Principles of Economics 2e Chapter 17 Test Bank

. A ________ is a direct payment from a firm to its shareholders. A. dividend B. bond C. capital gain D. share

A

A bond is a form of ___________ through which a corporation agrees to repay the amount that was borrowed together with ___________ over a period of time in the future. A. financial contract , a rate of interest B. financial instrument , a rate of return C. initial public offering , a rate of interest D. financial investment , guarantees the investment

A

If a $1,000 five-year bond that was issued at an interest rate of 7% is offered for sale one year before it matures, and the current interest is 5%, how much should an investor be willing to pay for it? A. $1,019 B. $1,124 C. $1,050 D. $952

A

In 2004, Ted and Diane paid 20% down and took out a five-year mortgage for the balance of the $265,000 price of a home. After deducting interest, their monthly payments toward the principle balance owed on the mortgage was reduced by $2,000.00 each year. If they were to sell their home in 2009, it would sell for $215,000. What is the equity in their home? A. $13,000 B. $50,000 C. $163,000 D. $202,000

A

Investors who believe that the stock is _____________ , relative to the fundamental value of its future expected profits, will sell their shares to those who believe that the stock is __________. A. overvalued , undervalued B. undervalued , overvalued C. momentum trading , less risky D. high risk , disadvantaged

A

Last year Stealth Bank received $60 million in interest payments from borrowers. $20 million in loans were written off as uncollectible. It paid out $22 million in interest to its depositors and collected $35 million for various fees it charged. Administration costs were $15 million and taxes were $3 million. What was the value of Stealth Bank's accounting profits? A. $35 million B. $15 million C. $50 million D. $57 million

A

Since stock prices will shift in response to unpredictable future news, these prices will tend to follow what mathematicians call _________________. A. a random walk with a trend B. momentum trading C. long-term fundamental value D. unpredictable changes in expectations

A

Stock markets often experience a frenzy of buying or selling when investors are ___________________ by following the current trend in a very actively traded company. A. momentum trading B. trading on fundamentals C. diversifying their portfolios D. decreasing investment yields

A

The stock of a business firm is divided into _________________ . A. individual shares B. voting shares C. non-voting shares D. individual stocks

A

Trevor and Lynda bought a home in 20013 for $185,000 with a 20% down payment. Their mortgage payments were only applied to interest on the mortgage balance. If they have to sell their home in 2016 for $148,000, what would be the value of their equity? A. 0 B. $37,000 C. $11,100 D. $29,600

A

Which of the following belongs in the range of financial investment options available to U.S. households? A. tangible assets B. venture capital funds C. direct loans to established businesses D. direct loans to start-up business firms

A

Which of the following is a feature that typically distinguishes a savings account from a checking account? A. pays interest B. less liquidity C. automatic teller machine access is available for checking accounts D. withdrawals require a trip to the bank by the account holder

A

Which of the following is considered to be a method that firms can use to raise the financial capital that they need to pay for modernizing their production plants? A. reinvesting profits B. investments by late stage investors C. borrowing large sums directly from households D. increasing dividends to attract new investors

A

Which of the following would legally qualify you to be registered as a shareholder of Microsoft Corporation? A. buying the stock on the New York Stock Exchange B. investing in bonds issued by the Microsoft C. ownership of debt issued by the firm D. a Microsoft employee given options to buy the firm's shares

A

XYZ Corporation plans to open a manufacturing plant in China, but the company has not retained any of its yearly profits for this purpose. How will XYZ Corporation likely raise the money to finance its offshore expansion? A. sale of bonds to institutional investors B. sale of bonds to municipal households C. by issuing Treasury bills D. by encouraging momentum selling of its stock

A

A ________________ operates directly between a saver with financial assets to invest and an entity who will receive those assets in exchange for paying a ________________ . A. public company , higher rate of interest B. financial intermediary , rate of return C. private company , higher rate of interest D. stock market , rate of return

B

A financial gain earned by purchasing stock in a publically traded company and subsequently selling the investment at higher price is commonly referred to as a _____________ . A. dividend B. capital gain C. interest payment D. rate of return

B

A mutual fund that seeks to imitate the overall behaviour of the stock market is called ____________________ . A. a long-run collectibles fund B. an index fund C. a mortgage-backed securities fund D. an indexed retirement age fund

B

Alysa and Todd purchased a home in 1999 for $80,000 with no down payment. In 2004, they were able to refinance their mortgage on the home for $140,000. They reinvested $75,000 into the home, adding a new addition and making upgrades. In 2006, the couple sold the home for $320,000. What was the value of Alysa and Todd's equity in 2006? A. $250,000 B. $180,000 C. $240,000 D. $60,000

B

During the recent U.S. recession, some large automakers required bailouts from the federal government to avoid being forced into bankruptcy by their _________________ . A. shareholders B. bondholders C. Chief Executive Officer D. Board of Directors

B

Each year banks typically offer a wide range of ____________ comprised of ______________________from a variety of different companies. A. index funds , guaranteed equity investments B. mutual funds , a range of stocks or bonds C. index funds , capital gains from trading stocks D. mutual funds , a range of stocks

B

Holly and Josh paid 10% down for their $245,000 home in 2004. If they sell their house for $255,000 in 2010, what will the value of their equity be? A. $5,000 B. $29,500 C. $24,500 D. $30,000

B

I'MAStart-UP Corp. issued and sold 2,500,000 common voting shares during its first public stock sale. What is the minimum number of shares needed to be able to elect a new director to the Board? A. 1.275 million B. 1.25 million C. 1.225 million D. 2.5 million

B

In choosing between the range of alternative investments typically available to U.S. households, which of the following will play a role in influencing their selection of a particular investment type? A. the expected rate of return, risk, and liquidity of each kind of investment B. the interest rate and the expected rate of return C. whether or not the majority of households are early stage investors D. the form of dividends, angel investors, future expectations

B

In the investment industry, the principle of _______________ supports investing in a wide range of companies to reduce the level of risk. A. subprime loans B. diversification C. fundamentals trading D. buying low and selling high

B

Michael purchased 5,000 shares of IMAGoldMiner Inc. in May for $0.55 each. He purchased 5,000 more at $0.75 cents in June and another 5,000 for $1.02 in July. In October, IMAGoldMiner began production at its new gold mine and Michael was able to sell 5,000 shares at $2.05, another 5,000 at $3.25 and the remaining 5000 at $4.50. In this instance, Michael A. is trading on fundamentals. B. profited by momentum trading. C. is diversifying his investments. D. traded based on future expected profits.

B

The City of Washington needs to upgrade its levies and its water drainage systems. The cost will exceed the amount of tax revenue the City expects to receive over the next 10 years. How will the City be able to raise the funds needed to finance this upgrade? A. issue Treasury Bonds B. issue municipal bonds C. borrow from Banks D. borrow from large corporations

B

The term __________ refers to the __________ that a bond is expected to pay at the time of purchase. A. rate of interest , yield rate B. bond yield , rate of return C. rate of interest , rate of return D. yield rate , bond rate

B

Which of the following is not an ironclad rule in the financial markets? A. borrowing from a bank works better for large, well-known corporations B. banks fund small business loans and large firms issue bonds to raise money C. a bank can monitor a large established firm's better than a new small business D. relatively large and well-known firms typically never borrow from banks

B

Why do business firms need financial capital? A. to lend to other businesses B. to make real physical capital investments C. to provide an alternate source of revenue for households D. to make diversified capital investments

B

Why would a large publically traded corporation likely prefer issuing bonds as a way to raise new money as opposed to issuing more shares? A. the rate of return the corporation promised will be more difficult to deliver B. more shares will dilute the existing value of the stock, causing its market price to fall C. the market will view the new share issue as a sign the company is in financial difficulty D. issuing bonds is a more secure method for corporations to raise needed money

B

. Which of the following would be the least likely method for firms to raise the financial capital they need to pay for new equipment? A. issuing bonds B. reinvesting profits C. borrowing from households D. selling stock

C

A _____________ is a firm that has sold its stock by making it available to be bought and sold by outside investors. A. business entity B. private company C. public company D. public proprietorship

C

A checking account typically pays __________________, but gives easy access to your money, either by writing a check or by using ______________. A. no interest , a credit card B. between 3% and 5% interest , a credit card C. little or no interest , a debit card D. between 2% and 4% interest , a debit card

C

In order to be classified as a _______________, a firm must be owned by the people who run it on a day-to-day basis. A. business firm B. public company C. private company D. corporation

C

Riley and Sue paid 30% down for a house valued at $135,000 in 2013. If they sell the house in 2017 for $140,000, what will the value of their equity be? A. $40,500 B. $35,500 C. $45,500 D. $5,000

C

Small companies typically prefer____________ to borrowing from a bank because it is a source of funding where the company is not obligated to _____________________ . A. issuing bonds , to proceed with an IPO B. an IPO , issue bonds C. an IPO , make interest payments D. issuing bonds , make interest payments

C

The _________ of an investment is determined by how easy it is to sell an asset at any given time. A. profitability B. expected profitability C. liquidity D. sustainable outcome

C

The old proverb: "Don't put all your eggs in one basket" is synonymous with which of the following? A. an average rate of return B. predicting value of tangible assets C. diversified investments D. a flexible rate of return

C

Treasury bonds are issued by the federal government through the _____________________ . A. Federal Reserve B. Central Bank C. U.S. Department of the Treasury D. U.S. Office of the Comptroller of Currency

C

Venture capitalists typically create wealth by investing in a start up firm when its stock is less valuable, and then subsequently selling that stock for a higher price during the firm's _____________________ , A. initial bond issue B. initial liquidity offering C. initial public offering D. initial private offering

C

What do stocks, bonds, securitized mortgage assets and other financial investments all have in common? A. they are all forms of investments bought by demanders of capital B. they all guarantee rates of return C. they can only be purchased in financial markets D. their values are tracked by the Dow Jones Industrial Average

C

Which of the following is not a typical question that must be answered with regard to a private company that is owned by a large number of shareholders? A. How and when does the company get money from the sale of its stock? B. What rate of return does the company promise to pay when it sells stock? C. What is the dividend yield on preferred shares of companies that hold this stock? D. Who makes decisions in a company owned by a large number of shareholders?

C

_______________ of well-to-do individuals often put their own money into small new companies at an early stage of development, in exchange for owning some portion of the firm. A. A venture fund B. A collateral group C. A network D. Partnerships

C

________________ are a form of _______ bonds that offer relatively high interest rates to compensate for their relatively high chance of default. A. Bonds , government B. High-yield bonds , municipal C. Junk bonds , corporate D. Certificates of deposit , bank

C

_______________________ find ways to take the inflow of funds from many separate _________ of financial capital and transform it into the funds desired by _______________ of financial capital. A. Financial intermediaries , high risks , suppliers B. Governments , suppliers , demanders C. Financial capital markets , suppliers , demanders D. Venture capital funds , the risks , demanders

C

Bill and Cathy built a new home in 1985 at a cost of $90,000.00. They paid 20% of the cost to build the home themselves and financed the remainder by way of a mortgage. They paid the mortgage off in 15 years. They used $35,000 from Bill's inheritance to upgrade the home in 2004. When they sold the home for $335,000.00 in 2006, what was the value of their equity? A. $35,000 B. $245,000 C. $210,000 D. $335,000

D

During the U.S. stock market collapse of 2007, Paula's financial advisor recommended that she invest in a number of pharmaceutical companies while their stock values were down considerably. He expected these companies to maintain high dividend yields, making them attractive to investors. If Paula follows her financial advisor's recommendations, she is A. likely investing in an index fund. B. diversifying her investment portfolio. C. following momentum trading advice. D. following fundamental trading advice.

D

How has the widespread adoption of debit cards as the preferred method of payment for consumer purchases likely affected bank administration costs? A. the cost of bank administration is unaffected by widespread use of debit cards B. costs increased due to high cost of developing and maintaining debit card technology C. administration costs increased because the cost of electricity means high-cost for electronic transactions D. costs are reduced because the cost of purchase is immediately debited from purchaser's checking account

D

How would a sustained increase in the market price of its shares directly benefit a publically traded company? A. It will be able to lower the dividend yield on its preferred shares. B. It will be able to borrow larger sums from other companies. C. It would be able to borrow larger sums from banks. D. It could sell any shares it owns in itself at the higher valuation.

D

In January 2001, Bianca invested $5,000 for three years at 4.20% , in January 2010, she invested $5,000 for two years at 3.81% , and, in January 2011, she invested $5,000 for one year at 3.55%. Bianca's savings account in each year paid 2.8%, 1.59%, and 1.13% respectively. In January, 2014, if Bianca reinvests her initial capital of $15,000., plus the interest it has earned for another two-year term, her bank will likely offer to pay a higher rate of return A. to compensate for junk bonds relatively high chance of default. B. as compensation for the relatively high chance of bank failures. C. to match the rate of return that its bonds are expected to pay at the time of purchase. D. on the CD in exchange for her promise to leave the funds invested for the set-term.

D

In the United States, venture capital firms invested __________ in 2009. A. two-thirds less B. in certificates of deposit C. $3 billion in NINJA loans D. $21 billion

D

Jackie has invested $25,000 for a 10 period at a guaranteed interest rate of 9%. If Jackie decides to sell her investment before the 10 year period has ended, she may receive less if the interest rates at that time are lower. Jackie is a A. shareholder B. owner of a certificate of deposit C. angel investor D. bondholder

D

Last year Stealth Bank received $100 million in interest payments from borrowers. $25 million in loans were written off as uncollectible. It paid out $30 million in interest to its depositors and collected $25 million for various fees it charged. Administration costs were $22 million and taxes were $3 million. What was the value of Stealth Bank's accounting profits? A. $135 million B. $80 million C. $75 million D. $45 million

D

Levi and Beverly paid 20% down on a house valued at $165,000 in 1994. They upgraded the house entirely in 2003, when they refinanced their mortgage for $165,000. If they sell the house in 2018 for $190,000, what would be the value of their equity in the home? A. $68,000 B. $58,000 C. $33,000 D. $25,000

D

The bottom line on investing in individual stocks is: _______________ on average over lengthy periods of time , ________________, especially in the short run , _______________, since stock does need to be sold to turn gains into spendable money. A. low rate of return , high risk , low liquidity B. moderate rate of return , low risk , high liquidity C. high rate of return , moderate risk , low liquidity D. high rate of return , high risk , moderate liquidity

D

The ownership in a company is represented by ________________ and those who are legally recognized as having ownership in a company are called _____________. A. ownership of the shares with voting rights , shareholders B. shares with voting rights , stockholders C. ownership of stock , stockholders D. ownership of shares in the company's stock , shareholders

D

Which of the following will provide an investor with a legally valid claim of partial ownership of a firm? A. entitlement to bond interest B. ownership of a treasury bond C. entitlement to dividends D. ownership of stock

D