Question 1

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 2

The product of the stock price and the total outstanding shares of that stock are referred to as:

Accepted Answer

A) market capitalization. 
B) floating capital. 
C) book value. 
D) financial value. 
E) face value. 
A) market capitalization. 
B) floating capital. 
C) book value. 
D) financial value. 
E) face value.

Question 3

Fees paid to the mutual fund manager are called:

Accepted Answer

A) fund fees. 
B) service fees. 
C) load. 
D) dividends. 
E) agency fees. 
A) fund fees. 
B) service fees. 
C) load. 
D) dividends. 
E) agency fees.

Question 4

If the earnings report of a firm indicates higher earnings than was expected by the investors:

Accepted Answer

A) the stock prices of the firm will decline. 
B) the price of the product produced by this firm will decline. 
C) the price of the product produced by this firm will rise. 
D) the firm will spend more on advertising. 
E) the stock prices of this firm will increase. 
A) the stock prices of the firm will decline. 
B) the price of the product produced by this firm will decline. 
C) the price of the product produced by this firm will rise. 
D) the firm will spend more on advertising. 
E) the stock prices of this firm will increase.

Question 5

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 6

If the price of capital falls:

Accepted Answer

A) the supply of capital increases. 
B) the quantity supplied of capital decreases. 
C) the quantity supplied of capital increases. 
D) the quantity supplied of capital remains unchanged. 
E) the supply of capital decreases. 
A) the supply of capital increases. 
B) the quantity supplied of capital decreases. 
C) the quantity supplied of capital increases. 
D) the quantity supplied of capital remains unchanged. 
E) the supply of capital decreases.

Question 7

The price of Amazon.com stock was very high in the 1990s although the company never earned an economic profit.This demonstrates that:

Accepted Answer

A) investors' expectations of future profits alone influence the stock prices. 
B) the performance of a firm has no bearing on stock prices. 
C) stock markets are highly inefficient because investors vary in their risk appetites. 
D) speculation based on wishful thinking by investors have a bearing on the stock prices. 
E) investor expectations are generally rational. 
A) investors' expectations of future profits alone influence the stock prices. 
B) the performance of a firm has no bearing on stock prices. 
C) stock markets are highly inefficient because investors vary in their risk appetites. 
D) speculation based on wishful thinking by investors have a bearing on the stock prices. 
E) investor expectations are generally rational.

Question 8

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 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 9

If bonds and stocks are considered to be substitute goods, and the investors expect stock prices to drop in recent future:

Accepted Answer

A) the price of bonds will also decline. 
B) the supply of bond will increase. 
C) the interest rate on bonds will decline. 
D) the demand for stocks will increase. 
E) the demand for bonds will decline. 
A) the price of bonds will also decline. 
B) the supply of bond will increase. 
C) the interest rate on bonds will decline. 
D) the demand for stocks will increase. 
E) the demand for bonds will decline.

Question 10

If the coupon-rate of a particular bond increases:

Accepted Answer

A) the supply of the bond increases. 
B) the price of the bond declines. 
C) the demand for the bond declines. 
D) the supply of the bond decreases. 
E) the demand for the bond increases. 
A) the supply of the bond increases. 
B) the price of the bond declines. 
C) the demand for the bond declines. 
D) the supply of the bond decreases. 
E) the demand for the bond increases.

Question 11

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 demand curve for capital shifts to D2, the equilibrium price and quantity of capital are:

Accepted Answer

A) P1 and Q1. 
B) P2 and Q2. 
C) P5 and Q1. 
D) P3 and Q3. 
E) P4 and Q4. 
A) P1 and Q1. 
B) P2 and Q2. 
C) P5 and Q1. 
D) P3 and Q3. 
E) P4 and Q4.

Question 12

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 13

The possible returns to a share holder are:

Accepted Answer

A) rent and capital gain. 
B) fixed interest and dividend. 
C) fixed interest and capital gain. 
D) rent and fixed interest. 
E) dividend and capital gain. 
A) rent and capital gain. 
B) fixed interest and dividend. 
C) fixed interest and capital gain. 
D) rent and fixed interest. 
E) dividend and capital gain.

