Question 1

Risk that can be eliminated by diversification is

Accepted Answer

A) unsystematic risk. 
B) systematic risk. 
C) default risk. 
D) interest-rate risk.

Question 2

​The dollar value of a company's stock rose from $20 to $21 during a year.If the stock paid a dividend of $3, the return on the stock was

Accepted Answer

A) ​20 percent 
B) ​1 percent 
C) ​3 percent 
D) ​14 percent

Question 3

Which of the following is NOT a financial intermediary?

Accepted Answer

A) A commercial bank. 
B) A savings institution. 
C) A government treasury. 
D) A mutual fund.

Question 4

Mr.Smith bought stocks of several companies from the secondary market.He used

Accepted Answer

A) micro finance. 
B) public finance. 
C) direct finance. 
D) indirect finance.

Question 5

A company that takes short term deposits and makes long term loans is a

Accepted Answer

A) a financial intermediary. 
B) a brokerage. 
C) an investment bank. 
D) a secondary market maker.

Question 6

The probabilities of different returns on a stock over the year are: $$\begin{array} {cc } 
\text { Probability } & \text { Return } \
10 \% & - 5 \% \
15 \% & 0 \% \
20 \% & 5 \% \
30 \% & 10 \% \
25 \% & 20 \%
\end{array}$$

The standard deviation of the return on the stock is about_____ percent.

Accepted Answer

A) 5 
B) 8 
C) 11 
D) 14

Question 7

Suppose a discount bond costs $5,000 today and pays off some amount b in one year.Suppose that b is uncertain according to the following table of probabilities: $$\begin{array} { l l l l l l } 
\text { b: } & \$ 5,000 & \$ 5,500 & \$ 6,000 & \$ 6,500 & \$ 7,000 \
\text { Probability. } & 0.1 & 0.2 & 0.3 & 0.2 & 0.2
\end{array}$$ 
a.Calculate the return (in percent) for each value of b. (Note: you may just calculate the total return and not worry about how this is split up between current yield and capital-gains yield.)

b.Calculate the expected return.
Suppose an investor has a choice between buying this security or purchasing a different
b.(Note: you may just calculate the total return and not worry about how this is split up between current yield and capital-gains yield.)

c.Suppose an investor has a choice between buying this security or purchasing a different security that also costs $5,000 today, but pays off $5,500 with certainty in one year.How is an investor's choice of which security to purchase related to her degree of risk aversion?

Accepted Answer

The answer of Suppose a discount bond costs $5,000 today...

Question 8

A contract that makes the owner of a security a part owner of the company that issued the security is known as

Accepted Answer

A) a debt security. 
B) an equity security. 
C) a bond. 
D) an option.

Question 9

One lesson learned from the financial crisis of 2008 was that

Accepted Answer

A) government regulators need to respond slowly when financial practices threaten the economy. 
B) unregulated financial firms need to be prevented from growing so large that their failure would severely damage the economy. 
C) the ease of owning a home has no relationship to the efficiency of the financial system. 
D) unregulated financial firms need to be prevented from growing so small that their success would have no or little effect on the economy.

Question 10

Principal is

Accepted Answer

A) the amount of interest accumulated on a bond. 
B) the amount of dividends paid each year on a stock. 
C) the original amount invested in a security. 
D) the time until a borrowed fund is repaid.

Question 11

When a household borrows to buy a home, the resulting security is referred to as

Accepted Answer

A) a discount bond. 
B) a Treasury bill. 
C) mortgage debt. 
D) consumer credit.

Question 12

Risk is the amount of uncertainty relating to the a ______security.

Accepted Answer

A) maturity of 
B) principal of 
C) liquidity of 
D) return on

Question 13

The owner of a financial security is known as

Accepted Answer

A) an investor. 
B) a debtor. 
C) a broker. 
D) a securitor.

Question 14

Commercial banks, savings institutions, and mutual funds are all

Accepted Answer

A) financial intermediaries. 
B) secondary market organizations. 
C) owned by the government. 
D) institutions that people use to engage in direct finance.

Question 15

The U.S.government borrows by auctioning its bonds in the

Accepted Answer

A) primary market. 
B) stock market. 
C) secondary market. 
D) derivative market.

Question 16

Suppose you are an investor with a choice between three securities that are identical in every way except in terms of their rates of return and risk.
Investment A: $\quad $Total return = 10 percent with probability 50 percent
$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $Total return = 20 percent with probability 50 percent

Investment B:$\quad $ Total return = 12 percent with probability 40 percent
$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $Total return = 18 percent with probability 60 percent

Investment C: $\quad $Total return = 5 percent with probability 60 percent
$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $Total return = 25 percent with probability 40 percent

a.Which investment provides the highest expected return? Show your work by calculating the expected return of all three investments.
b.Calculate the standard deviation of all three investments.
c.What type of investor might prefer investment A? Who might prefer investment B?

Accepted Answer

The answer of Suppose you are an investor with a...

Question 17

Mary used her savings to buy some stocks of a company in the secondary market while Jane sold some stocks she owned through a stock broker.George invested his savings in a bank while Tom bought treasury bills of the U.S.government.Who among the following is using direct finance?

Accepted Answer

A) Mary 
B) Jane 
C) George 
D) Tom

Question 18

A nonmarketable security is one that

Accepted Answer

A) is not widely advertised. 
B) has a present value of zero. 
C) cannot be resold in a secondary market. 
D) has only a current yield and not a capital-gains yield.

Question 19

If a stock's price is $20 at the beginning of a year and $17 at the end of the year, and it pays a dividend of $2 during the year, then the stock's capital-gains yield is _____percent.

Accepted Answer

A) ?15 
B) ?5 
C) 5 
D) 15

Question 20

The ratio of debt to equity in the United States is about

Accepted Answer

A) 2. 
B) 2.5. 
C) 3. 
D) 3.5.

Exam 2: The Financial System and the Economy

Risk that can be eliminated by diversification is

The dollar value of a company's stock rose from $20 to $21 during a year.If the stock paid a dividend of $3, the return on the stock was

Which of the following is NOT a financial intermediary?

Mr.Smith bought stocks of several companies from the secondary market.He used

A company that takes short term deposits and makes long term loans is a

The probabilities of different returns on a stock over the year are: $\begin{array} {cc } \text { Probability } & \text { Return } \\10 \% & - 5 \% \\15 \% & 0 \% \\20 \% & 5 \% \\30 \% & 10 \% \\25 \% & 20 \%\end{array}$ The standard deviation of the return on the stock is about_____ percent.

A contract that makes the owner of a security a part owner of the company that issued the security is known as

One lesson learned from the financial crisis of 2008 was that

Principal is

When a household borrows to buy a home, the resulting security is referred to as

Risk is the amount of uncertainty relating to the a ______security.

The owner of a financial security is known as

Commercial banks, savings institutions, and mutual funds are all

The U.S.government borrows by auctioning its bonds in the

Mary used her savings to buy some stocks of a company in the secondary market while Jane sold some stocks she owned through a stock broker.George invested his savings in a bank while Tom bought treasury bills of the U.S.government.Who among the following is using direct finance?

A nonmarketable security is one that

If a stock's price is $20 at the beginning of a year and $17 at the end of the year, and it pays a dividend of $2 during the year, then the stock's capital-gains yield is _____percent.

The ratio of debt to equity in the United States is about

Exam 2: The Financial System and the Economy

Risk that can be eliminated by diversification is

​The dollar value of a company's stock rose from $20 to $21 during a year.If the stock paid a dividend of $3, the return on the stock was

Which of the following is NOT a financial intermediary?

Mr.Smith bought stocks of several companies from the secondary market.He used

A company that takes short term deposits and makes long term loans is a

A contract that makes the owner of a security a part owner of the company that issued the security is known as

One lesson learned from the financial crisis of 2008 was that

Principal is

When a household borrows to buy a home, the resulting security is referred to as

Risk is the amount of uncertainty relating to the a ______security.

The owner of a financial security is known as

Commercial banks, savings institutions, and mutual funds are all

The U.S.government borrows by auctioning its bonds in the

Mary used her savings to buy some stocks of a company in the secondary market while Jane sold some stocks she owned through a stock broker.George invested his savings in a bank while Tom bought treasury bills of the U.S.government.Who among the following is using direct finance?

A nonmarketable security is one that

If a stock's price is $20 at the beginning of a year and $17 at the end of the year, and it pays a dividend of $2 during the year, then the stock's capital-gains yield is _____percent.

The ratio of debt to equity in the United States is about

The dollar value of a company's stock rose from $20 to $21 during a year.If the stock paid a dividend of $3, the return on the stock was