Question 1

Which of the following statements is true about bonds?

Accepted Answer

A)  Bonds are ownership shares in a firm. 
B)  The dollar price and interest rate of a bond have an inverse relationship. 
C)  A bond's dollar price is calculated as growth rate. 
D)  Bonds can never default. 
E)  The dollar price and interest rate of a bond have a positive relationship. 
A)  Bonds are ownership shares in a firm. 
B)  The dollar price and interest rate of a bond have an inverse relationship. 
C)  A bond's dollar price is calculated as growth rate. 
D)  Bonds can never default. 
E)  The dollar price and interest rate of a bond have a positive relationship. B

Question 2

Which of the following is an advantage of the Standard and Poor's S&P) 500 index?

Accepted Answer

A)  The S&P 500 tracks the price of the stock, not just the value of the company. 
B)  The S&P 500 tracks the overall value of a company, not just the price of the stock. 
C)  The S&P 500 provides more historical data than the Dow Jones Industrial Average the Dow). 
D)  The S&P 500 resets to 1,000 at the beginning of each year. 
E)  The S&P 500 tracks fewer companies than the Dow, making it less complicated. 
A)  The S&P 500 tracks the price of the stock, not just the value of the company. 
B)  The S&P 500 tracks the overall value of a company, not just the price of the stock. 
C)  The S&P 500 provides more historical data than the Dow Jones Industrial Average the Dow). 
D)  The S&P 500 resets to 1,000 at the beginning of each year. 
E)  The S&P 500 tracks fewer companies than the Dow, making it less complicated. B

Question 3

A security that represents a debt to be paid is known as an)

Accepted Answer

A)  stock. 
B)  bond. 
C)  bank. 
D)  rating. 
E)  index. 
A)  stock. 
B)  bond. 
C)  bank. 
D)  rating. 
E)  index. B

Question 4

What would you expect to happen to the supply and demand model for home mortgages if the down payment required to get a mortgage decreased from 20 percent to 10 percent?

Accepted Answer

A)  The supply for home mortgages would increase. 
B)  The demand for home mortgages would decrease. 
C)  The demand for home mortgages would increase. 
D)  The supply for home mortgages would decrease. 
E)  The supply and demand for home mortgages would decrease. 
A)  The supply for home mortgages would increase. 
B)  The demand for home mortgages would decrease. 
C)  The demand for home mortgages would increase. 
D)  The supply for home mortgages would decrease. 
E)  The supply and demand for home mortgages would decrease.

Question 5

What is the bond-rating system? Explain its purpose and how it works.

Accepted Answer

Ideally, the price of a bond accurately

Question 6

Explain the importance of secondary markets for securities, and show how the existence of secondary markets impacts the supply and demand for securities.

Accepted Answer

Secondary markets are markets in which s

Question 7

Stocks are

Accepted Answer

A)  ownership shares in a firm. 
B)  securities that represent a debt to be paid. 
C)  markets in which securities are bought and sold. 
D)  contracts that represent a guaranteed payment. 
E)  not available for individual investors. 
A)  ownership shares in a firm. 
B)  securities that represent a debt to be paid. 
C)  markets in which securities are bought and sold. 
D)  contracts that represent a guaranteed payment. 
E)  not available for individual investors.

Question 8

Consider a supply and demand model of bonds for company X. Which of the following would one expect to happen if the default risk increases for company X?

Accepted Answer

A)  The demand curve will shift to the right, causing the price of the bond to rise. 
B)  The demand curve will shift to the left, causing the price of the bond to rise. 
C)  The supply curve will shift to the right, causing the price of the bond to fall. 
D)  The demand curve will shift to the left, causing the price of the bond to fall. 
E)  The supply curve will shift to the left, causing the price of the bond to rise. 
A)  The demand curve will shift to the right, causing the price of the bond to rise. 
B)  The demand curve will shift to the left, causing the price of the bond to rise. 
C)  The supply curve will shift to the right, causing the price of the bond to fall. 
D)  The demand curve will shift to the left, causing the price of the bond to fall. 
E)  The supply curve will shift to the left, causing the price of the bond to rise.

Question 9

The TARP program

Accepted Answer

A)  provided $25 billion of debt relief to citizens who owed federal taxes. 
B)  allocated $500 million to individuals who defaulted on their mortgages. 
C)  provided low-interest-rate loans for students attending college. 
D)  allocated $700 billion to keep banks from failing. 
E)  provided low-interest-rate loans for new homeowners. 
A)  provided $25 billion of debt relief to citizens who owed federal taxes. 
B)  allocated $500 million to individuals who defaulted on their mortgages. 
C)  provided low-interest-rate loans for students attending college. 
D)  allocated $700 billion to keep banks from failing. 
E)  provided low-interest-rate loans for new homeowners.

