Econ Test 2

When a $10 check written on Chase is deposited in an account at Citibank, then _____. a. the liabilities of Chase decrease by $10 b. the reserves of Chase increase by $10 c. the liabilities of Citibank decrease by $10 d. the assets of Citibank decrease by $10

A

Which of the following are reported as assets on a bank's balance sheet? ______. a. Loans b. Bank capital c. Discount loans d. Checkable deposits

A

in a one period valuation model a decrease inthe required return on investments in equity causes a ______ in the ______ price of stock A. increase; current B. increase; expected sales C. decrease; current D. decrease; expected sales

A

Bank capital has benefits and costs for bank owners. Higher bank capital _____ the likelihood of bankruptcy, but higher bank capital _____ the return on equity for a given return on assets. a. reduces; reduces b. reduces; increases c. increases; reduces d. increases; increases

A

In a one-period valuation model, a decrease in the required return on investments in equity causes a(n) ________ in the ________ price of a stock. A) increase; current B) increase; expected sales C) decrease; current D) decrease; expected sales

A

In the Gordon Growth model, a decrease in the required rate of return on equity A. increases the current stock price B. increases the future stock price C. reduces the future stock price D. reduces the current stock price

A

In the generalized dividend model, if the expected sales price is in the distant future A) it does not affect the current stock price. B) it is more important than dividends in determining the current stock price. C) it is equally important with dividends in determining the current stock price. D) it is less important than dividends but still affects the current stock price.

A

In the one period valuation model the current stock price increases if A. the expected sales price increases B. the expected sales price falls C. the required return increases D. dividends are cut

A

In the one period valuation model the value of a share of stock today depends upon A. the present value of both the dividends and the expected sales price B. only the present value of the future dividends C. the actual value of the dividends and expected sales price received in one year D. the future value of dividends and the actual sales price

A

In the one-period valuation model, the current stock price increases if _____. a. the expected sales price increases b. the expected sales price falls c. the required return increases d. the dividend payment is cut

A

In the one-period valuation model, the value of a share of stock today depends upon A) the present value of both the dividends and the expected sales price. B) only the present value of the future dividends. C) the actual value of the dividends and expected sales price received in one year. D) the future value of dividends and the actual sales price.

A

Increased uncertainty resulting from the global financial crisis ________ the required return on investment in equity A. raised B. lowered C. had no impact on D. decreased

A

Information plays an important role in asset pricing because it allows the buyer to more accurately judge _____. a. risk b. equity c. capital d. liquidity

A

New information that might lead to a decrease in a stock's price might be A. an expected decrease int he level of future dividends B. a decrease in the required rate of return C. an expected increase in the dividends growth rate D. an expected increase in the future sales price

A

The global financial crisis lead to a decline in stock prices because A) of a lowered expected dividend growth rate. B) of a lowered required return on investment in equity. C) higher expected future stock prices. D) higher current dividends.

A

Using the Gordon growth model, a stock's price increases if ______. a. the dividend growth rate increases b. the dividend growth rate falls c. the required rate of return on equity rises d. the expected sales price rises

A

Using the Gordon growth model, a stock's price will increase if A. the dividend growth rate increases b. the growth rate of dividends falls C. the required rate of return on equity rises D. the expected sales price rises

A

in the generalized divident model, if the expected sales price is in the distant future A. it does not affect the current stock price B. it is more important than dividends in determining the current stock price C. it is equally important with dividentds in deteremining the current stock price D. it is less important than dividends but still affects the current stock price

A

A stock's price will fall if there is A) a decrease in perceived risk. B) an increase in the required rate of return. C) an increase in the future sales price. D) current dividends are high.

B

A stockholder's ownership of a company's stock gives her the right to A) vote and be the primary claimant of all cash flows. B) vote and be the residual claimant of all cash flows. C) manage and assume responsibility for all liabilities. D) vote and assume responsibility for all liabilities.

B

A stockholders owership of a company's stock giver her the right to A. vote and be the primary claimant of all cash flows B. vote and be the residual claimant of all cash flows C. manage and assume responshibility for all liambilities D. vote and assume Responsibility for all liabilities

B

In the generalized dividend model, a future sales price far in the future does not affect the current stock price because A) the present value cannot be computed. B) the present value is almost zero. C) the sales price does not affect the current price. D) the stock may never be sold.

B

In the generalized dividend model, a future sales price far in the future does not affect the current stock price because A. the present value cannot be computed B. the present value is almost zero C. the sales price does not affect the current price D. the stock may never be sold

B

In the generalized dividend model, the current stock price is the sum of A) the actual value of the future dividend stream. B) the present value of the future dividend stream. C) the present value of the future dividend stream plus the actual future sales price. D) the present value of the future sales price.

B

In the generalized dividend model, the current stock price is the sum of A. the actual value of the future dividend stream B. the present value of the future dividend stream C. the present value of the future dividend stream plus the actual future sales price D. the presend value of teh future sales price

B

Information plays an important role in asset pricing because it allows the buyer to more accurately judge A) liquidity. B) risk. C) capital. D) policy.

