Question 1

Which of the following statements is correct?

Accepted Answer

A)   A large, well-known corporation such as Proctor and Gamble would generally use financial intermediation to finance expansion of its factories.
B)   On average, indexed funds outperform managed funds.
C)   Unlike corporate bonds and stocks, checking accounts are a store of value.
D)   Financial intermediaries are institutions through which savers can directly provide funds to borrowers.E) None of the above
F) C) and D)

Question 2

The length of time until a bond matures is called the

Accepted Answer

A)   perpetuity.
B)   term.
C)   maturity.
D)   intermediation.E) B) and C)
F) C) and D) B

Question 3

The primary advantage of mutual funds is that they

Accepted Answer

A)   always provide the highest return.
B)   always allow people to "beat the market."
C)   allow people to diversify and reduce risk.
D)   allow people to diversify, which increases risk and return.E) All of the above
F) B) and D)

Question 4

If there is surplus of loanable funds, then

Accepted Answer

A)   the supply for loanable funds shifts right and the demand shifts left.
B)   the supply for loanable funds shifts left and the demand shifts right.
C)   neither curve shifts, but the quantity of loanable funds supplied increases and the quantity demanded decreases as the interest rate rises to equilibrium.
D)   neither curve shifts, but the quantity of loanable funds supplied decreases and the quantity demanded increases as the interest rate falls to equilibrium.E) None of the above
F) A) and B) D

Question 5

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?

Accepted Answer

A)   $2.
B)   $3.
C)   $5.
D)   $8.E) A) and D)
F) B) and D)

Question 6

Draw and label a graph showing equilibrium in the market for loanable funds.

Accepted Answer

Market for...

Question 7

The single most important piece of information about a stock is its

Accepted Answer

A)   term.
B)   dividend.
C)   daily volume.
D)   price.E) All of the above
F) A) and B)

Question 8

The slope of the supply of loanable funds is based on the logic that an increase in interest rates

Accepted Answer

A)   makes saving more attractive.
B)   makes saving less attractive.
C)   makes investment more attractive.
D)   makes investment less attractive.E) None of the above
F) B) and C)

Question 9

Suppose that the tires of a certain tire manufacturer are discovered to be defective. Other things the same, this news would cause

Accepted Answer

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.E) B) and C)
F) A) and B)

Question 10

Which of the following equations will always represent GDP in an open economy?

Accepted Answer

A)   S = I - G
B)   I = Y - C + G
C)   Y = C + I + G
D)   Y = C + I + G + NXE) A) and C)
F) B) and C) D

Question 11

Which of the following is true concerning interest rates on bonds?

Accepted Answer

A)   The tax treatment of interest earned on municipals bonds makes the interest rate on them higher than otherwise. High default risk makes the interest rate on a bond higher than otherwise.
B)   The tax treatment of interest earned on municipals bonds makes the interest rate on them higher than otherwise. High default risk makes the interest rate on a bond lower than otherwise.
C)   The tax treatment of interest earned on municipals bonds makes the interest rate on them lower than otherwise. High default risk makes the interest rate on a bond higher than otherwise.
D)   The tax treatment of interest earned on municipals bonds makes the interest rate on them lower than otherwise. High default risk makes the interest rate on a bond lower than otherwise.E) A) and B)
F) A) and D)

Question 12

Scenario 26-2. Assume the following information for an imaginary, closed economy.
GDP = $5 trillion; consumption = $3.1 trillion; government purchases = $0.7 trillion; and taxes = $0.9 trillion.
-Refer to Scenario 26-2. For this economy, national saving is equal to

Accepted Answer

A)   $1.1 trillion.
B)   $2.9 trillion.
C)   $1.2 trillion.
D)   $1.7 trillion.E) All of the above
F) A) and B)

Question 13

When public saving falls by $2b and private saving falls by $1b in a closed economy,

Accepted Answer

A)   investment falls by $1b.
B)   investment falls by $3b.
C)   investment increases by $1b.
D)   investment falls by $2b.E) All of the above
F) A) and D)

Question 14

Other things the same, corporate bonds generally feature higher interest rates than U.S. government bonds.

