Exam 5 (FINAL EXAM) Microeconomics

70. A person buys a newly issued bond that matures in 6 years with a face value of $1,000 and a coupon rate of 5%. How much money will the bondholder receive in the sixth year?

$1,000 (Remember that the face value IS the amount of money which the bondholder will be paid at the maturity date, in this case in the 6th yr.)

75. A person buys a newly issued bond that matures in 10 years with a face value of $10,000 and a coupon rate of 4%. How much money will the bondholder receive in the tenth year?

$10,000 (^ Remember that the face value IS the amount of money the bondholder will be paid at the maturity date, in this case at the end of 10 yrs.)

61. If the coupon payment on a bond is $640 and the coupon rate is 6%, then what is the face value of the bond?

$10,667 (6/100 = 640/x......6x/6 = 6400/6......6400 ÷ 6 = 1066.6666 ≈ $10,667)

53. Refer to Exhibit 38-2. If the closing price of Dasher's stock on the previous day was $17.50, what value goes in blank (A)?

-0.50 (Teacher-approved answer)

3. Refer to Exhibit 34-1. The opportunity cost of one unit of Y in country A is

1 unit of X (Teacher-approved answer)

47. The original Dow Jones Industrial average (DJIA) contained ________ stocks, while DJIA now consists of ________ stocks.

11; 30

31. An American computer is priced at $1,200. If the exchange rate between the U.S. dollar and the Mexican peso is $0.09 = 1 peso, approximately how many pesos would a Mexican buyer pay for the computer?

13,333 pesos

46. The beginnings of the New York Stock Exchange can be traced back to a small group of men who bought and sold stock in New York in

1792

62. The federal government began using inflation-indexed Treasury bonds in

1997

41. Refer to Exhibit 38-1. The yield on bond C is approximately

3.6 percent

40. Refer to Exhibit 38-1. The coupon rate for bond A is

6.0 percent

51. Supposing that the annual dividend per share of stock is $1.40 and the closing price of the stock is $22.00, the yield on the stock would be approximately

6.36%

45. A person buys a bond with a face value of $10,000 for $9,325. Each year until the maturity date the bond buyer receives a coupon payment of $650 from the issuer of the bond. The coupon rate on the bond is

6.5 percent

55. Jessica paid $7,000 for a bond with a face value of $6,000. She will be paid $400 annually as long as she holds on to the bond, until the bond's maturity date. The yield on the bond is

6.67 percent (^$400 ÷ $6000 = 0.0666666 ≈ 6.67)

72. Which of the following statements is true?

A stockholder of Firm X is one of the owners of Firm X.

49. Which of the following statements is FALSE?

The Dow Jones Industrial Average is computed by summing the prices of the thirty stocks included in the average and dividing by thirty. (<FALSE)

74. Which of the following statements is FALSE?

The specified price at which an option gives the owner the right to buy a stock at is called the "stick price" (^ The reason this answer is wrong is because the specified price at which an option gives the owner the right to buy a stock at is actually termed the "STRIKE price"...)

60. If the coupon payment on a bond is $140 and the coupon rate is 5%, then what is the price value of the bond?

There is not enough information provided to answer this question. (^ Price is NOT an option!!!)

22. The answer is: "It allows the inhabitants of a country to consume at a level beyond its production possibilities frontier." What is the question?

What does specialization and international trade do? (Teacher-approved answer)

68. If you thought the share price of a stock was going to rise, would you be more likely to buy a call option or a put option?

a call option

44. A share of stock is

a claim on the assets of the corporation that gives the purchaser an ownership right in the corporation. (Teacher-approved answer)

9. The national defense argument for trade restrictions holds that

a country should produce those goods necessary for national defense even if it doesn't have a comparative advantage in them.

14. A 'quota' is

a legal limit on the amount of a good that can be imported

39. A bond is

a promise to pay for the use of someone else's money

54. Which of the following can issue bonds?

all of the above: - the government - corporations - government agencies

56. The yield on the bond is the

annual coupon payment divided by the price paid for the bond.

58. Municipal bonds

are issued by state and local governments

23. On an aggregate level, free trade produces a net ________ and restricted trade produces a net ________.

benefit; loss

36. An IOU that promises to pay a certain amount at maturity, and also to pay periodic fixed amounts until that date, is called a(n)

bond

20. "Consumers' surplus" is the difference between the price

buyers pay for a good and the maximum price for which they would have paid for the good.

19. International trade exists because countries

can make themselves better off through trade.

29. The "foreign exchange market" is the market in which

currencies of different countries are bought and sold

15. Suppose that a tariff is imposed on imported cheese. This will have the effect of ________ the quantity consumed of cheese, ________ consumers' surplus, and ________ the government's tariff revenues.

decreasing; decreasing; decreasing

50. The yield of a stock is the

dividend divided by the closing price per share.