B

Periodic payment of net earnings to shareholders are known as A. capital gains B. Dividends C. profits D. interest

B

Using the Gordon growth model, if D1 is $.50, ke is 7%, and g is 5%, then the present value of the stock is A) $2.50. B) $25. C) $50. D) $46.73.

B

Using the gordon growth model if D1 is .50, ke is 7% and g is 5%, then the present value of the stock is A. 2.50 B. 25 C. 50 D. 46.73

B

he nominal interest rate is 4% in the U.S. and 10% in Brazil. Inflation is 1% in the U.S. and 8% in Brazil. Which country is a better place for borrowers? _______. a. U.S. b. Brazil c. the same d. indeterminate

B

A change in percieved risk of stock changes A. the expected dividend growth rate B. the expected sales price C. the required reate of return D. the current dividend

C

Banks that actively manage liabilities will most likely meet a reserve shortfall by _____. a. calling in loans b. selling municipal bonds c. borrowing federal funds d. all of above

C

For the First National Bank, the average duration of its rate-sensitive assets is three years, and the average duration of its rate-sensitive liabilities is six years. There is a 5-percentage-point increase in interest rates. What will happen to the net worth of the First National Bank? _____ a. It will increase by 45%. b. It will increase by 15%. c. It will decrease by 30%. d. It will decrease by 15%.

C

In the Gordon Growth Model the growth rate is assumed to be ________ the required return on equity. A. Greater than B. equal to C. less than D. proportional to

C

In the Gordon Growth model the growth rate is assumed to be ________ the required return on equity. A. Greater than B. equal to C. less than D. proportional to

C

One of the assumptions of the Gordon Growth Model is that dividends will continue growing at ________ rate. A. an increasing B. a fast C. a constant D. an escalating

C

Second National Bank Assets Liabilities Rate-sensitive $40 million $50 million Fixed-rate $70 million $40 million If the interest rate fall by 5 percentage points, say from 15% to 10%, what will happen to the profit of the Second National Bank? _____ a. It will decrease by $0.5 million. b. It will decrease by $1.5 million. c. It will increase by $0.5 million. d. It will increase by $1.5 million.

C

Using the Gordon growth formula, if D1 is $2.00, ke is 12% or 0.12, and g is 10% or 0.10, then the current stock price is A) $20. B) $50. C) $100. D) $150.

C

Using the one-period valuation model, assuming a year-end dividend of $0.11, an expected sales price of $110, and a required rate of return of 10%, the current price of the stock would be A) $110.11. B) $121.12. C) $100.10. D) $100.11

C

Which of the following is not a practice that banks often take to manage credit risk? ____. a. Having collateral requirement b. Specializing in certain types of lending c. Keeping short-term customer relationships d. Rationing credit based on specific borrowers

C

A monetary expansion ______ stock prices due to a decrease in the _______ and an increase in the ________, everything else held constant. A. reduces; future sales price; expected rate of return B. reduces; current dividend; expected rate of return C. increase; required rate of return; future sales price D. increases; required rate of return; dividend growth rate

D

In asset markets and asset's price is A. set equal o the highest price a seller will accept B. set equal to the highest price a buyer is willing to pay C. set equal to the lowest price a seller is willing to accept D. set by the buyer willing to pay the highest price

D

In the one-period valuation model, an increase in the required return on investments in equity A) increases the expected sales price of a stock. B) increases the current price of a stock. C) reduces the expected sales price of a stock. D) reduces the current price of a stock.

D

Stockholders are residual claimants, meaning that they A. have the first priority claim on all of the company's assets B. are liable for all of a company's debts C. will never share in a company's profits D. receive the remaining cash flow after all other claims are paid

D

Stockholders are residual claimants, meaning that they A) have the first priority claim on all of a company's assets. B) are liable for all of a company's debts. C) will never share in a company's profits. D) receive the remaining cash flow after all other claims are paid.

D

The value of any investment is found by computing the A) present value of all future sales. B) present value of all future liabilities. C) future value of all future expenses. D) present value of all future cash flows.

D

The value of any investment is found by computing the A. present value of all future sales B. present value of all future liabilities C. future value of all future expenses D. present value of all future cash flows

D

Using the Gordon growth model, a stock's current price decreases when A. the dividend growth rate increases B. the required return on equity decreases C. the expected dividend payment increases D. the growth reate of dividends decreases

D

Using the one-period valuation model, assuming a year-end dividend of $1.00, an expected sales price of $100, and a required rate of return of 5%, the current price of the stock would be A) $110.00. B) $101.00. C) $100.00. D) $96.19.

D

in the one period valuation model an increase in teh required return on investments in equity A. increases the expected sales price of a stock B. increases the currnt price of a stock C. reduces the expected sales price of a stock D. reduces the current price of a stock

D

You believe that a corporation's dividends will grow 5% on average into the foreseeable future. The required rate of return is 12%. If the company's last dividend payment was $5, what is the present value of its stock?

Use the Gordon Growth Model. $5(1 + .05)/(.12-.05) = $75