Question 1

Which of the following is sometimes used as a synonym to describe a bond?

Accepted Answer

A) Stock 
B) Fixed-income security 
C) Capital asset 
D) Retained earning 
E) Depreciation 
A) Stock 
B) Fixed-income security 
C) Capital asset 
D) Retained earning 
E) Depreciation

Question 2

Index mutual funds purchase shares of stock in those companies which are included in the market based indexes.

Accepted Answer

A) True 
 B)False

Question 3

A stock index measures the:

Accepted Answer

A) change in dividend payments of a group of stocks. 
B) fluctuation in the price earning ratio of each share. 
C) change in the trading volume in the stock exchange. 
D) price movements of a group of stocks. 
E) change in the number of enlisted companies. 
A) change in dividend payments of a group of stocks. 
B) fluctuation in the price earning ratio of each share. 
C) change in the trading volume in the stock exchange. 
D) price movements of a group of stocks. 
E) change in the number of enlisted companies.

Question 4

An investment that has the same features, such as risk and ease of selling, as the investment being considered is referred to as a(n):

Accepted Answer

A) equivalent investment. 
B) comparable investment. 
C) twin investment. 
D) dual investment. 
E) duplication investment. 
A) equivalent investment. 
B) comparable investment. 
C) twin investment. 
D) dual investment. 
E) duplication investment.

Question 5

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 6

A bond with a par value of $1, 000 is traded at $2, 000.The interest rate offered on the bond is 10 percent per annum.The bond matures after a period of 5 years.The yield from the bond is:

Accepted Answer

A) 5 percent. 
B) 10 percent. 
C) 20 percent. 
D) 15 percent. 
E) 2.5 percent. 
A) 5 percent. 
B) 10 percent. 
C) 20 percent. 
D) 15 percent. 
E) 2.5 percent.

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

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 9

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 10

Although technically owning a share means the shareholder holds a share of everything that the firm owns but in actuality he is only entitled to a share of the company's earnings.

Accepted Answer

A) True 
 B)False

Question 11

When the price of a stock rises significantly higher than that can be justified by the dividends the firm can be expected to pay in future, a(n)_____ is said to have occurred.

Accepted Answer

A) stock market crash 
B) arbitrage 
C) stock market bubble 
D) bull run 
E) short sale 
A) stock market crash 
B) arbitrage 
C) stock market bubble 
D) bull run 
E) short sale

Question 12

Corporations can attract more lenders by offering a lower coupon on their bonds than the government bonds.

Accepted Answer

A) True 
 B)False

Question 13

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 14

Stock prices often fail to correctly reflect complete information about a company in the long run.

Accepted Answer

A) True 
 B)False

Question 15

If $30 is paid for a share of stock and the earning per share is $3, how long will it take for the firm's earnings to add up to the purchase price?

Accepted Answer

A) 30 years 
B) 3 years 
C) 27 years 
D) 10 years 
E) 90 years 
A) 30 years 
B) 3 years 
C) 27 years 
D) 10 years 
E) 90 years

Question 16

The figure given below shows the demand curves [D1 and D2] and the supply curve [S1] of capital. Figure 30.1   In Figure 30.1, if the initial demand curve is D1, the equilibrium quantity of capital demanded is:

Accepted Answer

A) Q1. 
B) Q3. 
C) 0. 
D) Q4. 
E) Q2. 
A) Q1. 
B) Q3. 
C) 0. 
D) Q4. 
E) Q2.

Question 17

The phrase, "Google stock soared Friday, continuing Wall Street's love affair with the company, " implies that Google's earnings were much more than it was expected in that quarter.

Accepted Answer

A) True 
 B)False

Question 18

The demand curve for the shares of a company's stock slopes upward, since the higher the price of the stock, everything else the same, the higher the quantity of stock demanded.

Accepted Answer

A) True 
 B)False

Question 19

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 20

Stocks that offer a guaranteed fixed periodic payment or dividend are known as:

Accepted Answer

A) common stock. 
B) restricted stock. 
C) close-ended stock. 
D) preferred stock. 
E) open-ended stock. 
A) common stock. 
B) restricted stock. 
C) close-ended stock. 
D) preferred stock. 
E) open-ended stock.

Exam 51: Capital Markets

Which of the following is sometimes used as a synonym to describe a bond?

Index mutual funds purchase shares of stock in those companies which are included in the market based indexes.

A stock index measures the:

An investment that has the same features, such as risk and ease of selling, as the investment being considered is referred to as a(n):

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

A bond with a par value of $1, 000 is traded at $2, 000.The interest rate offered on the bond is 10 percent per annum.The bond matures after a period of 5 years.The yield from the bond is:

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

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

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:

Although technically owning a share means the shareholder holds a share of everything that the firm owns but in actuality he is only entitled to a share of the company's earnings.

When the price of a stock rises significantly higher than that can be justified by the dividends the firm can be expected to pay in future, a(n)_____ is said to have occurred.

Corporations can attract more lenders by offering a lower coupon on their bonds than the government bonds.

Risk is typically measured:

Stock prices often fail to correctly reflect complete information about a company in the long run.

If $30 is paid for a share of stock and the earning per share is $3, how long will it take for the firm's earnings to add up to the purchase price?

The figure given below shows the demand curves [D1 and D2] and the supply curve [S1] of capital. Figure 30.1 In Figure 30.1, if the initial demand curve is D1, the equilibrium quantity of capital demanded is:

The phrase, "Google stock soared Friday, continuing Wall Street's love affair with the company, " implies that Google's earnings were much more than it was expected in that quarter.

The demand curve for the shares of a company's stock slopes upward, since the higher the price of the stock, everything else the same, the higher the quantity of stock demanded.

What is the main difference between common and preferred stocks?

Stocks that offer a guaranteed fixed periodic payment or dividend are known as:

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

National Income Accounting

an Introduction to the Foreign Exchange Market and the Balance of Payments

Consumer Choice

Supply: The Costs of Doing Business

Unemployment and Inflation

Macroeconomic Equilibrium: Aggregate Demand and Supply

Profit Maximization

Aggregate Expenditures

Perfect Competition

Income and Expenditures Equilibrium

Monopoly

Fiscal Policy

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Money and Banking

Market Failures, Government Failures, and Rent Seeking

Monetary Policy

Macroeconomic Policy: Tradeoffs, Expectations, Credibility, and Sources of Business Cycles

Resource Markets

Macroeconomic Viewpoints: New Keynesian, Monetarist, and New Classical

The Labor Market

Capital Markets

Economic Growth

Development Economics

the Land Market and Natural Resources

Aging, Social Security and Health Care

Globalization

Elasticity: Demand and Supply

Income Distribution, Poverty and Government Policy

World Trade Equilibrium

Consumer Choice

International Trade Restrictions

World Trade Equilibrium

Exchange Rates and Financial Links Between Countries

International Trade Restrictions

Supply: the Costs of Doing Business

Exchange Rates and Financial Links Between Countries

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 30.1 In Figure 30.1, if the initial demand curve is D₁, the equilibrium quantity of capital demanded is: