ecn 9

An initial public offering

Allows a company to raise money without increasing debt++ Increases the percentage of the company owned by the management and original entrepreneurs.

If the interest rate is 8 percent, then the present discounted value of $100 to be received two years from now is closest to

$128.00. $86.00. ++

Large swings in stock prices are usually caused by

changes in expectations.

The present discounted value of $60,000 to be received at the end of three years when the interest rate is 10 percent is closest to

$45,079.+++ $79,860.

When a corporation borrows money from a bank, it is

Borrowing funds from households.

Ceteris paribus, the price of a stock will definitely increase when the

Demand for the stock increases.

The price of a stock will increase, ceteris paribus, when

Future earnings expectations increase.

When the price of goods increase, land values

Increase because the profitability of land is inversely related to prices. Decrease because the profitability of land is directly related to prices.

The present discounted value of a future payment will increase when the

Interest rate decreases.

The purpose of an initial public offering is to

Raise funds for investment and growth by selling shares of the company to the public.

The most important determinant of how much an individual will pay for a share of stock is

The expectation of future profit.

Which of the following will cause the demand for loanable funds to increase?

The expected rate of return on capital increases.

Figure 32.1 represents the market for loanable funds. Which of the following is true at the equilibrium interest rate?

The rate of return on capital equals the interest rate.

Suppose you purchase shares in Acme Gadget Company for $10 per share. Afterwards the company announces there is a lower chance it will fail to earn a profit.

The supply of shares will shift to the left. The demand for shares will shift to the right. ++

A company believes their sales will increase beyond their current capacity requiring them to raise capital. How will raising capital initially effect the market for their stock?

The supply of the stock will increase.

Present discounted value refers to the

Value today of future payments adjusted for predicted returns.

The future compounded value of a present payment can be calculated using which of the following formulas?

(Current payment) x [(1 + Interest rate) N].

The present discounted value of a future payment can be calculated using which of the following formulas?

(Future payment) ÷ [(1 + Interest rate) N].

The advantage to a corporation of borrowing money instead of issuing stock is that

Borrowing money does not cost anything. The owners do not have to make interest payments on the loan.++

The first sale to the general public of stock in a corporation is referred to as

An initial public offering.

The owners of a corporation are

The shareholders of the corporation's stock.

The price of a stock will increase, ceteris paribus, when

Consumer confidence increases.+++ Terrorists cause people to be fearful.