Question 1

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 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 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 4

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

Accepted Answer

A) True 
 B)False

Question 5

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 6

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 7

Which of the following factors lead to a drastic rise in the price of assets?

Accepted Answer

A) Increased supply of assets 
B) Increase in the market rate of interest 
C) Reduced demand for money. 
D) Increased liquidity in the economy. 
E) Contractionary monetary and fiscal policies being undertaken by the government 
A) Increased supply of assets 
B) Increase in the market rate of interest 
C) Reduced demand for money. 
D) Increased liquidity in the economy. 
E) Contractionary monetary and fiscal policies being undertaken by the government

Question 8

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:

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

Mutual funds that invest only in companies that meet certain criteria and usually exclude companies that produce tobacco, weapons, or alcoholic beverages are known as:

Accepted Answer

A) socially responsible funds. 
B) global funds. 
C) equity funds. 
D) fixed-income funds. 
E) money market funds. 
A) socially responsible funds. 
B) global funds. 
C) equity funds. 
D) fixed-income funds. 
E) money market funds.

Question 10

When the rate of interest rises, the resulting change in the demand for capital is shown graphically by:

Accepted Answer

A) a movement down along the demand curve. 
B) a rightward shift of the demand curve. 
C) a leftward shift of the demand curve. 
D) a movement up along the demand curve. 
E) an outward rotation of the demand curve. 
A) a movement down along the demand curve. 
B) a rightward shift of the demand curve. 
C) a leftward shift of the demand curve. 
D) a movement up along the demand curve. 
E) an outward rotation of the demand curve.

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

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 13

Mutual funds that attempt to mimic the performance of a broad market index, such as the Dow Jones Industrial Average, are known as:

Accepted Answer

A) socially responsible funds. 
B) index funds. 
C) equity funds. 
D) fixed-income funds. 
E) money market funds. 
A) socially responsible funds. 
B) index funds. 
C) equity funds. 
D) fixed-income funds. 
E) money market funds.

Question 14

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 15

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.

Question 16

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:

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 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

Consider a mutual fund with a 6 percent back-end load that decreases to 0 percent in the seventh year.How much of the load will an investor have to bear if she sells it off in the seventh year?

Accepted Answer

A) 1 percent of the load 
B) 0 percent of the load 
C) 2 percent of the load 
D) 6 percent of the load 
E) 4 percent of the load 
A) 1 percent of the load 
B) 0 percent of the load 
C) 2 percent of the load 
D) 6 percent of the load 
E) 4 percent of the load

Question 19

Which of the following is true of the NASDAQ Composite Index?

Accepted Answer

A) It includes stocks of 500 companies that are widely owned by U.S.citizens. 
B) It represent all major areas of the U.S.economy. 
C) It includes mostly the stocks technology and Internet related companies. 
D) It contains more than 6, 500 stocks that trade in the United States. 
E) It includes all of the stocks on the New York Stock Exchange. 
A) It includes stocks of 500 companies that are widely owned by U.S.citizens. 
B) It represent all major areas of the U.S.economy. 
C) It includes mostly the stocks technology and Internet related companies. 
D) It contains more than 6, 500 stocks that trade in the United States. 
E) It includes all of the stocks on the New York Stock Exchange.

Question 20

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

Exam 27: Capital Markets

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

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

A firm decides to hire more equipments if:

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

The possible returns to a share holder are:

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.

Which of the following factors lead to a drastic rise in the price of assets?

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:

Mutual funds that invest only in companies that meet certain criteria and usually exclude companies that produce tobacco, weapons, or alcoholic beverages are known as:

When the rate of interest rises, the resulting change in the demand for capital is shown graphically by:

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

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.

Mutual funds that attempt to mimic the performance of a broad market index, such as the Dow Jones Industrial Average, are known as:

Fees paid to the mutual fund manager are called:

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

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:

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

Consider a mutual fund with a 6 percent back-end load that decreases to 0 percent in the seventh year.How much of the load will an investor have to bear if she sells it off in the seventh year?

Which of the following is true of the NASDAQ Composite Index?

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

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

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

Capital Markets

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:

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: