Question 1

The market for new issues of stock is called the

Accepted Answer

A) primary market. 
B) secondary market. 
C) The New York Stock Exchange (NYS
E) . 
D) The Chicago Board of Trade. 
A) primary market. 
B) secondary market. 
C) The New York Stock Exchange (NYS
E) . 
D) The Chicago Board of Trade.

Question 2

Which of the following is true?

Accepted Answer

A) The buyer of a firm's stock is purchasing a fractional share in the firm's future net revenues. 
B) When investors believe that a business decision by the management of a firm will increase the firm's future earnings,the price of the firm's stock will tend to rise. 
C) Changing stock prices provide the board of directors and managers of a firm with a strong incentive to make good decisions and undertake productive projects. 
D) All of the above are true. 
A) The buyer of a firm's stock is purchasing a fractional share in the firm's future net revenues. 
B) When investors believe that a business decision by the management of a firm will increase the firm's future earnings,the price of the firm's stock will tend to rise. 
C) Changing stock prices provide the board of directors and managers of a firm with a strong incentive to make good decisions and undertake productive projects. 
D) All of the above are true.

Question 3

If Apple Computer Corporation constitutes a sizeable share of your current stock holdings,the purchase of which of the following stocks would provide you with the greatest reduction in risk?

Accepted Answer

A) Hewlett-Packard 
B) IBM 
C) Dell Computer Corporation 
D) Wal-Mart 
A) Hewlett-Packard 
B) IBM 
C) Dell Computer Corporation 
D) Wal-Mart

Question 4

If the interest rate were 12.5 percent,how much would people be willing to pay for a stock that was certain to yield a $20 per share stream of net earnings continuously in the future?

Accepted Answer

A) $20 
B) $25 
C) $160 
D) $250 
A) $20 
B) $25 
C) $160 
D) $250

Question 5

The variation in the rate of return one can expect from ownership of stocks will generally be smaller if

Accepted Answer

A) all of the funds are invested in a specific sector of the economy such as the automobile industry. 
B) a diverse set of stocks is held over a lengthy period of time such as 30 or 40 years. 
C) all of the funds are invested in a single stock. 
D) the funds are invested for a relatively short period of time. 
A) all of the funds are invested in a specific sector of the economy such as the automobile industry. 
B) a diverse set of stocks is held over a lengthy period of time such as 30 or 40 years. 
C) all of the funds are invested in a single stock. 
D) the funds are invested for a relatively short period of time.

Question 6

Which of the following is true?

Accepted Answer

A) The stock market provides investors with an opportunity to own a fractional share of the firm's future profits. 
B) A new stock issue is often an excellent way for a firm to raise funds for future expansion. 
C) Changes in stock prices provide information about what investors think of various business decisions. 
D) All of the above are true. 
A) The stock market provides investors with an opportunity to own a fractional share of the firm's future profits. 
B) A new stock issue is often an excellent way for a firm to raise funds for future expansion. 
C) Changes in stock prices provide information about what investors think of various business decisions. 
D) All of the above are true.

Question 7

Which of the following is true?

Accepted Answer

A) Managed equity funds generally outperform indexed equity mutual funds. 
B) Managed equity funds merely hold stocks in the same proportion they are represented in a broad stock market index such as the Standard & Poor's 500. 
C) Indexed equity funds generally have lower management and operating costs than managed funds. 
D) Indexed equity funds generally engage in more stock trading than managed funds. 
A) Managed equity funds generally outperform indexed equity mutual funds. 
B) Managed equity funds merely hold stocks in the same proportion they are represented in a broad stock market index such as the Standard & Poor's 500. 
C) Indexed equity funds generally have lower management and operating costs than managed funds. 
D) Indexed equity funds generally engage in more stock trading than managed funds.

Question 8

Currently,about ____ of U.S.households own stock,either directly or through an equity mutual fund.

Accepted Answer

A) 10 percent 
B) 20 percent 
C) 50 percent 
D) 80 percent 
A) 10 percent 
B) 20 percent 
C) 50 percent 
D) 80 percent

Question 9

(I)The market for new issues of stock is called the primary market.
(II)The New York Stock Exchange is an example of a secondary market in which previously issued shares are traded between investors.

Accepted Answer

A) I is true;II is false. 
B) I is false;II is true. 
C) Both I and II are true. 
D) Both I and II are false. 
A) I is true;II is false. 
B) I is false;II is true. 
C) Both I and II are true. 
D) Both I and II are false.

Question 10

Investors can make their investments in corporate stocks less risky by

Accepted Answer

A) purchasing shares of a mutual fund,which holds the stocks of many diverse corporations. 
B) buying stocks and holding them each for only for short periods of time. 
C) investing in firms that are in the same,rather than different,industries. 
D) none of the above. 
A) purchasing shares of a mutual fund,which holds the stocks of many diverse corporations. 
B) buying stocks and holding them each for only for short periods of time. 
C) investing in firms that are in the same,rather than different,industries. 
D) none of the above.

Question 11

The random walk theory indicates that

Accepted Answer

A) investors can make money by purchasing stocks that are widely expected to earn substantial profits in the future. 
B) while changes in the prices of specific stocks are difficult to predict,experts are able to forecast the future direction of broad stock market indexes with a high degree of accuracy. 
C) changes in stock prices are driven by surprise occurrences that are difficult for anyone to predict accurately. 
D) managed mutual funds will persistently outperform indexed funds. 
A) investors can make money by purchasing stocks that are widely expected to earn substantial profits in the future. 
B) while changes in the prices of specific stocks are difficult to predict,experts are able to forecast the future direction of broad stock market indexes with a high degree of accuracy. 
C) changes in stock prices are driven by surprise occurrences that are difficult for anyone to predict accurately. 
D) managed mutual funds will persistently outperform indexed funds.

Question 12

Which of the following is true?

Accepted Answer

A) People who invest in the stock market are virtually certain to make money. 
B) Investors in the stock market can reduce their risk if they hold shares of specific stocks for only short periods of time. 
C) The risk of stock market investments can be reduced through the holding of a diverse portfolio of unrelated stocks over long periods of time. 
D) In the long run,corporate bonds can be expected to yield a higher real rate of return than ownership of stocks. 
A) People who invest in the stock market are virtually certain to make money. 
B) Investors in the stock market can reduce their risk if they hold shares of specific stocks for only short periods of time. 
C) The risk of stock market investments can be reduced through the holding of a diverse portfolio of unrelated stocks over long periods of time. 
D) In the long run,corporate bonds can be expected to yield a higher real rate of return than ownership of stocks.

Question 13

Which of the following is true?

Accepted Answer

A) Most stockholders own stock because they want to run the business. 
B) The shareholders of a large well-established firm can be reasonably sure that they will earn a real rate of return of about 7 percent in the future. 
C) Ownership of a corporate bond provides the bondholder with an ownership right to a fraction of the firm's future profits. 
D) Stock ownership makes it possible for investors to own a fractional share of a firm's future profits even if they do not participate in the operation of the firm. 
A) Most stockholders own stock because they want to run the business. 
B) The shareholders of a large well-established firm can be reasonably sure that they will earn a real rate of return of about 7 percent in the future. 
C) Ownership of a corporate bond provides the bondholder with an ownership right to a fraction of the firm's future profits. 
D) Stock ownership makes it possible for investors to own a fractional share of a firm's future profits even if they do not participate in the operation of the firm.

Question 14

Investors are often willing to pay positive prices for shares of firms that have never earned a profit because the investors

Accepted Answer

A) do not know the firms have never earned a profit. 
B) expect the firms to have positive net earnings in the future. 
C) expect that interest rates will rise in the future. 
D) expect that higher rates of inflation will push stock prices higher in the future. 
A) do not know the firms have never earned a profit. 
B) expect the firms to have positive net earnings in the future. 
C) expect that interest rates will rise in the future. 
D) expect that higher rates of inflation will push stock prices higher in the future.

Question 15

"My broker studies the stock market and the management of specific firms.When he advises me to buy,I listen because he is an expert." Analyze this view.

Accepted Answer

Current stock prices already reflect the

Question 16

The theory that stock prices reflect all available information and that the future movement of stock prices is unpredictable is called the

Accepted Answer

A) random walk theory. 
B) inefficient market theory. 
C) technical analysis theory. 
D) charting theory. 
A) random walk theory. 
B) inefficient market theory. 
C) technical analysis theory. 
D) charting theory.

Question 17

Many personal finance magazines such as Money and Smart Money routinely give advice as to which stocks to buy.Should you take their advice?

Accepted Answer

Current stock prices will reflect all of

Question 18

The random walk theory of stock prices indicates that

Accepted Answer

A) if they are willing to do a little research,even beginning investors will be able to pick the stocks that will increase most in price in the future. 
B) managed mutual funds will persistently earn a higher rate of return than indexed funds. 
C) current stock prices already reflect information about factors influencing future stock prices that can be forecast with any degree of accuracy. 
D) stock market investors can expect to earn a steady real rate of return of about 7 percent annually. 
A) if they are willing to do a little research,even beginning investors will be able to pick the stocks that will increase most in price in the future. 
B) managed mutual funds will persistently earn a higher rate of return than indexed funds. 
C) current stock prices already reflect information about factors influencing future stock prices that can be forecast with any degree of accuracy. 
D) stock market investors can expect to earn a steady real rate of return of about 7 percent annually.

Question 19

To the extent that current profits are directly related to future profits,a high price/earnings ratio would indicate that stocks are

Accepted Answer

A) inexpensive. 
B) expensive. 
C) going to increase in value in the future. 
D) most likely to fall in value if interest rates decline. 
A) inexpensive. 
B) expensive. 
C) going to increase in value in the future. 
D) most likely to fall in value if interest rates decline.

Question 20

Which of the following will tend to result in the least variation in the expected real rate of return from the ownership of stocks?

Accepted Answer

A) ownership of a single stock for a short period of time 
B) ownership of a single stock over a lengthy period of time 
C) ownership of stocks from a specific sector (for example,the automobile industry)over a lengthy period of time 
D) ownership of a diverse set of stocks (the Standard & Poor's 500,for example)over a lengthy period of time 
A) ownership of a single stock for a short period of time 
B) ownership of a single stock over a lengthy period of time 
C) ownership of stocks from a specific sector (for example,the automobile industry)over a lengthy period of time 
D) ownership of a diverse set of stocks (the Standard & Poor's 500,for example)over a lengthy period of time

Exam 31: The Stock Market: Its Function, Performance, and Potential As an Investment Opportunity

The market for new issues of stock is called the

Which of the following is true?

If Apple Computer Corporation constitutes a sizeable share of your current stock holdings,the purchase of which of the following stocks would provide you with the greatest reduction in risk?

If the interest rate were 12.5 percent,how much would people be willing to pay for a stock that was certain to yield a $20 per share stream of net earnings continuously in the future?

The variation in the rate of return one can expect from ownership of stocks will generally be smaller if

Which of the following is true?

Which of the following is true?

Currently,about ____ of U.S.households own stock,either directly or through an equity mutual fund.

(I)The market for new issues of stock is called the primary market. (II)The New York Stock Exchange is an example of a secondary market in which previously issued shares are traded between investors.

Investors can make their investments in corporate stocks less risky by

The random walk theory indicates that

Which of the following is true?

Which of the following is true?

Investors are often willing to pay positive prices for shares of firms that have never earned a profit because the investors

"My broker studies the stock market and the management of specific firms.When he advises me to buy,I listen because he is an expert." Analyze this view.

The theory that stock prices reflect all available information and that the future movement of stock prices is unpredictable is called the

Many personal finance magazines such as Money and Smart Money routinely give advice as to which stocks to buy.Should you take their advice?

The random walk theory of stock prices indicates that

To the extent that current profits are directly related to future profits,a high price/earnings ratio would indicate that stocks are

Which of the following will tend to result in the least variation in the expected real rate of return from the ownership of stocks?

The Economic Approach

Asome Tools of the Economist

Asupply,demand,and the Market Process

Asupply and Demand: Applications and Extensions

Difficult Cases for the Market and the Role of Government

The Economics of Collective Decision-Making

Ataking the Nations Economic Pulse

Economic Fluctuations, unemployment, and Inflation

Aan Introduction to Basic Macroeconomic Markets

Dynamic Change, economic Fluctuations, and the Ad-As Model

Fiscal Policy: the Keynesian View and Historical Perspective

Fiscal Policy, incentives, and Secondary Effects

Amoney and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, output, and Employment

Creating an Environment for Growth and Prosperity

Institutions,policies,and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Consumer Choice and Elasticity

Acosts and the Supply of Goods

Aprice Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

Aprice-Searcher Markets With High Entry Barriers

The Supply of and Demand for Productive Resources

Earnings, productivity, and the Job Market

Investment, the Capital Market, and the Wealth of Nations

Income Inequality and Poverty

Government Spending and Taxation

The Economics of Social Security

Great Debates in Economics: Keynes Versus Hayek

The Crisis of 2008: Causes and Lessons for the Future

Lessons From the Great Depression

Lessons From Japan and Canada

The Federal Budget and the National Debt

The Economics of Healthcare

Education: Problems and Performance

Earnings Differences Between Men and Women

Do Labor Unions Increase the Wages of Workers

The Question of Resource Exhaustion

Difficult Environmental Cases and the Role of Government

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