Question 1

Camp Company had total earnings of $600 million in 2013,out of which it retained 20 percent for future investments.In 2013,its stock featured a dividend yield of 4 percent and 100 million shares were outstanding.The price-earnings ratio for Camp Company stock was

Accepted Answer

A)  5.
B)  150.
C)  20.
D)  25.E) B) and D)
F) B) and C)

Question 2

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) B) and C)
F) C) and D)

Question 3

We associate the term debt finance with

Accepted Answer

A)  the bond market,and we associate the term equity finance with the stock market.
B)  the stock market,and we associate the term equity finance with the bond market.
C)  financial intermediaries,and we associate the term equity finance with financial markets.
D)  financial markets,and we associate the term equity finance with financial intermediaries.E) A) and B)
F) B) and D)

Question 4

On which of these bonds is the prospect of default most likely?

Accepted Answer

A)  a junk bond
B)  a municipal bond
C)  a U.S.government bond
D)  a corporate bond issued by Proctor & Gamble CorporationE) A) and B)
F) A) and C)

Question 5

Long-term bonds are

Accepted Answer

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.E) C) and D)
F) None of the above B

Question 6

Higher education subsidies in the form of the federal government's student loan program

Accepted Answer

A)  induce more people to attend colleges and universities.
B)  keep interest rates low on student loans.
C)  cause lenders to take on more risk.
D)  All of the above are correct.E) A) and B)
F) A) and D) D

Question 7

Midwestern corporation issues bonds.Southern corporation issues stock.Which corporation used equity financing?

Accepted Answer

A)  both Midwestern corporation and Southern corporation
B)  Midwestern corporation but not Southern corporation
C)  Southern corporation but not Midwestern corporation
D)  neither Midwestern nor Southern corporationE) A) and B)
F) B) and C)

Question 8

Suppose Sarah Lee Corporation stock has a P/E ratio of 8.This P/E ratio is relatively

Accepted Answer

A)  low,indicating that buyers may expect earnings to rise.
B)  low,indicating that buyers may expect earnings to fall.
C)  high,indicating that buyers may expect earnings to rise.
D)  high,indicating that buyers may expect earnings to fall.E) B) and D)
F) A) and B)

Question 9

Other things being constant,when a firm sells new shares of stock,the

Accepted Answer

A)  supply of the stock increases and the price decreases.
B)  supply of the stock decreases and the price increases.
C)  demand for the stock increases and the price increases.
D)  demand for the stock decreases and the price decreases.E) A) and D)
F) A) and C)

Question 10

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) C) and D)
F) B) and C)

Question 11

What do we call financial institutions through which savers can indirectly provide funds to borrowers?

Accepted Answer

A)  stock markets
B)  financial institutions
C)  financial markets
D)  financial intermediariesE) B) and C)
F) C) and D)

Question 12

If the government's expenditures exceeded its receipts,it would likely

Accepted Answer

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.E) None of the above
F) All of the above

Question 13

Which bond is likely to have higher interest rate due to a higher default risk?

Accepted Answer

A)  A share of stock issued by Apple.
B)  A corporate bond issued by Apple.
C)  A junk bond.
D)  A U.S.government bond.E) All of the above
F) C) and D)

Question 14

Which of the following statements is correct?

Accepted Answer

A)  A general,persistent decline in stock prices may signal that the economy is about to enter a boom period because people will be able to buy stock for less money.
B)  A general,persistent decline in stock prices may signal that the economy is about to enter a recession because low stock prices may mean that people are expecting low corporate profits.
C)  A general,persistent decline in stock prices may signal that the economy is about to enter a recession because low stock prices mean that corporations have had low profits in the past.
D)  Expectations about the business cycle have no impact on stock prices.E) B) and C)
F) All of the above

Question 15

Which of the following statements is correct?

Accepted Answer

A)  The expected future profitability of a corporation influences the demand for that corporation's stock.
B)  When a corporation sells stock as a means of raising funds it is engaging in debt finance.
C)  The owners of bonds sold by the Microsoft Corporation are part owners of that corporation.
D)  All bonds are,by definition,perpetuities.E) None of the above
F) All of the above

Question 16

Which of the following is a financial intermediary?

Accepted Answer

A)  a mutual fund
B)  the stock market
C)  a U.S.government bond
D)  a wealthy individual who regularly buys and holds large quantities of government bondsE) B) and C)
F) A) and B) A

Question 17

Which of the following statements about mutual funds is correct?

Accepted Answer

A)  A mutual fund is not a financial intermediary.
B)  A disadvantage of buying mutual funds is a lack of diversification
C)  People who buy shares from a mutual fund are guaranteed a minimum return.
D)  On average index funds outperform managed funds.E) A) and C)
F) All of the above

Question 18

Suppose the city of Des Moines has a high credit rating,and so when Des Moines borrows funds by selling bonds,

Accepted Answer

A)  the city's high credit rating and the tax status of municipal bonds both contribute to a lower interest rate than would otherwise apply.
B)  the city's high credit rating and the tax status of municipal bonds both contribute to a higher interest rate than would otherwise apply.
C)  the city's high credit rating contributes to a lower interest rate than would otherwise apply,while the tax status of municipal bonds contributes to a higher interest rate than would otherwise apply.
D)  the city's high credit rating contributes to a higher interest rate than would otherwise apply,while the tax status of municipal bonds contributes to a lower interest rate than would otherwise apply.E) A) and D)
F) A) and C)

Question 19

Mutual funds

Accepted Answer

A)  provide diversification.Shareholders assume all of the risk associated with the mutual fund.
B)  provide diversification.Government insurance eliminates the risk of mutual fund shareholders.
C)  do not provide diversification.Shareholders assume all of the risk associated with the mutual fund
D)  do not provide diversification.Government insurance eliminates the risk of mutual fund shareholders.E) A) and B)
F) A) and C)

Question 20

A high price-earnings ratio for a stock indicates that either the stock is

Accepted Answer

A)  undervalued or people are relatively optimistic about the corporation's prospects.
B)  overvalued or people are relatively optimistic about the corporation's prospects.
C)  overvalued or people are relatively pessimistic about the corporation's prospects.
D)  undervalued or people are relatively pessimistic about the corporation's prospects.E) A) and D)
F) B) and C)

Exam 13: Saving Investment and the Financial System: Financial Institutions in the US economy

Camp Company had total earnings of $600 million in 2013,out of which it retained 20 percent for future investments.In 2013,its stock featured a dividend yield of 4 percent and 100 million shares were outstanding.The price-earnings ratio for Camp Company stock was

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

We associate the term debt finance with

Correct AnswerverifiedShow Answer

On which of these bonds is the prospect of default most likely?

Correct AnswerverifiedShow Answer

Long-term bonds are

Correct AnswerverifiedB

Higher education subsidies in the form of the federal government's student loan program

Correct AnswerverifiedD

Midwestern corporation issues bonds.Southern corporation issues stock.Which corporation used equity financing?

Correct AnswerverifiedShow Answer

Suppose Sarah Lee Corporation stock has a P/E ratio of 8.This P/E ratio is relatively

Correct AnswerverifiedShow Answer

Other things being constant,when a firm sells new shares of stock,the

Correct AnswerverifiedShow Answer

A mutual fund

Correct AnswerverifiedShow Answer

What do we call financial institutions through which savers can indirectly provide funds to borrowers?

Correct AnswerverifiedShow Answer

If the government's expenditures exceeded its receipts,it would likely

Correct AnswerverifiedShow Answer

Which bond is likely to have higher interest rate due to a higher default risk?

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Which of the following is a financial intermediary?

Correct AnswerverifiedA

Which of the following statements about mutual funds is correct?

Correct AnswerverifiedShow Answer

Suppose the city of Des Moines has a high credit rating,and so when Des Moines borrows funds by selling bonds,

Correct AnswerverifiedShow Answer

Mutual funds

Correct AnswerverifiedShow Answer

A high price-earnings ratio for a stock indicates that either the stock is

Correct AnswerverifiedShow Answer

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