock means that the company issuing the stock is headed to trouble in near future.

Accepted Answer

A) True 
 B)False

Question 19

The column 'Close' in the mutual fund table indicates the lowest asset value at which the fund was sold at the end of the last week.

Accepted Answer

A) True 
 B)False

Question 20

The maturity date of a bond is:

Accepted Answer

A) the date on which the lender receives the coupon from the borrower. 
B) the date on which the borrower takes the loan. 
C) the date on which the bond is bought by an individual from the firm. 
D) the specified time when the borrower repays the loan. 
E) the specified time when the borrower sells the bond held by him to someone else. 
A) the date on which the lender receives the coupon from the borrower. 
B) the date on which the borrower takes the loan. 
C) the date on which the bond is bought by an individual from the firm. 
D) the specified time when the borrower repays the loan. 
E) the specified time when the borrower sells the bond held by him to someone else.

Exam 16: Capital Markets

Risk is typically measured:

Why is it unlikely for even a very successful investor to continuously outperform the market?

During the stock market bubbles,the price/earnings [P/E] ratio:

An investor who wants to diversify his portfolio will buy only bonds when both stocks and bonds are expected to yield better returns.

If both demand for and supply of capital increases by equal amounts,then the equilibrium price of capital goes up,and the equilibrium quantity of capital increases.

A bond that provides no interest payments but instead is issued at a value that is lower than its face value is called:

When you purchase a bond in the secondary market,you are lending money directly to the borrower.

When a price rise of an asset can be justified by fundamental concepts and past experiences,then such a price rise does not constitute a classic bubble.

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 initial demand curve is D1,the equilibrium price of capital is:

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 initial demand curve is D1,the capital market is in equilibrium at:

Bonds and stocks act as complementary goods such that a rise in the price of one raises the demand for the other.

All of the following will shift the demand curve for capital,except:

According to the ratings given by Moody's and Standard and Poor's,_____ bonds are corporate bonds that carry the lowest risk and offer a lower yield.

In order to induce risk averse people to invest in risky ventures,an additional sum of money is often paid to them along with the return.

Which of the following describes the relationship between bond prices and bond yields?

Compute the actual investment in a mutual fund carrying a front-end load of 10 percent on a sum of $10,000 invested by an individual.

The largest stock exchange in the world is:

A low P/E ratio of a stock means that the company issuing the stock is headed to trouble in near future.

The column 'Close' in the mutual fund table indicates the lowest asset value at which the fund was sold at the end of the last week.

The maturity date of a bond is:

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 initial demand curve is D₁,the equilibrium price of capital is:

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 initial demand curve is D₁,the capital market is in equilibrium at: