Question 1

The advantage to a corporation of issuing bonds instead of stock is that

Accepted Answer

A) The owners keep control of the company. 
B) Bond prices do not fluctuate. 
C) The owners do not have to make interest payments on the loan. 
D) The possibility of default is lower when bonds are issued.

Question 2

If interest rates are high,the future payoff for every dollar saved is low.

Accepted Answer

A) True 
 B)False

Question 3

Profits used by a corporation for investment or unforeseen contingencies are known as retained earnings.

Accepted Answer

A) True 
 B)False

Question 4

Venture capital reduces the rate of economic growth.

Accepted Answer

A) True 
 B)False

Question 5

In return for their financial backing,venture capitalists

Accepted Answer

A) Are exempt from risk. 
B) Share in the profits that may result. 
C) Are guaranteed a return on their investment. 
D) Are repaid a fixed amount of interest.

Question 6

The present discounted value of a future payment will decrease when interest rates decrease.

Accepted Answer

A) True 
 B)False

Question 7

The liquidity of an asset refers to the ability of the asset to be converted into cash.

Accepted Answer

A) True 
 B)False

Question 8

The market value of a bond on any given day is also known as its par value.

Accepted Answer

A) True 
 B)False

Question 9

The total monetary returns associated with stock ownership result from dividends and capital gains.

Accepted Answer

A) True 
 B)False

Question 10

In a publicly traded corporation,which of the following is responsible for business debts and activities?

Accepted Answer

A) The individual stockholders. 
B) The board members. 
C) The owners. 
D) The corporation itself.

Question 11

Venture capitalists share in the risks and rewards by financing new ventures.

Accepted Answer

A) True 
 B)False

Question 12

Bonds may be issued by the U.S.

Accepted Answer

A) Congress. 
B) Treasury. 
C) Federal Reserve Bank. 
D) Immigration and Naturalization Agency.

Question 13

Financial intermediaries increase the probability of a risky venture being funded by concentrating the risk among a few investors.

Accepted Answer

A) True 
 B)False

Question 14

Figure 32.1 represents the market for loanable funds.The equilibrium interest rate

Accepted Answer

A) Is less than the rate of return on capital. 
B) Is greater than the rate of return on capital. 
C) Represents the price paid for the use of money. 
D) Is equal to the risk premium.

Question 15

Suppose you purchase shares in Acme Gadget Company for $10 per share.The company believes there is a 20 percent chance it will fail to earn a discounted future profit of $1.85.What is the expected rate of return on your investment?

Accepted Answer

A) 18.5 percent. 
B) 13.5 percent. 
C) 14.8 percent. 
D) 20.0 percent.

Question 16

The amount of corporate profits not paid out in dividends is known as

Accepted Answer

A) The par value. 
B) Retained earnings. 
C) The price/earnings ratio. 
D) Corporate stock.

Question 17

If the price of an existing bond increases,the current yield increases.

Accepted Answer

A) True 
 B)False

Question 18

When the risk factor associated with a stock increases,the expected rate of return increases.

Accepted Answer

A) True 
 B)False

Question 19

Default refers to the

Accepted Answer

A) Rate of interest to be paid on a bond. 
B) Amount to be repaid when the bond is due. 
C) Failure to make scheduled interest or principal payments on a bond. 
D) Failure of stock to increase in value.

Question 20

List the factors that influence the supply of loanable funds and the factors that influence the demand for loanable fund.

Accepted Answer

The answer of List the factors that influence the supply...

Exam 32: Financial Markets

The advantage to a corporation of issuing bonds instead of stock is that

If interest rates are high,the future payoff for every dollar saved is low.

Profits used by a corporation for investment or unforeseen contingencies are known as retained earnings.

Venture capital reduces the rate of economic growth.

In return for their financial backing,venture capitalists

The present discounted value of a future payment will decrease when interest rates decrease.

The liquidity of an asset refers to the ability of the asset to be converted into cash.

The market value of a bond on any given day is also known as its par value.

The total monetary returns associated with stock ownership result from dividends and capital gains.

In a publicly traded corporation,which of the following is responsible for business debts and activities?

Venture capitalists share in the risks and rewards by financing new ventures.

Bonds may be issued by the U.S.

Financial intermediaries increase the probability of a risky venture being funded by concentrating the risk among a few investors.

Figure 32.1 represents the market for loanable funds.The equilibrium interest rate

Suppose you purchase shares in Acme Gadget Company for $10 per share.The company believes there is a 20 percent chance it will fail to earn a discounted future profit of $1.85.What is the expected rate of return on your investment?

The amount of corporate profits not paid out in dividends is known as

If the price of an existing bond increases,the current yield increases.

When the risk factor associated with a stock increases,the expected rate of return increases.

Default refers to the

List the factors that influence the supply of loanable funds and the factors that influence the demand for loanable fund.