Question 1

Higher education subsidies in the form of the federal government's student loan program

Accepted Answer

A) induce more people to attend colleges and universities. 
B) keep interest rates low on student loans. 
C) cause lenders to take on more risk. 
D) All of the above are correct. 
A) induce more people to attend colleges and universities. 
B) keep interest rates low on student loans. 
C) cause lenders to take on more risk. 
D) All of the above are correct. D

Question 2

Long-term bonds are

Accepted Answer

A) riskier than short-term bonds,and so interest rates on long-term bonds are usually lower than interest rates on short-term bonds. 
B) riskier than short-term bonds,and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds. 
C) less risky than short-term bonds,and so interest rates on long-term bonds are usually lower than interest rates on short-term bonds. 
D) less risky than short-term bonds,and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds. 
A) riskier than short-term bonds,and so interest rates on long-term bonds are usually lower than interest rates on short-term bonds. 
B) riskier than short-term bonds,and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds. 
C) less risky than short-term bonds,and so interest rates on long-term bonds are usually lower than interest rates on short-term bonds. 
D) less risky than short-term bonds,and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds. B

Question 3

Which of the following is a financial intermediary?

Accepted Answer

A) a mutual fund 
B) the stock market 
C) a U.S.government bond 
D) a wealthy individual who regularly buys and holds large quantities of government bonds 
A) a mutual fund 
B) the stock market 
C) a U.S.government bond 
D) a wealthy individual who regularly buys and holds large quantities of government bonds A

Question 4

What do we call financial institutions through which savers can indirectly provide funds to borrowers?

Accepted Answer

A) stock markets 
B) financial institutions 
C) financial markets 
D) financial intermediaries 
A) stock markets 
B) financial institutions 
C) financial markets 
D) financial intermediaries

Question 5

We associate the term debt finance with

Accepted Answer

A) the bond market,and we associate the term equity finance with the stock market. 
B) the stock market,and we associate the term equity finance with the bond market. 
C) financial intermediaries,and we associate the term equity finance with financial markets. 
D) financial markets,and we associate the term equity finance with financial intermediaries. 
A) the bond market,and we associate the term equity finance with the stock market. 
B) the stock market,and we associate the term equity finance with the bond market. 
C) financial intermediaries,and we associate the term equity finance with financial markets. 
D) financial markets,and we associate the term equity finance with financial intermediaries.

Question 6

Other things being constant,when a firm sells new shares of stock,the

Accepted Answer

A) supply of the stock increases and the price decreases. 
B) supply of the stock decreases and the price increases. 
C) demand for the stock increases and the price increases. 
D) demand for the stock decreases and the price decreases. 
A) supply of the stock increases and the price decreases. 
B) supply of the stock decreases and the price increases. 
C) demand for the stock increases and the price increases. 
D) demand for the stock decreases and the price decreases.

Question 7

A mutual fund

Accepted Answer

A) is a financial market where small firms mutually agree to sell stocks and bonds to raise funds. 
B) is funds set aside by local governments to lend to small firms who want to invest in projects that are mutually beneficial to the firm and community. 
C) sells stocks and bonds on behalf of small and less known firms who would otherwise have to pay high interest to obtain credit. 
D) is an institution that sells shares to the public and uses the proceeds to buy a selection of various types of stocks,bonds,or both stocks and bonds. 
A) is a financial market where small firms mutually agree to sell stocks and bonds to raise funds. 
B) is funds set aside by local governments to lend to small firms who want to invest in projects that are mutually beneficial to the firm and community. 
C) sells stocks and bonds on behalf of small and less known firms who would otherwise have to pay high interest to obtain credit. 
D) is an institution that sells shares to the public and uses the proceeds to buy a selection of various types of stocks,bonds,or both stocks and bonds.

Question 8

Midwestern corporation issues bonds.Southern corporation issues stock.Which corporation used equity financing?

Accepted Answer

A) both Midwestern corporation and Southern corporation 
B) Midwestern corporation but not Southern corporation 
C) Southern corporation but not Midwestern corporation 
D) neither Midwestern nor Southern corporation 
A) both Midwestern corporation and Southern corporation 
B) Midwestern corporation but not Southern corporation 
C) Southern corporation but not Midwestern corporation 
D) neither Midwestern nor Southern corporation

Question 9

Suppose Sarah Lee Corporation stock has a P/E ratio of 8.This P/E ratio is relatively

Accepted Answer

A) low,indicating that buyers may expect earnings to rise. 
B) low,indicating that buyers may expect earnings to fall. 
C) high,indicating that buyers may expect earnings to rise. 
D) high,indicating that buyers may expect earnings to fall. 
A) low,indicating that buyers may expect earnings to rise. 
B) low,indicating that buyers may expect earnings to fall. 
C) high,indicating that buyers may expect earnings to rise. 
D) high,indicating that buyers may expect earnings to fall.

Question 10

Which of the following statements is correct?

Accepted Answer

A) A general,persistent decline in stock prices may signal that the economy is about to enter a boom period because people will be able to buy stock for less money. 
B) A general,persistent decline in stock prices may signal that the economy is about to enter a recession because low stock prices may mean that people are expecting low corporate profits. 
C) A general,persistent decline in stock prices may signal that the economy is about to enter a recession because low stock prices mean that corporations have had low profits in the past. 
D) Expectations about the business cycle have no impact on stock prices. 
A) A general,persistent decline in stock prices may signal that the economy is about to enter a boom period because people will be able to buy stock for less money. 
B) A general,persistent decline in stock prices may signal that the economy is about to enter a recession because low stock prices may mean that people are expecting low corporate profits. 
C) A general,persistent decline in stock prices may signal that the economy is about to enter a recession because low stock prices mean that corporations have had low profits in the past. 
D) Expectations about the business cycle have no impact on stock prices.

Question 11

On which of these bonds is the prospect of default most likely?

Accepted Answer

A) a junk bond 
B) a municipal bond 
C) a U.S.government bond 
D) a corporate bond issued by Proctor & Gamble Corporation 
A) a junk bond 
B) a municipal bond 
C) a U.S.government bond 
D) a corporate bond issued by Proctor & Gamble Corporation

Question 12

Which of the following statements is correct?

Accepted Answer

A) The expected future profitability of a corporation influences the demand for that corporation's stock. 
B) When a corporation sells stock as a means of raising funds it is engaging in debt finance. 
C) The owners of bonds sold by the Microsoft Corporation are part owners of that corporation. 
D) All bonds are,by definition,perpetuities. 
A) The expected future profitability of a corporation influences the demand for that corporation's stock. 
B) When a corporation sells stock as a means of raising funds it is engaging in debt finance. 
C) The owners of bonds sold by the Microsoft Corporation are part owners of that corporation. 
D) All bonds are,by definition,perpetuities.

Question 13

Which of the following is true concerning interest rates on bonds?

Accepted Answer

A) The tax treatment of interest earned on municipals bonds makes the interest rate on them higher than otherwise.High default risk makes the interest rate on a bond higher than otherwise. 
B) The tax treatment of interest earned on municipals bonds makes the interest rate on them higher than otherwise.High default risk makes the interest rate on a bond lower than otherwise. 
C) The tax treatment of interest earned on municipals bonds makes the interest rate on them lower than otherwise.High default risk makes the interest rate on a bond higher than otherwise. 
D) The tax treatment of interest earned on municipals bonds makes the interest rate on them lower than otherwise.High default risk makes the interest rate on a bond lower than otherwise. 
A) The tax treatment of interest earned on municipals bonds makes the interest rate on them higher than otherwise.High default risk makes the interest rate on a bond higher than otherwise. 
B) The tax treatment of interest earned on municipals bonds makes the interest rate on them higher than otherwise.High default risk makes the interest rate on a bond lower than otherwise. 
C) The tax treatment of interest earned on municipals bonds makes the interest rate on them lower than otherwise.High default risk makes the interest rate on a bond higher than otherwise. 
D) The tax treatment of interest earned on municipals bonds makes the interest rate on them lower than otherwise.High default risk makes the interest rate on a bond lower than otherwise.

Question 14

A high price-earnings ratio for a stock indicates that either the stock is

Accepted Answer

A) undervalued or people are relatively optimistic about the corporation's prospects. 
B) overvalued or people are relatively optimistic about the corporation's prospects. 
C) overvalued or people are relatively pessimistic about the corporation's prospects. 
D) undervalued or people are relatively pessimistic about the corporation's prospects. 
A) undervalued or people are relatively optimistic about the corporation's prospects. 
B) overvalued or people are relatively optimistic about the corporation's prospects. 
C) overvalued or people are relatively pessimistic about the corporation's prospects. 
D) undervalued or people are relatively pessimistic about the corporation's prospects.

Question 15

Suppose the city of Des Moines has a high credit rating,and so when Des Moines borrows funds by selling bonds,

Accepted Answer

A) the city's high credit rating and the tax status of municipal bonds both contribute to a lower interest rate than would otherwise apply. 
B) the city's high credit rating and the tax status of municipal bonds both contribute to a higher interest rate than would otherwise apply. 
C) the city's high credit rating contributes to a lower interest rate than would otherwise apply,while the tax status of municipal bonds contributes to a higher interest rate than would otherwise apply. 
D) the city's high credit rating contributes to a higher interest rate than would otherwise apply,while the tax status of municipal bonds contributes to a lower interest rate than would otherwise apply. 
A) the city's high credit rating and the tax status of municipal bonds both contribute to a lower interest rate than would otherwise apply. 
B) the city's high credit rating and the tax status of municipal bonds both contribute to a higher interest rate than would otherwise apply. 
C) the city's high credit rating contributes to a lower interest rate than would otherwise apply,while the tax status of municipal bonds contributes to a higher interest rate than would otherwise apply. 
D) the city's high credit rating contributes to a higher interest rate than would otherwise apply,while the tax status of municipal bonds contributes to a lower interest rate than would otherwise apply.

Question 16

Which of the following statements about mutual funds is correct?

Accepted Answer

A) A mutual fund is not a financial intermediary. 
B) A disadvantage of buying mutual funds is a lack of diversification 
C) People who buy shares from a mutual fund are guaranteed a minimum return. 
D) On average index funds outperform managed funds. 
A) A mutual fund is not a financial intermediary. 
B) A disadvantage of buying mutual funds is a lack of diversification 
C) People who buy shares from a mutual fund are guaranteed a minimum return. 
D) On average index funds outperform managed funds.

Question 17

Mutual funds

Accepted Answer

A) provide diversification.Shareholders assume all of the risk associated with the mutual fund. 
B) provide diversification.Government insurance eliminates the risk of mutual fund shareholders. 
C) do not provide diversification.Shareholders assume all of the risk associated with the mutual fund 
D) do not provide diversification.Government insurance eliminates the risk of mutual fund shareholders. 
A) provide diversification.Shareholders assume all of the risk associated with the mutual fund. 
B) provide diversification.Government insurance eliminates the risk of mutual fund shareholders. 
C) do not provide diversification.Shareholders assume all of the risk associated with the mutual fund 
D) do not provide diversification.Government insurance eliminates the risk of mutual fund shareholders.

Question 18

Which bond is likely to have higher interest rate due to a higher default risk?

Accepted Answer

A) A share of stock issued by Apple. 
B) A corporate bond issued by Apple. 
C) A junk bond. 
D) A U.S.government bond. 
A) A share of stock issued by Apple. 
B) A corporate bond issued by Apple. 
C) A junk bond. 
D) A U.S.government bond.

Question 19

Camp Company had total earnings of $600 million in 2013,out of which it retained 20 percent for future investments.In 2013,its stock featured a dividend yield of 4 percent and 100 million shares were outstanding.The price-earnings ratio for Camp Company stock was

Accepted Answer

A) 5. 
B) 150. 
C) 20. 
D) 25. 
A) 5. 
B) 150. 
C) 20. 
D) 25.

Question 20

If the government's expenditures exceeded its receipts,it would likely

Accepted Answer

A) lend money to a bank or other financial intermediary. 
B) borrow money from a bank or other financial intermediary. 
C) buy bonds directly from the public. 
D) sell bonds directly to the public. 
A) lend money to a bank or other financial intermediary. 
B) borrow money from a bank or other financial intermediary. 
C) buy bonds directly from the public. 
D) sell bonds directly to the public.

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

Higher education subsidies in the form of the federal government's student loan program

Long-term bonds are

Which of the following is a financial intermediary?

What do we call financial institutions through which savers can indirectly provide funds to borrowers?

We associate the term debt finance with

Other things being constant,when a firm sells new shares of stock,the

A mutual fund

Midwestern corporation issues bonds.Southern corporation issues stock.Which corporation used equity financing?

Suppose Sarah Lee Corporation stock has a P/E ratio of 8.This P/E ratio is relatively

Which of the following statements is correct?

On which of these bonds is the prospect of default most likely?

Which of the following statements is correct?

Which of the following is true concerning interest rates on bonds?

A high price-earnings ratio for a stock indicates that either the stock is

Suppose the city of Des Moines has a high credit rating,and so when Des Moines borrows funds by selling bonds,

Which of the following statements about mutual funds is correct?

Mutual funds

Which bond is likely to have higher interest rate due to a higher default risk?

Camp Company had total earnings of $600 million in 2013,out of which it retained 20 percent for future investments.In 2013,its stock featured a dividend yield of 4 percent and 100 million shares were outstanding.The price-earnings ratio for Camp Company stock was

If the government's expenditures exceeded its receipts,it would likely

Ten Principles of Economics

Ten Principles of Economics: How People Make Decisions

Ten Principles of Economics: How People Interact

Ten Principles of Economics: How the Economy As a Whole Works

Ten Principles of Economics: Part A

Ten Principles of Economics: Part B

Thinking Like an Economist

Thinking Like an Economist: The Economist As Scientist

Thinking Like an Economist: The Economist As Policy Adviser

Thinking Like an Economist: Why Economists Disagree

Thinking Like an Economist: Lets Get Going

Thinking Like an Economist: Graphing a Brief Review

Thinking Like an Economist: Part A

Thinking Like an Economist: Part B

Interdependence and the Gains From Trade

Interdependence and the Gains From Trade: A Parable for the Modern Economy

Interdependence and the Gains From Trade: Comparative Advantage the Driving Force of Specialization

Interdependence and the Gains From Trade: Applications of Comparative Advantage

Interdependence and the Gains From Trade: Conclusion

Interdependence and the Gains From Trade: Part A

Interdependence and the Gains From Trade: Part B

The Market Forces of Supply and Demand

The Market Forces of Supply and Demand:Markets and Competition

The Market Forces of Supply and Demand: Demand

The Market Forces of Supply and Demand: Supply

The Market Forces of Supply and Demand: Supply and Demand Together

The Market Forces of Supply and DemandConclusion How Prices Allocate Resources

The Market Forces of Supply and Demand: Part A

The Market Forces of Supply and Demand: Part B

Elasticity and Its Applications

Elasticity and Its Applications: The Elasticity of Demand

Elasticity and Its Applications: The Elasticity of Supply

Elasticity and Its Applications: Three Applications of Supply,demand,and Elasticity

Elasticity and Its Applications: Part A

Elasticity and Its Applications: Part B

Supply Demand and Government Policies

Supply Demand and Government Policies: Controls on Prices

Supply Demand and Government Policies: Taxes

Supply Demand and Government Policies: Part A

Supply Demand and Government Policies: Part B

Consumers Producers and the Efficiency of Markets

Consumers Producers and the Efficiency of Markets: Consumer Surplus

Consumers Producers and the Efficiency of Markets: Producer Surplus

Consumers Producers and the Efficiency of Markets: Market Efficiency

Consumers Producers and the Efficiency of Markets: Conclusion Market Efficiency and Market Failure

Consumers Producers and the Efficiency of Markets: Part A

Consumers Producers and the Efficiency of Markets: Part B

Application the Cost of Taxation

Application the Cost of Taxation: The Deadweight Loss of Taxation

Application the Cost of Taxation: The Determinants of the Deadweight Loss

Application the Cost of Taxation: Deadweight Loss and Tax Revenue As Taxes Vary

Application the Cost of Taxation: Conclusion

Application the Cost of Taxation: Part A

Application the Cost of Taxation: Part B

Application International Trade

Application International Trade: The Determinants of Trade

Application International Trade: The Winners and Losers From Trade

Application International Trade: The Arguments for Restricting Trade

Application International Trade: Conclusion