quiz 6
Suppose a company's bond sold for $900 last month and this month the price is $1,200. The annual interest payment is $90. The current yield on this bond is
7.5 percent
Suppose you purchase shares in Papa's Pizza for $20 per share. The company believes there is a 40 percent chance it will fail to earn a discounted future profit of $2.59. What is the expected rate of return on your investment?
7.77 percent
Suppose a company's bond sold for $900 last month and this month the price is $750. The annual interest payment is $60. The current yield on this bond is
8.0 percent
Liquidity is
the ability of an asset to be converted to cash
The supply of loanable funds is determined by all of the following except
Demand for loanable funds
A major problem of owning a corporation is unlimited liability
FALSE
If the present discounted value of a payment is $1,000,000 and there is a 40 percent chance that the payment will not occur, then the expected value is
$600,000. (Expected value is equal to (1 - Risk factor) × PDV. Therefore the expected value is (1 - .4) × $1,000,000 = $600,000.)
Suppose Regis has a 25 percent chance of not collecting $1,000 in one year. If the interest rate is 10 percent, what is the expected value of the future payment?
$682
Which of the following statements about money is NOT true
Currency can be exchanged for gold only in the United States and Europe
If the opportunity cost of money is zero, the expected value of future dollars is equal to their present value
True
The primary economic function of financial intermediaries is to help allocate scare resources to desired uses
True
a bond is
a promise to repay a loan
Stock prices will increase, ceteris paribus, when the prevailing interest rate increases
FALSE
The longer one has to wait for a future payment, the greater the present value it has
FALSE
The present discounted value of a future payment will decrease when interest rates decrease
FALSE
Venture capital reduces the rate of economic growth
FALSE
A price/earnings ratios the price of a stock divided by the earnings per share
TRUE
An initial public offering occurs when a stock is first solo to the general public
TRUE
One reason why present dollars are worth more than future dollars is because income-earning investment opportunities exist
TRUE
Potential investors expect to be compensated for additional risk by above-average interest rates
TRUE
The par value is the amount to be repaid when a bond matures
TRUE
Venture Capitalists share in the risks and rewards by financing new ventures
TRUE
Venture capital increase the pace of innovation
TRUE
The primary economic role of financial markets is to
allocate resources to profitable business and away from businesses with losses
Par value is the
amount to be repaid when the bond is due
Capital gains are
an increase in the market value of an asset
As the prevailing interest rate decreases, the opportunity cost of money
decreases for both lender and borrower
bonds may be issues by all of the following except
individuals ( can be corporations, local governments, or the federal government)
The present discounted value of a future payment will decrease when the
interest rate increases
How does a recession impact the financial markets
it decreases loanable funds
the decision to save is influenced by all of the following except
occupation ( can be the level of risk, time preferences, interest rates)
The purpose of an initial public offering is to
raise funds for investment and growth by selling shares of the company to the public
Changes in expectations or opportunity costs
shift the bond supply and demand curves
As the prevailing interest rate increases, all of the following occur except
supply curve for savings shifts to the right
A motivation for holding stock is
the anticipation of capital gains
if a corporation issues bonds that it cannot sell, this is an indication that
the coupon rate is too low
If the expected rate of return decreases
the demand for loanable funds will decrease
The most important determinant of how much an individual will pay for a share of stock is
the expectation of future payment
All of the following are allowed to issue bonds except
the federal reserve ( can be the US treasury, General Motors, or the City of Arlington- has to be an institution)
Th price of a stock will decrease, ceteris paribus, when
the interest rate increases
The advantage to a corporation of issuing bonds instead of stock is that
the owners keep control of the company
the owners of a corporation are
the shareholders of the corporation's stock
treasury bonds typically have lower coupon rates that corporate bonds because
there is a lower risk that the US treasury will default
Profits used by a corporation for investment or unforeseen contingencies are known as retained earnings
true
large swings in stock prices are usually case by
widespread changes in expectation s