Accepted Answer

A) True 
 B)False

Question 15

All else equal, when people become more optimistic about a company's future, the

Accepted Answer

A)   supply of the stock and the price will both rise.
B)   supply of the stock and the price will both fall.
C)   demand for the stock and the price will both rise.
D)   demand for the stock and the price will both fall.E) A) and B)
F) None of the above

Question 16

Congress and the President allow people to make greater contributions to tax-deferred savings accounts. Which curve in the market for loanable funds would shift, which direction would it shift, what would happen to the interest rate, and what would happen to investment spending?

Accepted Answer

The supply of loanable funds w...

Question 17

Fortunade Corporation stock has a price of $100 per share, a dividend of $1.60 per share, and retained earnings of $2.00 per share. The dividend yield on this stock is

Accepted Answer

A)   2.8 percent.
B)   2.0 percent.
C)   1.6 percent.
D)   0.4 percent.E) A) and C)
F) B) and C)

Question 18

A mutual fund

Accepted Answer

A)   is a financial market where small firms mutually agree to sell stocks and bonds to raise funds.
B)   is funds set aside by local governments to lend to small firms who want to invest in projects that are mutually beneficial to the firm and community.
C)   sells stocks and bonds on behalf of small and less known firms who would otherwise have to pay high interest to obtain credit.
D)   is an institution that sells shares to the public and uses the proceeds to buy a selection of various types of stocks, bonds, or both stocks and bonds.E) B) and D)
F) A) and B)

Question 19

Bay City Mining, Inc. has a price of $20 a share, outstanding shares of 2.5 million, retained earnings of $1 million dollars, and a dividend yield of 2 percent. It has a price-earnings ratio of

Accepted Answer

A)   50, which is high by historical standards.
B)   50, which is low by historical standards.
C)   25, which is high by historical standards.
D)   25, which is low by historical standards.E) A) and D)
F) None of the above

Question 20

When tax code changes increase saving incentives, the interest rate will and investment will .

Accepted Answer

The answer of When tax code changes increase saving incentives,...

Exam 13: Saving, Investment, and the Financial System

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

The length of time until a bond matures is called the

Correct AnswerverifiedB

The primary advantage of mutual funds is that they

Correct AnswerverifiedShow Answer

If there is surplus of loanable funds, then

Correct AnswerverifiedD

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?

Correct AnswerverifiedShow Answer

Draw and label a graph showing equilibrium in the market for loanable funds.

Correct AnswerverifiedMarket for...View AnswerShow Answer

The single most important piece of information about a stock is its

Correct AnswerverifiedShow Answer

The slope of the supply of loanable funds is based on the logic that an increase in interest rates

Correct AnswerverifiedShow Answer

Suppose that the tires of a certain tire manufacturer are discovered to be defective. Other things the same, this news would cause

Correct AnswerverifiedShow Answer

Which of the following equations will always represent GDP in an open economy?

Correct AnswerverifiedD

Which of the following is true concerning interest rates on bonds?

Correct AnswerverifiedShow Answer

Scenario 26-2. Assume the following information for an imaginary, closed economy. GDP = $5 trillion; consumption = $3.1 trillion; government purchases = $0.7 trillion; and taxes = $0.9 trillion. -Refer to Scenario 26-2. For this economy, national saving is equal to

Correct AnswerverifiedShow Answer

When public saving falls by $2b and private saving falls by $1b in a closed economy,

Correct AnswerverifiedShow Answer

Other things the same, corporate bonds generally feature higher interest rates than U.S. government bonds.

Correct AnswerverifiedShow Answer

All else equal, when people become more optimistic about a company's future, the

Correct AnswerverifiedShow Answer

Congress and the President allow people to make greater contributions to tax-deferred savings accounts. Which curve in the market for loanable funds would shift, which direction would it shift, what would happen to the interest rate, and what would happen to investment spending?

Correct AnswerverifiedThe supply of loanable funds w...View AnswerShow Answer

Fortunade Corporation stock has a price of $100 per share, a dividend of $1.60 per share, and retained earnings of $2.00 per share. The dividend yield on this stock is

Correct AnswerverifiedShow Answer

A mutual fund

Correct AnswerverifiedShow Answer

Bay City Mining, Inc. has a price of $20 a share, outstanding shares of 2.5 million, retained earnings of $1 million dollars, and a dividend yield of 2 percent. It has a price-earnings ratio of

Correct AnswerverifiedShow Answer

When tax code changes increase saving incentives, the interest rate will and investment will .

Correct AnswerverifiedShow Answer

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Market for...
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D

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The supply of loanable funds w...
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