chapter 11 economics

If a bond from the franchise Greens Galore has a coupon rate of 5 percent, a par value of $2000, and will mature in 5 years, what is its yield to maturity?

$100

Ifa bond from the franchise Greens Galore has a coupon rate of 5 percent, a par value of $2000, and will mature in 5 years, how much will the company have paid the holder when it retires its debt?

$500, plus the original investment of $2000

The Dow Jones Industrial Average consists of

30 stocks that are considered representative of the market as a whole

Your neighbor asks you to invest $500 at 5 percent interest in her catering business. She insists that with all the working parents in the neighborhood, a business that provides home-cooked meals has the potential for making huge profits. You want to invest but are concerned because your neighbor has not had any business experience. How can you offset your risk?

Ask for a higher interest rate.

Why would a person invest in junk bonds?

He does not know anything about investment.

A stock that reinvests its earnings in the business instead of paying regular dividends is called

a growth stock.

An example of blue chip stock might be

a large, well-known company traded on the NYSE.

Because you want to reduce the risk of losing all your savings if an investment fails, you decide to invest in

a mutual fund.

An example of equity is

a share of stock.

All of the following are examples of financial intermediaries EXCEPT

a stock certificate.

You realize that many students who come to early morning hockey practice do not get up early enough to eat breakfast. You borrow $500 from your parents to start a bagel delivery service to the hockey rink in the early mornings. You are acting as

an entrepreneur

Investing in a money market mutual fand is a higher risk than investing in a certificate of deposit because unlike CDs, money market funds

are not insured by the FDIC.

Your friend Jorge has just inherited $1000 and would like to invest the money in the stock market. You suggest that he

contact a brokerage firm, who will put him in touch with a stockbroker.

The interest rate the bond issuer pays to the bondholder is called the

coupon rate

against your better judgment, you lend $100 to your cousin Manny, who has a reputation for failing to pay back loans. You are taking a

credit risk.

Since bonds are considered among the safest investments, you would expect that they would

have low interest rates.

You are a financial advisor whose client wants stock that pays regular dividends. You advise him to buy

income stock.

All of the following are low-risk investments EXCEPT

junk bonds.

All of the following are basic components of bonds EXCEPT

liquidity

In Junc, Leslie wins a cash prize of s2,000. She plans to use this money to pay her tuition bill in September. Leslie puts this money in a savings account because her main priority is

liquidity, since she'll need to use the money in a short time.

Karen wants to buy stock, but is worried about the current "bear market." This means that

many investors are selling their stocks in anticipation of lower profits.

To finance the building of a new police station , a local government is most likely to issue a

municipal bond.

The most trades are made

on the New York Stock Exchange.

You are a financial advisor whose clicnt is concerned about losing his investment if a company goes out of business. You advise him to buy

preferred stock

The main advantage of diversification as an investment policy is that it

reduces risk to investors.

You hear on the news that The Dow has fallen to just below 8000 points . This means that

the Dow is at relatively high levels compared to the early 1980s, but short of its all-time high.

Savings bonds differ from most other bonds in that

the buyer does not receive periodic interest payments in exchange for lower purchase price.

A stock split is most likely to occur when

the price of a stock becomes too high.

The Great Crash can be attributed to all of the following reasons EXCEPT

the small number of people buying stock on margin.

An accurate statement about bonds would be that

they are usually a low-risk investment.

You do not have to pay state taxes on interest earned on

treasury bills.

When you invest in a mutual fund

your money is invested in a variety of stocks and bonds