Question 1

Which of the following is correct?

Accepted Answer

A)  The maturity of a bond refers to the amount to be paid back.
B)  The principal of the bond refers to the person selling the bond.
C)  A bond buyer cannot sell a bond before it matures.
D)  None of the above is correct.

Question 2

People who buy stock in a corporation such as General Electric become

Accepted Answer

A)  creditors of General Electric,so the benefits of holding the stock depend on General Electric's profits.
B)  creditors of General Electric,but the benefits of holding the stock do not depend on General Electric's profits.
C)  part owners of General Electric,so the benefits of holding the stock depend on General Electric's profits.
D)  part owners of General Electric,but the benefits of holding the stock do not depend on General Electric's profits.

Question 3

After a corporation issues stock,the stock

Accepted Answer

A)  cannot be resold.
B)  can be resold only if the corporation wants to buy it back.
C)  can be resold on exchanges;the resale will raise additional funds for the corporation.
D)  None of the above are correct.

Question 4

Which of the following statements is correct?

Accepted Answer

A)  A corporation receives a monetary payment every time its shares of stock are traded by stockholders on organized stock exchanges.
B)  When a corporation sells bonds as a means of raising funds it is engaging in debt finance.
C)  A share of stock is an IOU.
D)  The two most important financial markets in the economy are the stock market and financial intermediaries.

Question 5

The prices of stock traded on exchanges are determined by

Accepted Answer

A)  the Corporate Stock Administration.
B)  the administrators of NASDAQ.
C)  the supply of,and demand for,the stock.
D)  All of the above are correct.

Question 6

Which of the following involves financial intermediation?

Accepted Answer

A)  a bank makes a loan
B)  a household buys stock issued by a corporation
C)  a foreign government purchases U.S.government bonds
D)  All of the above are correct.

Question 7

Index funds

Accepted Answer

A)  buy all the stocks in a given stock index.
B)  promise to beat the market by a certain percentage known as an index.
C)  provide a return that is adjusted for changes in the consumer price index.
D)  buy industries within a particular category of the North American Industry Classification System.

Question 8

Stock represents

Accepted Answer

A)  a claim to a share of the profits of a firm.
B)  ownership in a firm.
C)  equity finance.
D)  All of the above are correct

Question 9

Managed funds

Accepted Answer

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

Question 10

Which of the following bond buyers did not buy the bond that best met his or her objective?

Accepted Answer

A)  Jackie wanted a bond with a high interest rate and was willing to take a lot of risk.She purchased a junk bond.
B)  Andrew wanted a bond that would allow him to legally avoid paying federal income taxes.He purchased a municipal bond.
C)  Suzy wanted to purchase a bond whose seller was unlikely to default.She purchased a bond that Standards and Poor's rated a low credit risk.
D)  Cecilia held long-term bonds rather than short-term bonds to avoid risk.

Question 11

We would expect the interest rate on Bond A to be higher than the interest rate on Bond B if the two bonds have identical characteristics except that

Accepted Answer

A)  the credit risk associated with Bond A is lower than the credit risk associated with Bond B.
B)  Bond A was issued by the city of Philadelphia and Bond B was issued by Red Hat Corporation.
C)  Bond A has a term of 20 years and Bond B has a term of 2 years.
D)  All of the above are correct.

Question 12

A stock's dividend yield is the

Accepted Answer

A)  dividend as a percentage of the price per share.
B)  stock price as a percentage of the dividend.
C)  dividend as a percentage of the retained earnings per share.
D)  retained earnings per share as the percentage of the dividend.

Question 13

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

Question 14

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

Accepted Answer

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

Question 15

The economy's two most important financial markets are

Accepted Answer

A)  the investment market and the saving market.
B)  the bond market and the stock market.
C)  banks and the stock market.
D)  financial markets and financial institutions.

Question 16

A corporation's earnings are the amount of revenue it receives for the sale of its products

Accepted Answer

A)  minus its cost of production as measured by its accountants.Earnings must be paid out as dividends.
B)  minus its cost of production as measured by its accountants.Earnings may be paid out as dividends or retained by the corporation.
C)  minus its direct and indirect costs as measured by its economists.Earnings must be paid out as dividends.
D)  minus its direct and indirect cost as measure by its economists.Earnings may be paid out as dividends or retained by the corporation.

Question 17

In 2013,ABC Corporation had total earnings of $200 million and 40 million shares of the corporation's stock were outstanding.If the price-earnings ratio for ABC is 20,then what is the price of a share of its stock?

Accepted Answer

A)  $5
B)  $10
C)  $80
D)  $100

Question 18

Retained earnings are

Accepted Answer

A)  earnings of a company that are not paid out to stockholders.
B)  the amount of revenue a corporation receives for the sale of its products minus its costs of production as measured by its accountants.
C)  the single most important piece of information about a stock.
D)  computed by multiplying the dividend yield by the price of the stock.

Question 19

The primary advantage of mutual funds is that they

Accepted Answer

A)  always make a return that "beats the market."
B)  allow people with small amounts of money to diversify.
C)  provide customers with a medium of exchange.
D)  All of the above are correct.

Question 20

Which of the following would both make the interest rate on a bond higher than otherwise?

Accepted Answer

A)  the interest it pays is taxed and it is long term
B)  the interest it pays is taxed and it is short term
C)  the interest it pays is tax exempt and it is long term
D)  the interest it pays is tax exempt and it is short term

Exam 13: Saving Investment and the Financial System: Financial Institutions in the US economy

Managed funds

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Which of the following involves financial intermediation?

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A stock's dividend yield is the

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We would expect the interest rate on Bond A to be higher than the interest rate on Bond B if the two bonds have identical characteristics except that

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Stock represents

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The primary advantage of mutual funds is that they

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

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The economy's two most important financial markets are

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Index funds

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A corporation's earnings are the amount of revenue it receives for the sale of its products

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Which of the following statements is correct?

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In 2013,ABC Corporation had total earnings of $200 million and 40 million shares of the corporation's stock were outstanding.If the price-earnings ratio for ABC is 20,then what is the price of a share of its stock?

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After a corporation issues stock,the stock

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Retained earnings are

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Which of the following bond buyers did not buy the bond that best met his or her objective?

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Which of the following is correct?

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People who buy stock in a corporation such as General Electric become

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

Correct AnswerverifiedShow Answer

The prices of stock traded on exchanges are determined by

Correct AnswerverifiedShow Answer

Which of the following would both make the interest rate on a bond higher than otherwise?

Correct AnswerverifiedShow Answer

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