Question 1

Professional securities analysts achieve high rate of investment success following a random walk strategy.

Accepted Answer

A) True 
 B)False  False

Question 2

A futures contract is an agreement to buy a commodity at a specific future date, at a price set today.

Accepted Answer

A) True 
 B)False  True

Question 3

When bond prices rise,

Accepted Answer

A) stock prices must fall. 
B) interest rates must fall. 
C) interest rates must rise. 
D) bankruptcies generally increase. 
A) stock prices must fall. 
B) interest rates must fall. 
C) interest rates must rise. 
D) bankruptcies generally increase. B

Question 4

If a firm goes bankrupt, the bondholders will get paid back before the stockholders get any money.

Accepted Answer

A) True 
 B)False

Question 5

Double taxation of corporate earnings

Accepted Answer

A) is an advantage that other business organizations do not enjoy. 
B) implies that stockholders earn higher returns to offset the tax disadvantage compared to other, similar financial assets. 
C) reduces the limited liability of corporations. 
D) only exists when corporations suffer losses. 
A) is an advantage that other business organizations do not enjoy. 
B) implies that stockholders earn higher returns to offset the tax disadvantage compared to other, similar financial assets. 
C) reduces the limited liability of corporations. 
D) only exists when corporations suffer losses.

Question 6

The sale of new stocks by a corporation is one source of investment funds.

Accepted Answer

A) True 
 B)False

Question 7

Stock markets transactions involve

Accepted Answer

A) exclusively in newly issued stocks. 
B) purchases and sales of previously issued stocks. 
C) in both newly issued and previously issued stocks, but they do not deal in bonds. 
D) in large amounts of both newly issued and previously issued stocks and bonds. 
A) exclusively in newly issued stocks. 
B) purchases and sales of previously issued stocks. 
C) in both newly issued and previously issued stocks, but they do not deal in bonds. 
D) in large amounts of both newly issued and previously issued stocks and bonds.

Question 8

If the random walk theory is correct, prudent investors could choose their stock portfolio by

Accepted Answer

A) throwing darts at the newspaper's financial page. 
B) spending money to consult a stock forecaster. 
C) spending time analyzing past stock performance. 
D) not investing in stocks at all since price behavior is completely erratic. 
A) throwing darts at the newspaper's financial page. 
B) spending money to consult a stock forecaster. 
C) spending time analyzing past stock performance. 
D) not investing in stocks at all since price behavior is completely erratic.

Question 9

Explain how derivatives were used to increase risk making the financial crisis of 2007-2009 more severe.

Accepted Answer

U.S. investment banks bought many credit

Question 10

Composites of stock prices

Accepted Answer

A) are completely random and unpredictable. 
B) fluctuate randomly around a rising trend. 
C) are destabilized by speculations. 
D) show no trend but fluctuate widely. 
A) are completely random and unpredictable. 
B) fluctuate randomly around a rising trend. 
C) are destabilized by speculations. 
D) show no trend but fluctuate widely.

Question 11

Many individuals are reluctant to buy common stock is that as owners of a corporation they have unlimited liability for the debts of the business.

Accepted Answer

A) True 
 B)False

Question 12

Bond prices and interest rates

Accepted Answer

A) are interrelated. 
B) have no relationship to one another. 
C) rise or fall in tandem. 
D) None of these choices. 
A) are interrelated. 
B) have no relationship to one another. 
C) rise or fall in tandem. 
D) None of these choices.

Question 13

Between 1980 and 2005, the Vanguard Index Fund earned 12.3 percent per year, while the average mutual fund investor earned

Accepted Answer

A) 1.9 percent. 
B) 2.3 percent. 
C) 5.1 percent. 
D) 7.3 percent. 
A) 1.9 percent. 
B) 2.3 percent. 
C) 5.1 percent. 
D) 7.3 percent.

Question 14

A takeover of one firm by another

Accepted Answer

A) ties up the nation's capital wastefully. 
B) uses up the economy's credit supply. 
C) reduces the value of the acquired firm. 
D) changes the ownership of the acquired firm. 
A) ties up the nation's capital wastefully. 
B) uses up the economy's credit supply. 
C) reduces the value of the acquired firm. 
D) changes the ownership of the acquired firm.

Question 15

Stockholders normally obtain higher expected payments than bondholders because

Accepted Answer

A) they are required by law to obtain a higher return. 
B) they face higher risk. 
C) the profit share declared as stock dividends is not taxable. 
D) they vote themselves higher returns. 
A) they are required by law to obtain a higher return. 
B) they face higher risk. 
C) the profit share declared as stock dividends is not taxable. 
D) they vote themselves higher returns.

Question 16

The sales of the 50 largest corporations in the U.S. economy amount to nearly 31 percent of GDP in 2017.

Accepted Answer

A) True 
 B)False

Question 17

The least scrutiny of management's operations occurs when ____ is the method used to obtain corporate financing.

Accepted Answer

A) stock issue 
B) bond issue 
C) plowback 
D) watering 
A) stock issue 
B) bond issue 
C) plowback 
D) watering

Question 18

"Plowback" represents a portion of corporate profits that are used to

Accepted Answer

A) invest in future activities of the corporation. 
B) advertise the company's product. 
C) buy back bonds (reduce debt). 
D) pay owners for the use of their capital. 
A) invest in future activities of the corporation. 
B) advertise the company's product. 
C) buy back bonds (reduce debt). 
D) pay owners for the use of their capital.

Question 19

More than 80 percent of American firms are incorporated.

Accepted Answer

A) True 
 B)False

Question 20

The risk of financing a project by issuing common stock is borne by

Accepted Answer

A) the issuing firm only. 
B) the stockholders only. 
C) both the issuing firm and the stockholders. 
D) the government. 
A) the issuing firm only. 
B) the stockholders only. 
C) both the issuing firm and the stockholders. 
D) the government.

Exam 9: The Financial Markets and the Economy: the Tail That Wags the Dog

Professional securities analysts achieve high rate of investment success following a random walk strategy.

A futures contract is an agreement to buy a commodity at a specific future date, at a price set today.

When bond prices rise,

If a firm goes bankrupt, the bondholders will get paid back before the stockholders get any money.

Double taxation of corporate earnings

The sale of new stocks by a corporation is one source of investment funds.

Stock markets transactions involve

If the random walk theory is correct, prudent investors could choose their stock portfolio by

Explain how derivatives were used to increase risk making the financial crisis of 2007-2009 more severe.

Composites of stock prices

Many individuals are reluctant to buy common stock is that as owners of a corporation they have unlimited liability for the debts of the business.

Bond prices and interest rates

Between 1980 and 2005, the Vanguard Index Fund earned 12.3 percent per year, while the average mutual fund investor earned

A takeover of one firm by another

Stockholders normally obtain higher expected payments than bondholders because

The sales of the 50 largest corporations in the U.S. economy amount to nearly 31 percent of GDP in 2017.

The least scrutiny of management's operations occurs when ____ is the method used to obtain corporate financing.

"Plowback" represents a portion of corporate profits that are used to

More than 80 percent of American firms are incorporated.

The risk of financing a project by issuing common stock is borne by

What Is Economics

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: an Initial Look

Consumer Choice: Individual and Market Demand

Demand and Elasticity

Production, Inputs, and Cost: Building Blocks for Supply Analysis

Output, Price, and Profit: the Importance of Marginal Analysis

The Firm and the Industry Under Perfect Competition

The Case for Free Markets: the Price System

Monopoly

Between Competition and Monopoly

Limiting Market Power: Antitrust and Regulation

The Shortcomings of Free Markets

Externalities, Externaliteis, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: the Human Inputs

Poverty, Inequality, and Discrimination

International Trade and Comparative Advantage

Contemporary Issues in the Us Economy

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