7. The sale of goods abroad at a price below their cost and below the price charged in the domestic market is called

dumping

69. Which of the following companies was part of the original Dow Jones Industrial Average?

e. a & b - Chicago gas Company - National Lead Company

59. You turn to the bond market page of a newspaper and look under the column headed "Bonds" and see that it says "Alpha 7 1/2 25". This information indicates that

e. a & b - the coupon rate on this bond is 7.5% - the year this bond matures is 2025

48. Today, the Dow Jones Industrial Average

e. a & c - consists of 30 stocks - contains stocks that are widely held by institutional investors and individuals

33. The U.S. dollar has depreciated relative to the Japanese yen if it takes

e. a & c - fewer yen to buy a dollar - more dollars to buy a yen

16. Evidence indicates that tariffs and quotas are

e. b & c - beneficial for producers in a protected industry, but not beneficial for consumers. - beneficial for workers in a protected industry, but not beneficial for consumers.

43. When you purchase a share of stock, you are

e. b & d - lending funds to the corporation - acquiring an ownership right in the corporation

2. Which of the following is a major import for the United States?

fish

17. Arguments made against free trade include all of the following EXCEPT

free trade is inflationary and should be restricted in the domestic interest. (<THIS IS FALSE)

65. An option is a contract that always

gives the owner the right, but not the obligation, to buy or sell shares of a stock at specified price within the time limits of the contract.

4. Refer to Exhibit 34-1. Country B is the lower opportunity cost producer of

good Y

10. A 'tariff' is a tax on

imports

26. When exports of American goods increase, this ________ the demand for U.S. dollars and at the same time ________ foreign currencies.

increases; increases the supply of

11. "New industries should be protected from older established foreign competitors until they are mature enough to compete on an equal basis." This argument for trade restrictions is called the ________ argument.

infant-industry

8. "New industries need to be protected or they won't have the opportunity to grow up." This is a statement of the ________ argument for trade restrictions.

infant-industry

63. With respect to the stock market, the acronym IPO stands for

initial public offering

57. Bond prices and bond yields have a(n) ________ relationship.

inverse

64. A futures contract

is a contract in which the seller agrees to provide a particular good to the buyer on a specified future date at an agreed-upon price.

5. One country has a comparative advantage over another country in the production of a good if it

is a lower opportunity cost producer of the good.

52. In reading the stock market quotes in the newspaper, the column with the heading "P/E" gives the

latest closing price per share divided by the latest available earnings per share.

32. The more dollars that must be given up to buy one British pound, the ________ American goods are for the British and the ________ American goods the British will buy; thus ________ dollars will be demanded.

less expensive; more; more

24. Smith argues that American producers cannot compete with foreign producers because wages are lower in foreign countries than in the United States. Smith is

making the mistake of believing that high wages mean high costs.

30. The higher the U.S. dollar price per Mexican peso, the ________ Mexican goods are for Americans and the ________ Mexican goods Americans will buy; thus ________ pesos will be demanded.

more expensive; fewer; fewer

12. It is argued that certain industries should be protected from foreign competition because they are needed to secure the United States from foreign aggression. This argument is called the ________ argument.

national defense

42. Refer to Exhibit 38-1. The coupon rate for bond E is

none of the above (^The actual answer is 5%)

37. The major components of a bond include all of the following EXCEPT its

price (^because it fluctuates)

25. A tariff is imposed on strawberries. The tariff will ________ the price of strawberries in the domestic market, ________ the quantity of strawberries imported in the domestic market, and ________ consumers' surplus.

raise; lower; raise

35. If the U.S. dollar appreciates in the foreign exchange market, U.S. exports will be ________ and U.S. imports will be ________.

relatively more expensive; relatively less expensive

21. "Producers' surplus" is the difference between the price

sellers receive for a good and the minimum price for which they could have sold the good.

6. Producer's surplus is the difference between the price ________ receive for a good and the ________ price for which they would have ________ the good.

sellers; minimum; sold

18. "Dumping" refers to a country

selling a good abroad at a price that is below its cost and lower than the price charged in the domestic market.

1. Two major exports for the United States are

soybeans and scientific instruments

73. In reading the stock market quotes in the newspaper, the column with the heading "Ticker" gives the

stock symbol for the company

28. Americans buying Japanese cars create a

supply of U.S. dollars and demand for Japanese yen

13. A 'tariff' is a

tax imposed on imported goods

66. A call option is a contract

that gives the owner the right, but not the obligation, to BUY shares of a stock at a specified price within the time limits of the contract.

67. A put option is a contract

that gives the owner the right, but not the obligation, to SELL shares of a stock at a specified price within the time limits of the contract.

71. You turn to the bond market page of a newspaper and look under the column headed "Bonds" and see that it says, "Gemco 5 3/4 13". This indicates that

the coupon rate on this bond is 5.75%

27. The Mexican demand for American goods leads to

the demand for U.S. dollars and the supply of Mexican pesos on the foreign exchange market.

38. The face value of a bond is

the dollar amount that a person would receive if he or she were to buy the bond.

34. A "devaluation" occurs when

the official price of a currency is lowered.