Question 14

The face value of a bond is:

Accepted Answer

A) the amount of the coupon that is paid at equal intervals. 
B) the amount repaid to the lender on maturity. 
C) the percentage of company profits that is paid to the borrower. 
D) equivalent to the capital gain. 
E) equivalent to economic profit. 
A) the amount of the coupon that is paid at equal intervals. 
B) the amount repaid to the lender on maturity. 
C) the percentage of company profits that is paid to the borrower. 
D) equivalent to the capital gain. 
E) equivalent to economic profit.

Question 15

The housing bubble experienced in 2006 in the U.S.was exhibited by the extraordinary rise in the ratio of prices of houses to rents on houses.

Accepted Answer

A) True 
 B)False

Question 16

A pervasive tradeoff in financial markets relates risk to expected returns.Which of the following statements reflects this relationship?

Accepted Answer

A) The higher the risk of an asset, the lower the expected return on the asset. 
B) There is usually no relationship between risk and return. 
C) The higher the risk of an asset, the higher the expected return on the asset. 
D) The return on an asset is normally positively related to the risk of comparable assets. 
E) The return on a risky asset cannot be compared with the return on a risk free asset. 
A) The higher the risk of an asset, the lower the expected return on the asset. 
B) There is usually no relationship between risk and return. 
C) The higher the risk of an asset, the higher the expected return on the asset. 
D) The return on an asset is normally positively related to the risk of comparable assets. 
E) The return on a risky asset cannot be compared with the return on a risk free asset.

Question 17

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 18

A firm decides to hire more equipments if:

Accepted Answer

A) the average revenue it earns by selling its output is equal to its average cost. 
B) its total revenue is greater than the total cost of hiring the equipments. 
C) the marginal revenue product of the additional unit of capital is greater than the marginal factor cost. 
D) its average revenue is greater than the average cost of hiring equipments. 
E) the price of its product is greater than the average cost of production. 
A) the average revenue it earns by selling its output is equal to its average cost. 
B) its total revenue is greater than the total cost of hiring the equipments. 
C) the marginal revenue product of the additional unit of capital is greater than the marginal factor cost. 
D) its average revenue is greater than the average cost of hiring equipments. 
E) the price of its product is greater than the average cost of production.

Question 19

The U.S.government bonds are likely to be less risky because:

Accepted Answer

A) the government always runs a balanced budget. 
B) the government bonds are backed by gold. 
C) the government can raise taxes to redeem the bonds at maturity. 
D) the government has limited liability to repay. 
E) the government always has an excess reserve of foreign exchange. 
A) the government always runs a balanced budget. 
B) the government bonds are backed by gold. 
C) the government can raise taxes to redeem the bonds at maturity. 
D) the government has limited liability to repay. 
E) the government always has an excess reserve of foreign exchange.

Question 20

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

Exam 51: Capital Markets

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

The product of the stock price and the total outstanding shares of that stock are referred to as:

Fees paid to the mutual fund manager are called:

If the earnings report of a firm indicates higher earnings than was expected by the investors:

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

If the price of capital falls:

The price of Amazon.com stock was very high in the 1990s although the company never earned an economic profit.This demonstrates that:

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 price set in the market is P3 when the demand curve is D1, then:

If bonds and stocks are considered to be substitute goods, and the investors expect stock prices to drop in recent future:

If the coupon-rate of a particular bond increases:

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 demand curve for capital shifts to D2, the equilibrium price and quantity of capital are:

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

The possible returns to a share holder are:

The face value of a bond is:

The housing bubble experienced in 2006 in the U.S.was exhibited by the extraordinary rise in the ratio of prices of houses to rents on houses.

A pervasive tradeoff in financial markets relates risk to expected returns.Which of the following statements reflects this relationship?

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

A firm decides to hire more equipments if:

The U.S.government bonds are likely to be less risky because:

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.

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 price set in the market is P₃when the demand curve is D₁, then:

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 demand curve for capital shifts to D₂, the equilibrium price and quantity of capital are: