Question 1

If a firm's price­earnings ratio is relatively low, then it might be an indication that

Accepted Answer

A)  the demand for the stock is relatively high. 
B)  the supply of the stock is relatively low. 
C)  people expect the firm's earnings to rise. 
D)  people expect the firm's earnings to fall. 
A)  the demand for the stock is relatively high. 
B)  the supply of the stock is relatively low. 
C)  people expect the firm's earnings to rise. 
D)  people expect the firm's earnings to fall.

Question 2

Other things the same, as the maturity of a bond becomes longer, the bond will pay

Accepted Answer

A)  a lower interest rate because it has less risk. 
B)  a lower interest rate because it has more risk. 
C)  a higher interest rate because it has more risk. 
D)  the same interest rate, because there is no relationship between term and risk. 
A)  a lower interest rate because it has less risk. 
B)  a lower interest rate because it has more risk. 
C)  a higher interest rate because it has more risk. 
D)  the same interest rate, because there is no relationship between term and risk.

Question 3

Stock in Tasty Greens Restaurants is selling at $80 per share with 1 million shares outstanding. Last year, Tasty Greens earned $4 million, of which it retained $2.4 million for future investments. The dividend yield on the stock is

Accepted Answer

A)  8 percent. 
B)  2 percent. 
C)  3 percent. 
D)  5 percent. 
A)  8 percent. 
B)  2 percent. 
C)  3 percent. 
D)  5 percent.

Question 4

Your brother-in-law wants to buy either stock or bonds in Cedar Valley Furniture, which manufactures wooden furniture. He wants your advice on whether to buy stock or bonds. Explain how each of his quotes below should affect his choice between the stock and the bond.
a. "I have reason to believe that people are soon going to find rocking chairs have health benefits."
b. "I would like to tell people I am part owner of Cedar Valley Furniture."
c. "I do not want to take on much risk."

Accepted Answer

a. Presumably, when this happens, unless

Question 5

A low P/E for a stock indicates that

Accepted Answer

A)  people may expect earnings to fall in the future, perhaps because the firm will be faced with increased competition. 
B)  its dividends have been low so that no one is willing to pay very much for it. 
C)  the corporation is possibly overvalued. 
D)  All of the above are correct. 
A)  people may expect earnings to fall in the future, perhaps because the firm will be faced with increased competition. 
B)  its dividends have been low so that no one is willing to pay very much for it. 
C)  the corporation is possibly overvalued. 
D)  All of the above are correct.

Question 6

In a closed economy, what does Y - T - C) represent?

Accepted Answer

A)  national saving 
B)  government tax revenue 
C)  public saving 
D)  private saving 
A)  national saving 
B)  government tax revenue 
C)  public saving 
D)  private saving

Question 7

Historically, the typical price-earnings ratio for stocks is about

Accepted Answer

A)  3 
B)  8 
C)  15 
D)  26 
A)  3 
B)  8 
C)  15 
D)  26

Question 8

The number of shares of Biggie Corporation stock outstanding in 2013 was 100 million. In 2013, Biggie stock paid a dividend of $2.50 per share and its dividend yield was 2 percent. If the price­earnings ratio is 20, then Biggie's total earnings in 2013 amounted to

Accepted Answer

A)  $15.6 million. 
B)  $250 million. 
C)  $160 million. 
D)  $625 million. 
A)  $15.6 million. 
B)  $250 million. 
C)  $160 million. 
D)  $625 million.

Question 9

Index funds

Accepted Answer

A)  typically have a higher rate of return and higher costs than managed mutual funds. 
B)  typically have a higher rate of return and lower costs than managed mutual funds. 
C)  typically have a lower rate of return and higher costs than managed mutual funds. 
D)  typically have a lower rate of return and lower costs than managed mutual funds. 
A)  typically have a higher rate of return and higher costs than managed mutual funds. 
B)  typically have a higher rate of return and lower costs than managed mutual funds. 
C)  typically have a lower rate of return and higher costs than managed mutual funds. 
D)  typically have a lower rate of return and lower costs than managed mutual funds.

