Eco Final

Which of the following statements about the term of a bond is correct? A. Term refers to the various characteristics of a bond, including its interest rate and tax treatment. B. The term of a bond is determined entirely by its credit risk. C. The term of a bond is determined entirely by how much sales charge the buyer of the bond pays when he or she purchases the bond. D. Interest rates on long-term bonds are usually higher than interest rates on short-term bonds.

D

Which of the following statements is correct? A. NASDAQ is a major stock exchange in the United States. B. The demand for a corporation's stock is largely based on people's perception of the corporation's profitability in the future. C. Compared to the Standard & Poor's 500 Index, the Dow Jones Industrial Average incorporates the stock prices of a much smaller number of corporations. D. All of the above are correct.

D

Which statement is false about NASDAQ? A. A stock market does not need to have a physical location. B. Investors can make stock transactions over the phone or by internet. C. Stock markets can be a collection of dealers connected by computer network and telephone. D. NASDAQ is the largest stock market in the United States in terms of market capitalization.

D

You have been promised a payment of $400 in the future. In which of the following cases is the present value of this payment the lowest? A. You receive the payment 4 years from now and the interest rate is 4%. B. You receive the payment 4 years from now and the interest rate is 5%. C. You receive the payment 5 years from now and the interest rate is 4%. D. You receive the payment 5 years from now and the interest rate is 5%.

D

You put $75 in the bank one year ago and forgot about it. The bank sends you a notice that you now have $81 in your account. What interest rate did you earn? A. 5% B. 6% C. 7% D. 8%

D

A policy than induces people to save more money shifts: A. the supply of loanable funds rightward and increases investment. B. the supply of loanable funds leftward and decreases investment. C. the supply of loanable funds rightward and decreases investment. D. the supply of loanable funds leftward and increases investment.

A

A stock index is A. An average of a group of stock prices. B. An average of a group of stock yields. C. A measure of the risk relative to the profitability of corporations. D. A report in a newspaper or other media outlet on the price of the stock and earnings of the corporation that issued the stock.

A

A stock's dividend yield is the A. Dividend as a percentage of the price per share. B. Stock price as a percentage of the dividend. C. Dividend as a percentage of the retained earnings per share. D. Retained earnings per share as the percentage of the dividend

A

Compared to bondholders, stockholders A. Face higher risk and have the potential for higher returns. B. Face higher risk but receive a fixed payment. C. Face lower risk and have the potential for higher returns. D. Face lower risk but receive a fixed payment.

A

Compared to short-term bonds, other things the same, long-term bonds generally have A. More risk and so they pay higher interest rates. B. Less risk and so they pay lower interest rates. C. Less risk and so they pay higher interest rates. D. About the same risk and so they pay about the same interest rate.

A

Discounting refers directly to A. finding the present value of a future sum of money. B. finding the future value of a present sum of money. C. calculations that ignore the phenomenon of compounding for the sake if ease and simplicity. D. decreases in interest rates over time, while compounding refers to increase in interest rates over time.

A

Given that Monika's income exceeds her expenditures, Monika is best described as a: A. Saver or as a supplier of funds. B. Saver or as a demander of funds. C. Borrower or as a supplier of funds. D. Borrower or as a demander of funds.

A

If US Congress instituted an investment tax credit, then the equilibrium quantity of loanable funds would: A. rise. B. fall. C. be unchanged. D. move in an uncertain direction.

A

If the interest rate is 4%, in which of the following cases is the future value the largest? A. An initial value of $1,000 deposited for 5 years. B. An initial value of $950 deposited for 6 years. C. An initial value of $900 deposited for 7 years. D. An initial value of $850 deposited for 8 years

A

Liquidity refers to A. The ease with which an asset is converted to the medium of exchange. B. The measurement of the intrinsic value of commodity money. C. The measurement of the durability of a good. D. How many times a dollar circulates in a given year.

A

The Dow Jones Industrial Average is now based on the prices of the stocks of A. 30 major U.S. corporations. B. 100 major U.S. corporations. C. 500 representative U.S. corporations. D. 1,000 representative U.S. corporations.

A

The chart below reports current information on US bonds from Bloomberg. If the face value for each bond is $1,000, then which type of bond has the lowest investment risk? A. 3 Month B. 12 Month C. 10 Year D. 30 Year

A

The source of the supply of loanable funds: A. is saving and the source of demand for loanable funds is investment. B. is investment and the source of demand for loanable funds is saving. C. and the demand for loanable funds is saving. D. and the demand for loanable funds is investment.

A

U.S. 10 Year Treasury Note Data from WSJ: Face value $1,000; Price 99 14/32; Coupon 2.25%. If you predict that the US government will default on its debt, so you decide to sell this bond at the beginning of the 6th year you hold this bond at market price 101 8/32. How much money do you make for holding this bond for the past several years? A. $130.31 B. $242.81 C. 129.62 D. 241.53

A

We would expect the interest rate on Bond A to be higher than the interest rate on Bond B if the two bonds have identical characteristics except that A. Bond A was issued by a financially weak corporation and Bond B was issued by a financially strong corporation. B. Bond A was issued by the Greek government and Bond B was issued by the city of Laredo, TX. C. Bond A has a term of 20 years and Bond B has a term of 1 year. D. All of the above are correct.

A

What would happen in the market for loanable funds if the government were to increase the tax on interest income? A. Interest rate would rise. B. Interest rate would be unaffected. C. Interest rate would fall. D. The effect on the interest rate if uncertain.

A

When a sovereign country wants to borrow money directly from the public, it can A. Sell bonds. B. Sell shares of stock. C. Go to a bank for a loan. D. All of the above are correct.

A

Which bond is more likely to offer the lowest coupon rate? A. Investment grade bonds. B. Speculative bonds. C. Junk bonds. D. D-rated bonds

A

Which of the following could explain a decrease in the interest rate and an increase in the equilibrium quantity of investment? A. the supply of loanable funds shifted to the right. B. the supply of loanable funds shifted to the left. C. the demand of loanable funds shifted to the right. D. the demand of loanable funds shifted to the left.

A

Which of the following is both a financial institution and a financial intermediary? A. Commercial banks B. Stock exchanges C. The bond market D. All of the above are correct.

A

Which stock market is the largest in the United States in terms of market capitalization? A. New York Stock Exchange (NYSE) B. NASDAQ C. Chicago Stock Exchange D. Boston Stock Exchange

A

World Wide Delivery Service Corporation develops a way to speed up its deliveries and reduce its costs. We would expect that this would A. Raise the demand for existing shares of the stock, causing the price to rise. B. Decrease the demand for existing shares of the stock, causing the price to fall. C. Raise the supply of the existing shares of stock, causing the price to rise. D. Raise the supply of the existing shares of stock, causing the price to fall.

A

If the interest rate is 4%, then you would be equally happy if you received a gift of either $1000 today or a gift of: A. $110 two years from today. B. $112.49 three years from today. C. $116 four years from today. D. $123.67 five years from today.

B

If the interest rate is 7.5%, then what is the present value of $4,000 to be received in 6 years? A. $2,420.68 B. $2,591.85 C. $2,996.33 D. $3,040.63

B

If you now have $50,000 saved and earn 15% interest per year, about how many years will it take for your investment to triple? A. 6 B. 8 C. 10 D. 12

B

In a closed economy, national saving is: A. usually greater than investment. B. equal to investment. C. usually less than investment because of taxes. D. always less than investment.

B

You have a contract with someone who has agreed to pay you $20,000 in four years. She offers to pay you now instead. For which of the following interest rates and payments would you take the money today? A. 8%, $14,000 B. 7%, $16,000 C. 6%, $15,000 D. 8%, $16,000

B or D

If the government institutes policies that diminish incentives to save, then in the loanable funds market: A. the demand for loanable funds shifts rightward. B. the demand for loanable funds shifts leftward. C. the supply of loanable funds shifts rightward. D. the supply of loanable funds shifts leftward.

D

If the government's expenditures exceeded its receipts, it would likely A. Lend money to a bank or other financial intermediary. B. Borrow money from a bank or other financial intermediary. C. Buy bonds directly from the public. D. Sell bonds directly to the public.

D

Al, Ralph, and Stan are all intending to retire. Each currently has $1 million in assets. Al will earn 16% interest and retire in two years. Ralph will earn 8% interest and retire in four years. Stan will earn 4% interest and retire in eight years. Who will have the largest sum when he retires? A. Al B. Ralph C. Stan D. They will all retire with the same amount.

C

As an alternative to selling shares of stock as a means of raising funds, a large company could, instead, A. Invest in physical capital. B. Use equity finance. C. Sell bonds. D. Purchase bonds.

C

Economists equate money with A. Individual wealth. B. Income regularly earned. C. Assets people use regularly to buy goods and services. D. Individual saving.

C

In a closed economy, what does (T - G) represent? A. national saving B. investment C. private saving D. public saving

D

In a closed economy, what does (Y - T - C) represent? A. national saving B. tax revenue C. public saving D. private saving

D

Institutions that help to match one person's saving with another person's investment are collective called the A. Federal Reserve system. B. Banking system. C. Monetary system. D. Financial system

D

Mary has four savings accounts. Which account has the largest balance? A. $100 deposited 1 year ago at an 8% interest rate. B. $100 deposited 2 years ago at a 4% interest rate. C. $100 deposited 4 years ago at a 2% interest rate. D. $100 deposited 8 years ago at a 1% interest rate.

D

If the supply for loanable funds shifts to the left, then the equilibrium interest rate: A. and quantity of loanable funds rises. B. and quantity of loanable funds falls. C. rises and the quantity of loanable funds falls. D. falls and the quantity of loanable funds rises.

C

In a small closed economy, investment is $50 billion, and private saving is $45 billion. What are public saving and national saving? A. $5 billion and $45 billion B. -$5 billion and $45 billion C. $5 billion and $50billion D. -$5 billion and $50billion

C

Norberto is opening a bicycle shop, and his monthly expenditures to get the shop up and running exceed his monthly income. Norberto is best described as a: A. Saver or as a supplier of funds. B. Saver or as a demander of funds. C. Borrower or as a supplier of funds. D. Borrower or as a demander of funds.

D

Other things the same, an increase in the interest rate A. would shift the demand for loanable funds to the right. B. would shift the demand for loanable funds to the left. C. would increase the quantity for loanable funds demanded. D. would decrease the quantity for loanable funds demanded.

D

Stock represents A. A claim to a share of the profits of a firm. B. Ownership in a firm. C. Equity finance: borrowing money by selling ownership. D. All of the above are correct

D

Suppose that a US 30-year Treasury bond's bid price is quoted as 115-28, its face value is $1,000, then we know that the actual bid price for this bond is: A. $115.28 B. $1152.8 C. $1156.39 D. $1158.75

D

Suppose that you put $500 into a bank account today. Interest rate is paid annually and the annual interest rate is 3%. The future value of the $500 present value after one year is: A. $485.44 B. $496.50 C. $509.28 D. $515.00

D

Suppose the economy is closed and consumption is $8 million, taxes are $2 million, and government spending is $1.75 million. If national saving amounts to $1.25 million, then what is GDP? A. $9 million. B. $9.5 million. C. $13 million. D. $11 million.

D

Other things the same, when the interest rate rises, A. people would want to lend more, making the supply of loanable funds increase. B. people would want to lend less, making the supply of loanable funds decrease. C. people would want to lend more, making the quantity of loanable funds supplied increase. D. people would want to lend less, making the quantity of loanable funds supplied decrease.

C

People who buy stock in a corporation such as General Electric become A. Creditors of General Electric, so the benefits of holding the stock depend on General Electric's Profits. B. Creditors of General Electric, but the benefits of holding the stock do not depend on General Electric's profits. C. Part owners of General Electric, so the benefits of holding the stock depend on General Electric's profits. D. Part owners of General Electric, but the benefits of holding the stock do not depend on General Electric's profits.

C

Suppose that your uncle offers you $100 today or $150 in 10 years from now. You would prefer to take the $100 now option if the interest rate is: A. 3% B. 4% C. 5% D. None of the above is correct.

C

Suppose you put $350 into a bank account today. Interest rate is paid annually and the annual interest rate is 6%. The future value of the $350 after 4 years is: A. $414.09 B. $434.00 C. $441.87 D. $481.24

C

The chart below reports current information for the 5-year US treasury bond. if the face value for each piece of bond is $1,000, then what is its current market price for this bond? A. $1,000 B. $993.13 C. $999.69 D. $999.31

C

The prices of stocks traded in the secondary market on exchanges such as NSYE and NASDAQ are determined by A. The Corporate Stock Administration. B. The administrators of NASDAQ. C. The supply of, and demand for, the stock. D. All of the above are correct.

C

Two bonds have the same term to maturity. The first was issued by a state government and the probability of default is believed to be low. The other was issued by a corporation and the probability of default is believed to be high. Which of the following is correct? A. Because they have the same term to maturity the interest rates should be the same. B. Because of the differences in tax treatment and credit risk the state bond should have the higher interest rate. C. Because of the differences in tax treatment and credit risk the corporate bond should have the higher interest rate. D. It is not possible to say if one bond has a higher interest rate than the other.

C

We would expect the interest rate on Bond A to be lower than the interest rate on Bond B if the two bonds have identical characteristics except that A. Bond A was issued by a financially weak corporation and Bond B was issued by a financially strong corporation. B. Bond A was issued by the Braziian government and Bond B was issued by the state of Texas. C. Bond A has a term of 1 year and Bond B has a term of 5 years. D. All of the above are correct.

C

What is the future value of $800 one year from today is the interest rate is 7%? A. $747.66 B. $756 C. $856 D. None of the above are correct to the nearest cent.

C

Which item is not an American stock market index? A. S&P 500 B. Dow Jones Industrial Average C. FTSE 100 Index D. NASDAQ Composite

C

Which of the following has a present value of $100? A. $109.12 in two years when the interest rate is 4%. B. $113.98 in two years when the interest rate is 6%. C. $116.64 in two years when the interest rate is 8%. D. $123.17 in two years when the interest rate is 10%

C

Which statement is false about the stock market? A. The entire ownership stake of a corporation is divided into shares known as stock. B. The collection of all the outstanding shares of a corporation is known as the equity of the corporation. C. Secondary market is the place where new securities are originally sold to investors. D. An owner of a share of stock in the corporation is known as a shareholder, and is entitled to dividend payments

C

You put $150 in the bank two years ago and forgot about it. The bank sends you a notice that you now have $169.34 in your account. What interest rate did you earn? A. 5.5% B. 5.65% C. 6.25% D. 7.05%

C

Suppose the economy is closed with national saving of $3 trillion, consumption of $10 trillion, and government spending of $4 trillion. What is GDP? A. $3 trillion. B. $9 trillion. C. $11 trillion. D. $17 trillion.

D

Suppose we know that the coupon for TAMIU bond is $50, and each TAMIU bond has face value of $1,000, maturity is November 15, 2017. With all the information we can calculate the coupon rate for the TAMIU bond is: A. 2% B. 3% C. 4% D. 5%

D

Suppose you put $500 into a bank account today. Interest rate is paid annually and the annual interest rate is 8%. The future value of the $500 after 2 years is: A. $428.67 B. $470.00 C. $580.00 D. $538.20

D

The Fitch credit rating for bonds issued by a company is CCC, then we know that these bonds: A. have investment-quality ratings. B. pay a lower coupon rate. C. are zero-coupon bonds. D. are called junk bonds.

D

The chart below reports current information for the 5-year US treasury bond. if the face value for each piece of bond is $1,000, then how much money will you get paid as coupon each year for holding this bond? A. $19.98 B. $20.15 C. $20.03 D. $20.00

D

The future value of a deposit in a savings account will be larger A. the longer a person waits to withdraw the funds. B. the higher the interest rate is. C. the larger the initial deposit is. D. All of the above are correct

D

The single most important piece of information about a stock is its A. Term. B. Dividend. C. Daily volume. D. Price.

D

The table below shows information on German bonds from Bloomberg. Which bond has the highest level of credit risk? A. Germany Bund 2 Year Yield B. Germany Bund 5 Year Yield C. Germany Bund 10 Year Yield D. Germany Bund 30 Year Yield

D

Two years ago, Jim put some money into a bank account. He earned 6% interest on this account and now he has about $1,000. About how much did Jim deposit into his account two years ago? A. about $860 B. about $870 C. about $880 D. about $890

D

What is the future value of $750 one year from today is the interest rate is 2.5%? A. $766.50 B. $768.75 C. $770.23 D. None of the above are correct to the nearest cent.

D

Which of the following equations represents GDP for a closed economy? A. Y = C + I + G + T B. S = I - G C. I = Y - C + G D. Y = C + I + G

D

Which of the following is a function of money? A. A unit of account B. A store of value C. Medium of exchange D. All of the above are correct.

D

Which of the following is correct? A. The maturity of a bond refers to the amount to be paid back. B. The principal of the bond refers to the person selling the bond. C. A bond buyer cannot sell a bond before it matures. D. None of the above is correct.

D

If a firm sells a total of 100 shares of stock, then A. Each share represents 1 percent of the firm's indebtedness. B. Each share represents ownership of 1 percent of the firm. C. The firm is engaging in term finance. D. All of the above are correct.

B

. Nastech Pharmaceuticals announced it has developed a nasal spray that would reduce hunger cravings. Other things the same we would expect A. The demand for existing shares of stock in this company to decrease, so the price would fall. B. The demand for existing shares of stock in this company to increase, so the price would rise. C. The supply of existing shares of stock in this company to decrease, so the price would fall. D. The supply of existing shares of stock in this company to increase, so the price would rise.

B

A bond buyer is a A. Saver. Bond buyers must hold their bonds until maturity. B. Saver. Bond buyers may sell their bonds prior to maturity. C. Borrower. Bond buyers must hold their bonds until maturity. D. Borrower. Bond buyers may sell their bonds prior to maturity.