Question 10

Rating agencies assign their ratings of a firm's bonds based on the

Accepted Answer

A)  market value of the firm. 
B)  value of the firm's capital assets. 
C)  rate of interest paid by the bond. 
D)  likelihood of default on the bond. 
E)  total number of the firm's bonds in circulation. 
A)  market value of the firm. 
B)  value of the firm's capital assets. 
C)  rate of interest paid by the bond. 
D)  likelihood of default on the bond. 
E)  total number of the firm's bonds in circulation.

Question 11

The bonds sold by the U.S. government to pay for the national debt are called

Accepted Answer

A)  Treasury securities. 
B)  mortgage-backed securities. 
C)  securitizations. 
D)  debt securities. 
E)  tradable securities. 
A)  Treasury securities. 
B)  mortgage-backed securities. 
C)  securitizations. 
D)  debt securities. 
E)  tradable securities.

Question 12

If the U.S. government wants to increase total spending, what is the alternative to borrowing money by selling bonds?

Accepted Answer

A)  bringing in money by selling stocks 
B)  selling off government assets, such as land 
C)  shrinking the money supply 
D)  printing money 
E)  raising taxes 
A)  bringing in money by selling stocks 
B)  selling off government assets, such as land 
C)  shrinking the money supply 
D)  printing money 
E)  raising taxes

Question 13

Which of the companies listed is a private bond-rating agency?

Accepted Answer

A)  E*TRADE 
B)  Washington Post 
C)  Fitch 
D)  Bear Stearns 
E)  University of Virginia 
A)  E*TRADE 
B)  Washington Post 
C)  Fitch 
D)  Bear Stearns 
E)  University of Virginia

Question 14

What is a commonly used term for noninvestment-grade bonds?

Accepted Answer

A)  amplified-risk securities 
B)  low-yield securities 
C)  junk bonds 
D)  D-grade bonds 
E)  lower medium bonds 
A)  amplified-risk securities 
B)  low-yield securities 
C)  junk bonds 
D)  D-grade bonds 
E)  lower medium bonds

Question 15

What are the respective pros and cons of stocks and bonds as investment vehicles? Illustrate your discussion with a graph.

Accepted Answer

In brief, stocks provide on average a hi

Question 16

The buyers or borrowers) in financial markets are

Accepted Answer

A)  financial intermediaries. 
B)  firms and governments in search of funds to undertake their daily operations. 
C)  savers looking for opportunities to earn a return on their savings. 
D)  not concerned with the interest rate in the market. 
E)  located on the supply side of the loanable funds market. 
A)  financial intermediaries. 
B)  firms and governments in search of funds to undertake their daily operations. 
C)  savers looking for opportunities to earn a return on their savings. 
D)  not concerned with the interest rate in the market. 
E)  located on the supply side of the loanable funds market.

Question 17

During the Great Recession, firms found it _______ to borrow, leading to an economic _______ .

Accepted Answer

A)  easier; contraction 
B)  easier; expansion 
C)  too easy; contraction 
D)  more difficult; contraction 
E)  more difficult; expansion 
A)  easier; contraction 
B)  easier; expansion 
C)  too easy; contraction 
D)  more difficult; contraction 
E)  more difficult; expansion

Question 18

After a treasury security is sold for the first time,

Accepted Answer

A)  it can no longer be sold. 
B)  it must be sold to someone in a secondary market before it hits its maturity date. 
C)  it loses its initial value. 
D)  anyone can buy it in the large and active secondary market for U.S. Treasury securities. 
E)  only large financial firms can buy it through auctions. 
A)  it can no longer be sold. 
B)  it must be sold to someone in a secondary market before it hits its maturity date. 
C)  it loses its initial value. 
D)  anyone can buy it in the large and active secondary market for U.S. Treasury securities. 
E)  only large financial firms can buy it through auctions.

Question 19

Consider the following scenario when answering the next  questions:
Your friend Jon is starting a new photography business that specializes in photographs of Central Park in New York City. Because his business is new and risky, he is unable to obtain a loan from the local bank. On June 21, 2017, you agree to pay a price of $4,000 for a bond from Jon. You will receive $5,000 in return on June 21, 2018.
-The interest rate of the bond mentioned in the scenario is equal to

Accepted Answer

A)  80 percent. 
B)  20 percent. 
C)  25 percent. 
D)  10 percent. 
E)  5 percent. 
A)  80 percent. 
B)  20 percent. 
C)  25 percent. 
D)  10 percent. 
E)  5 percent.