Question 10

Which of the following is an example of financial intermediation?

Accepted Answer

A)  John buys shares of stock issued by a fast food company. 
B)  A foreign government buys bonds issued by the U.S. Treasury. 
C)  Susan makes a deposit at a bank and the bank uses this money to make an auto loan to Ferguson. 
D)  None of the above is correct. 
A)  John buys shares of stock issued by a fast food company. 
B)  A foreign government buys bonds issued by the U.S. Treasury. 
C)  Susan makes a deposit at a bank and the bank uses this money to make an auto loan to Ferguson. 
D)  None of the above is correct.

Question 11

Suppose private saving in a closed economy is $12b and investment is $10b.

Accepted Answer

A)  National saving must equal $12b. 
B)  Public saving must equal $2b. 
C)  The government budget surplus must equal $2b. 
D)  The government budget deficit must equal $2b. 
A)  National saving must equal $12b. 
B)  Public saving must equal $2b. 
C)  The government budget surplus must equal $2b. 
D)  The government budget deficit must equal $2b.

Question 12

Other things the same, if the government decreases transfer payments, then

Accepted Answer

A)  both the interest rate and the equilibrium quantity of loanable funds fall. 
B)  both the interest rate and the equilibrium quantity of loanable funds rise. 
C)  the interest rate rises and the equilibrium quantity of loanable funds falls. 
D)  the interest rate falls and the equilibrium quantity of loanable funds rises. 
A)  both the interest rate and the equilibrium quantity of loanable funds fall. 
B)  both the interest rate and the equilibrium quantity of loanable funds rise. 
C)  the interest rate rises and the equilibrium quantity of loanable funds falls. 
D)  the interest rate falls and the equilibrium quantity of loanable funds rises.

Question 13

If the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied,

Accepted Answer

A)  there is a surplus and the interest rate is above the equilibrium level. 
B)  there is a surplus and the interest rate is below the equilibrium level. 
C)  there is a shortage and the interest rate is above the equilibrium level. 
D)  there is a shortage and the interest rate is below the equilibrium level. 
A)  there is a surplus and the interest rate is above the equilibrium level. 
B)  there is a surplus and the interest rate is below the equilibrium level. 
C)  there is a shortage and the interest rate is above the equilibrium level. 
D)  there is a shortage and the interest rate is below the equilibrium level.

Question 14

ABC Co. sells newly issued bonds. JLG Co. sells newly issued stocks. Which company is raising funds in financial markets?

Accepted Answer

A)  only ABC 
B)  only JLG 
C)  both ABC and JLG 
D)  neither ABC nor JLG 
A)  only ABC 
B)  only JLG 
C)  both ABC and JLG 
D)  neither ABC nor JLG

Question 15

The single most important piece of information about a stock is its

Accepted Answer

A)  term. 
B)  dividend. 
C)  daily volume. 
D)  price. 
A)  term. 
B)  dividend. 
C)  daily volume. 
D)  price.

Question 16

Suppose that Congress were to repeal an investment tax credit. What would happen in the market for loanable funds?

Accepted Answer

A)  The demand and supply of loanable funds would shift right. 
B)  The demand and supply of loanable funds would shift left. 
C)  The supply of loanable funds would shift right. 
D)  The demand for loanable funds would shift left. 
A)  The demand and supply of loanable funds would shift right. 
B)  The demand and supply of loanable funds would shift left. 
C)  The supply of loanable funds would shift right. 
D)  The demand for loanable funds would shift left.

Question 17

You hold bonds issued by the city of Sacramento, California. The interest you earn each year on these bonds

Accepted Answer

A)  is not subject to federal income tax and so these bonds pay a higher interest rate than otherwise comparable bonds issued by the U.S. government. 
B)  is not subject to federal income tax and so these bonds pay a lower interest rate than otherwise comparable bonds issued by the U.S. government. 
C)  is subject to federal income tax and so these bonds pay a higher interest rate than otherwise comparable bonds issued by the U.S. government. 
D)  is subject to federal income tax and so these bonds pay a lower interest rate than otherwise comparable bonds issued by the U.S. government. 
A)  is not subject to federal income tax and so these bonds pay a higher interest rate than otherwise comparable bonds issued by the U.S. government. 
B)  is not subject to federal income tax and so these bonds pay a lower interest rate than otherwise comparable bonds issued by the U.S. government. 
C)  is subject to federal income tax and so these bonds pay a higher interest rate than otherwise comparable bonds issued by the U.S. government. 
D)  is subject to federal income tax and so these bonds pay a lower interest rate than otherwise comparable bonds issued by the U.S. government.

Question 18

In 2009 and 2010, the federal government's budget deficit was about

Accepted Answer

A)  5 percent of GDP, and this was the highest debt-GDP ratio in U.S history. 
B)  10 percent of GDP, and this was the highest debt-GDP ratio in U.S history. 
C)  5 percent of GDP, and this was the highest debt-GDP ratio since World War II. 
D)  10 percent of GDP, and this was the highest debt-GDP ratio since World War II. 
A)  5 percent of GDP, and this was the highest debt-GDP ratio in U.S history. 
B)  10 percent of GDP, and this was the highest debt-GDP ratio in U.S history. 
C)  5 percent of GDP, and this was the highest debt-GDP ratio since World War II. 
D)  10 percent of GDP, and this was the highest debt-GDP ratio since World War II.

Question 19

A perpetuity is

Accepted Answer

A)  a financial intermediary that has existed throughout recorded history. 
B)  an instrument of equity finance. 
C)  a stock that pays dividends forever. 
D)  a bond that pays interest forever. 
A)  a financial intermediary that has existed throughout recorded history. 
B)  an instrument of equity finance. 
C)  a stock that pays dividends forever. 
D)  a bond that pays interest forever.

Question 20

Use the following table to answer the following questions.
Table 26-2
  
-Refer to Table 26-2. Which company had the highest dollar dividend per share?

Accepted Answer

A)  Boeing Co. 
B)  Eli Lilly and Co. 
C)  Kraft Foods Group 
D)  Kellogg Co. 
A)  Boeing Co. 
B)  Eli Lilly and Co. 
C)  Kraft Foods Group 
D)  Kellogg Co.

Exam 18: Saving, Investment, and the Financial System

If a firm's price­earnings ratio is relatively low, then it might be an indication that

Other things the same, as the maturity of a bond becomes longer, the bond will pay

Stock in Tasty Greens Restaurants is selling at $80 per share with 1 million shares outstanding. Last year, Tasty Greens earned $4 million, of which it retained $2.4 million for future investments. The dividend yield on the stock is

A low P/E for a stock indicates that

In a closed economy, what does Y - T - C) represent?

Historically, the typical price-earnings ratio for stocks is about

The number of shares of Biggie Corporation stock outstanding in 2013 was 100 million. In 2013, Biggie stock paid a dividend of $2.50 per share and its dividend yield was 2 percent. If the price­earnings ratio is 20, then Biggie's total earnings in 2013 amounted to

Index funds

Which of the following is an example of financial intermediation?

Suppose private saving in a closed economy is $12b and investment is $10b.

Other things the same, if the government decreases transfer payments, then

If the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied,

ABC Co. sells newly issued bonds. JLG Co. sells newly issued stocks. Which company is raising funds in financial markets?

The single most important piece of information about a stock is its

Suppose that Congress were to repeal an investment tax credit. What would happen in the market for loanable funds?

You hold bonds issued by the city of Sacramento, California. The interest you earn each year on these bonds

In 2009 and 2010, the federal government's budget deficit was about

A perpetuity is

Use the following table to answer the following questions. Table 26-2 -Refer to Table 26-2. Which company had the highest dollar dividend per share?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Costs of Production

Firms in Competitive Markets

Monopoly

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

Filters

If a firm's priceearnings ratio is relatively low, then it might be an indication that

The number of shares of Biggie Corporation stock outstanding in 2013 was 100 million. In 2013, Biggie stock paid a dividend of $2.50 per share and its dividend yield was 2 percent. If the priceearnings ratio is 20, then Biggie's total earnings in 2013 amounted to