B

A bond is a A. Financial intermediary. B. Certificate of indebtedness. C. Certificate of partial ownership in an enterprise. D. None of the above is correct

B

A national chain of grocery stores wants to finance the construction of several new stores. The firm has limited internal funds, so it likely will A. Demand the required funds by buying bonds. B. Demand the required funds by selling bonds. C. Supply the required funds by buying bonds. D. Supply the required funds by selling bonds.

B

All or part of a firm's profits may be paid out to the firm's stockholders in the form of A. Retained earnings. B. Dividends. C. Interest payments. D. Capital accounts.

B

At an annual interest rate of 10%, about how many years will it take $100 to double in value? A. 5 B. 7 C. 9 D. 11

B

At an annual interest rate of 20%, about how many years will it take $100 to triple in value? A. 5 B. 6 C. 8 D. 9

B

Buskin's Corporation has issued 2 million shares of stock. Its earnings were $10 million, of which it retained 40 percent. What was the dividend per share? A. $2. B. $3. C. $5. D. $8.

B

Dunkin' Donuts has a current market cap of 4.43 billion dollars, so it can be classified as: A. large cap B. mid cap C. small cap D. penny stock

B

Long-term bonds are A. Riskier than short-term bonds, and so interest rates on long-term bonds are usually lower than interest rates on short-term bonds. B. Riskier than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds. C. Less risky than short-term bonds, and so interest rates on long-term bonds are usually lower than interest rates on short-term bonds. D. Less risky than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds.

B

Short-term bonds are generally A. Less risky than long-term bonds and so they feature higher interest rates. B. Less risky than long-term bonds and so they feature lower interest rates. C. More risky than long-term bonds and so they feature higher interest rates. D. More risky than long-term bonds and so they feature lower interest rates.

B

Stock in Tasty Greens Restaurants is selling at $80 per share with 1 million shares outstanding. Last year, Tasty Greens earned $4 million, of which it retained $2.4 million for future investments. The dividend yield on the stock is A. 8 percent. B. 2 percent. C. 3 percent. D. 5 percent.

B

Suppose that a country has only a sales tax. Now assume that it replaces the sales tax with an income tax that includes a tax on interest income. This would make equilibrium interest rate: A. and the equilibrium quantity of loanable funds rise. B. rise and the equilibrium quantity of loanable funds fall. C. fall and the equilibrium quantity of loanable funds rise. D. and the equilibrium quantity of loanable funds fall.

B

Suppose that the tires of a certain tire manufacturer are discovered to be defective. Other things the same, this news would cause A. The demand for this company's stock to decrease, so the price would rise. B. The demand for this company's stock to decrease, so the price would fall. C. The supply of this company's stock to decrease, so the price would fall. D. The supply of this company's stock to decrease, so the price would rise.

B

The length of time until a bond matures is called the A. Perpetuity B. Term C. Maturity D. Intermediation

B

When public saving falls by $2 billion, and private saving falls by $1 billion in a closed economy, then A. investment falls by $1 billion. B. investment falls by $3 billion. C. investment increases by $1 billion. D. investment falls by $2 billion.

B

A closed economy: A. does not engage in international trade of goods and services. B. does not engage in international borrowing or lending. C. both A and B. D. engages in international borrowing and lending.

C

A high demand for a company's stock is an indication that A. The company is in need of funds. B. The company has recently sold a large quantity of bonds. C. People are optimistic about the company's future. D. People are pessimistic about the company's future.

C

According to the definitions of private and public saving, if Y, C, G remain the same, an increase in taxes T will: A. raise both private and public saving. B. raise private and lower public saving. C. lower private and raise public saving. D. lower both private and public saving

C

After a corporation issues stock, the stock A. Cannot be resold. B. Can be resold only if the corporation wants to buy it back. C. Can be resold on exchanges; the resale will raise additional funds for the corporation. D. None of the above are correct.

D

At which interest rate is the present value of $80.25 one year from today equal to $75 today? A. 4% B. 5% C. 6% D. 7%

D

Compounding refers directly to A. finding the present value of a future sum of money. B. finding the future value of a present sum of money. C. changes in the interest rate over time on a bank account or a similar savings vehicle. D. interest being earned on the previously-earned interest.

D

Financial intermediaries are A. The same as financial markets. B. Individuals who make profits by buying a stock low and selling it high. C. A more general name for financial assets such as stocks, bonds, and checking accounts. D. Financial institutions through which savers can indirectly provide funds to borrowers.

D