Exam 2: The Financial System and the Economy

When savers invest through financial intermediaries, they are said to engage in

Which of the following is true of an equity?

Consider the following four debt securities, which are identical in every characteristic except as noted: W: $\quad$ A corporate bond rated AAA X: $\quad$ A corporate bond rate BBB Y: $\quad$ A corporate bond rated AAA with a shorter time to maturity than bonds W and X Z: $\quad$ A corporate bond rated AAA with the same time to maturity as bond Y that trades in a more liquid market than bonds W, X, or Y List the bonds in the most likely order of the interest rates (yields to maturity) of the bonds from highest to lowest.Explain your work.

Owning a variety of securities means engaging in

A company that transfers funds from savers to borrowers by receiving funds from savers and investing in securities issued by borrowers is known as a(n)

The quantity demanded of a security is Q_D= 220 - 0.2b and the quantity supplied of it is Q_S=100 + 0.2b.The equilibrium price of the security is______ .

A stock's price is $20 at the beginning of a year. There is a 25 percent chance that the price will be $17 at the end of the year, and a 75 percent chance that the price will be $25 at the end of the year. The stock will pay a dividend of $3 during the year. The standard deviation of the return on the stock is ______percent (rounded to the nearest percentage point).

Which of the following securities is likely to be most liquid?

Consider three investments, where expected return is the expected value of the total return and risk is measured by the standard deviation.The investments are identical in every way except for their expected return and risk: Investment A: $\quad$ expected return = 2 percent, risk = 5 percent Investment B: $\quad$ expected return = 5 percent, risk = 4 percent Investment C: $\quad$ expected return = 14 percent, risk = 20 percent Investment D $\quad$ expected return = 6 percent, risk = 12 percent If a risk-averse investor can buy only one of the three investments and compares each investment with the other three, which investment option would he never choose?

Suppose the quantity demanded for a security is B_D = 100 ? 0.1b, and the quantity supplied of the security is B_S = 50 + 0.1b, where b is the price of the security in dollars. a.Calculate the equilibrium price and quantity of the security. b.Suppose demand increases by 50, so that B_D = 150 ? 0.1b.Now, calculate the new equilibrium price and quantity of the security.

In the 1980s, the United States suffered one of its worst financial crises when _____began to fail in large numbers.

A contract that promises to pay a given amount of money to the owner of a security at specific dates in the future is known as

When a country's financial system is young, it usually relies more on______ finance.

The financial system consists of

The probabilities of different returns on a stock over the year are: Probability Return 10\% -5\% 15\% 0\% 20\% 5\% 30\% 10\% 25\% 20\% The expected return on the stock is_____ percent.

Andy keeps his savings in a money market mutual fund, Ben keeps his savings invested in U.S.savings bonds, Charlie keeps his in a bank, and Beth uses her savings to buy the stocks of a company.Given this information, who among the following individuals is using direct finance?

The income an investor receives in some period divided by the value of the security at the beginning of that period is known as _____yield.

When a household borrows using credit cards and by taking out loans for large purchases (such as automobiles), the resulting security is known as

In the financial system, savers transfer funds to borrowers in exchange for

Beth's financial adviser has asked her to invest in a number of securities rather than investing in one.This is an example of