Question 20

NASDAQ stands for

Accepted Answer

A)  National Association of Stock Dealers Automated Quotations. 
B)  National Association of Securities Deals and Quotes. 
C)  National Act on Securities, Derivatives, and Quotations. 
D)  National Act on Stocks, Derivatives, and Quotations. 
E)  National Association of Securities Dealers Automated Quotations. 
A)  National Association of Stock Dealers Automated Quotations. 
B)  National Association of Securities Deals and Quotes. 
C)  National Act on Securities, Derivatives, and Quotations. 
D)  National Act on Stocks, Derivatives, and Quotations. 
E)  National Association of Securities Dealers Automated Quotations.

Which of the following statements is true about bonds?

Which of the following is an advantage of the Standard and Poor's S&P) 500 index?

A security that represents a debt to be paid is known as an)

What would you expect to happen to the supply and demand model for home mortgages if the down payment required to get a mortgage decreased from 20 percent to 10 percent?

What is the bond-rating system? Explain its purpose and how it works.

Explain the importance of secondary markets for securities, and show how the existence of secondary markets impacts the supply and demand for securities.

Stocks are

Consider a supply and demand model of bonds for company X. Which of the following would one expect to happen if the default risk increases for company X?

The TARP program

Rating agencies assign their ratings of a firm's bonds based on the

The bonds sold by the U.S. government to pay for the national debt are called

If the U.S. government wants to increase total spending, what is the alternative to borrowing money by selling bonds?

Which of the companies listed is a private bond-rating agency?

What is a commonly used term for noninvestment-grade bonds?

What are the respective pros and cons of stocks and bonds as investment vehicles? Illustrate your discussion with a graph.

The buyers or borrowers) in financial markets are

During the Great Recession, firms found it _ to borrow, leading to an economic _ .

After a treasury security is sold for the first time,

NASDAQ stands for

Five Foundations of Economics

Model Building and Gains From Trade

The Market at Work: Supply and Demand

Market Outcomes and Tax Incidence

Price Controls

Introduction to Macroeconomics and Gross Domestic Product

Unemployment

The Price Level and Inflation

Savings, Interest Rates, and the Market for Loanable Funds

Economic Growth and the Wealth of Nations

Growth Theory

The Aggregate Demandaggregate Supply Model

The Great Recession, the Great Depression, and Great Macroeconomic Debates

Federal Budgets: the Tools of Fiscal Policy

Fiscal Policy

Money and the Federal Reserve

Monetary Policy Learning Objectives

International Trade

International Finance

Filters

Exam 10: Financial Markets and Securities

Which of the following statements is true about bonds?

Which of the following is an advantage of the Standard and Poor's S&P) 500 index?

A security that represents a debt to be paid is known as an)

What would you expect to happen to the supply and demand model for home mortgages if the down payment required to get a mortgage decreased from 20 percent to 10 percent?

What is the bond-rating system? Explain its purpose and how it works.

Explain the importance of secondary markets for securities, and show how the existence of secondary markets impacts the supply and demand for securities.

Stocks are

Consider a supply and demand model of bonds for company X. Which of the following would one expect to happen if the default risk increases for company X?

The TARP program

Rating agencies assign their ratings of a firm's bonds based on the

The bonds sold by the U.S. government to pay for the national debt are called

If the U.S. government wants to increase total spending, what is the alternative to borrowing money by selling bonds?

Which of the companies listed is a private bond-rating agency?

What is a commonly used term for noninvestment-grade bonds?

What are the respective pros and cons of stocks and bonds as investment vehicles? Illustrate your discussion with a graph.

The buyers or borrowers) in financial markets are

During the Great Recession, firms found it _______ to borrow, leading to an economic _______ .

After a treasury security is sold for the first time,

NASDAQ stands for

Five Foundations of Economics

Model Building and Gains From Trade

The Market at Work: Supply and Demand

Market Outcomes and Tax Incidence

Price Controls

Introduction to Macroeconomics and Gross Domestic Product

Unemployment

The Price Level and Inflation

Savings, Interest Rates, and the Market for Loanable Funds

Economic Growth and the Wealth of Nations

Growth Theory

The Aggregate Demandaggregate Supply Model

The Great Recession, the Great Depression, and Great Macroeconomic Debates

Federal Budgets: the Tools of Fiscal Policy

Fiscal Policy

Money and the Federal Reserve

Monetary Policy Learning Objectives

International Trade

International Finance

Filters

During the Great Recession, firms found it _ to borrow, leading to an economic _ .