Question 1

The Eye of Horus incense company has $10 million in cash which it has accumulated from retained earnings.It was planning to use the money to build a new factory.Recently,the rate of interest has increased.The increase in the rate of interest should

Accepted Answer

A)   not influence the decision to build the factory because The Eye of Horus doesn't have to borrow any money.
B)   not influence the decision to build the factory because its stockholders are expecting a new factory.
C)   make it more likely that The Eye of Horus will build the factory because a higher interest rate will make the factory more valuable.
D)   make it less likely that The Eye of Horus will build the factory because the opportunity cost of the $10 million is now higher.E) None of the above
F) A) and D)

Question 2

World Wide Delivery Service Corporation develops a way to speed up its deliveries and reduce its costs.We would expect that this would

Accepted Answer

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.E) C) and D)
F) B) and C)

Question 3

If Congress instituted an investment tax credit

Accepted Answer

A)   it would make buying bonds more desirable,so the demand for loanable funds would shift.
B)   it would make buying capital goods more desirable,so the demand for loanable funds would shift.
C)   it would make buying bonds more desirable,so the supply of loanable funds would shift.
D)   it would make buying capital goods more desirable,so the supply of loanable funds would shift.E) All of the above
F) B) and C)

Question 4

If the supply for loanable funds shifts to the left,then the equilibrium interest rate

Accepted Answer

A)   and quantity of loanable funds rise.
B)   and quantity of loanable funds fall.
C)   rises and the quantity of loanable funds falls.
D)   falls and the quantity of loanable funds rises.E) A) and B)
F) A) and C)

Question 5

When a firm wants to borrow directly from the public to finance the purchase of new equipment,it does so by selling shares of stock.

Accepted Answer

A) True 
 B)False

Question 6

If a share of stock in Dell sells for $70,the retained earnings per share are $5,and the dividend per share is $2,then the price-earnings ratio is 10.

Accepted Answer

A) True 
 B)False

Question 7

If an economy is closed and if it has no government,then

Accepted Answer

A)   national saving = private saving.
B)   total income = consumption + investment.
C)   saving = total income - consumption.
D)   All of the above are correct.E) B) and C)
F) All of the above

Question 8

Table 13-2
 
-Refer to Table 13-2.Which company had the highest dollar dividend?

Accepted Answer

A)   Boeing Co.
B)   Eli Lilly and Co.
C)   H.J.Heinz and Co.
D)   Kellog Co.E) A) and D)
F) B) and D)

Question 9

A perpetuity is

Accepted Answer

A)   a financial intermediary that has existed throughout recorded history.
B)   an instrument of equity finance.
C)   a stock that pays dividends forever.
D)   a bond that pays interest forever.E) A) and D)
F) A) and C)

Question 10

In 2008,CDZ Corporation had total earnings of $500 million and CDZ retained 30 percent of its earnings for future investments.If the price of a share of CDZ stock is $70 and if 80 million shares of its stock were outstanding,then what is the price-earnings ratio?

Accepted Answer

A)   0.14
B)   11.2
C)   16.0
D)   37.3E) All of the above
F) A) and D)

Question 11

Banks and mutual funds are examples of financial markets.

Accepted Answer

A) True 
 B)False

Question 12

All or part of a firm's profits may be paid out to the firm's stockholders in the form of

Accepted Answer

A)   retained earnings.
B)   dividends.
C)   interest payments.
D)   capital accounts.E) A) and B)
F) A) and C)

Question 13

You observe a closed economy that has a government deficit and positive investment.Which of the following is correct?

Accepted Answer

A)   Private and public saving are both positive.
B)   Private saving is positive;public saving is negative.
C)   Private saving is negative;public saving is positive.
D)   Both private saving and public saving are negative.E) C) and D)
F) All of the above

Question 14

In a closed economy,if Y,C,and T remained the same,an increase in G would reduce

Accepted Answer

A)   private saving and public saving.
B)   private saving but not public saving.
C)   public saving but not private saving.
D)   neither private nor public saving.E) All of the above
F) A) and B)

Question 15

If Congress instituted an investment tax credit,the equilibrium quantity of loanable funds would

Accepted Answer

A)   rise.
B)   fall.
C)   be unchanged.
D)   move in an uncertain direction.E) C) and D)
F) All of the above

Question 16

Interest rates fall and investment falls.Which of the following could explain these changes?

Accepted Answer

A)   The government goes from a surplus to a deficit.
B)   The government repeals an investment tax credit.
C)   The government replaces a consumption tax with an income tax.
D)   None of the above is correct.E) All of the above
F) B) and C)

Question 17

Which of the following would likely make the interest rate on a bond higher than otherwise?

Accepted Answer

A)   both high credit risk and a long term
B)   high credit risk but not a long term
C)   a long term but not a high credit risk
D)   neither high credit risk nor a long termE) A) and D)
F) B) and C)

Question 18

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) A) and C)

Question 19

If the tax revenue of the federal government exceeds spending,then the government necessarily

Accepted Answer

A)   runs a budget deficit.
B)   runs a budget surplus.
C)   runs a national debt.
D)   will increase taxes.E) C) and D)
F) All of the above

Question 20

Which of the following is not an important stock exchange in the United States?

Accepted Answer

A)   New York Stock Exchange
B)   American Stock Exchange
C)   Chicago Mercantile Exchange
D)   NASDAQE) C) and D)
F) A) and B)

Exam 26: Saving,investment,and the Financial System

If Congress instituted an investment tax credit,the equilibrium quantity of loanable funds would

Correct AnswerverifiedShow Answer

When a firm wants to borrow directly from the public to finance the purchase of new equipment,it does so by selling shares of stock.

Correct AnswerverifiedShow Answer

Which of the following would likely make the interest rate on a bond higher than otherwise?

Correct AnswerverifiedShow Answer

If a share of stock in Dell sells for $70,the retained earnings per share are $5,and the dividend per share is $2,then the price-earnings ratio is 10.

Correct AnswerverifiedShow Answer

Interest rates fall and investment falls.Which of the following could explain these changes?

Correct AnswerverifiedShow Answer

The Eye of Horus incense company has $10 million in cash which it has accumulated from retained earnings.It was planning to use the money to build a new factory.Recently,the rate of interest has increased.The increase in the rate of interest should

Correct AnswerverifiedShow Answer

If the supply for loanable funds shifts to the left,then the equilibrium interest rate

Correct AnswerverifiedShow Answer

In 2008,CDZ Corporation had total earnings of $500 million and CDZ retained 30 percent of its earnings for future investments.If the price of a share of CDZ stock is $70 and if 80 million shares of its stock were outstanding,then what is the price-earnings ratio?

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Which of the following is not an important stock exchange in the United States?

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If an economy is closed and if it has no government,then

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Table 13-2 -Refer to Table 13-2.Which company had the highest dollar dividend?

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Banks and mutual funds are examples of financial markets.

Correct AnswerverifiedShow Answer

In a closed economy,if Y,C,and T remained the same,an increase in G would reduce

Correct AnswerverifiedShow Answer

World Wide Delivery Service Corporation develops a way to speed up its deliveries and reduce its costs.We would expect that this would

Correct AnswerverifiedShow Answer

If Congress instituted an investment tax credit

Correct AnswerverifiedShow Answer

If the tax revenue of the federal government exceeds spending,then the government necessarily

Correct AnswerverifiedShow Answer

All or part of a firm's profits may be paid out to the firm's stockholders in the form of

Correct AnswerverifiedShow Answer

You observe a closed economy that has a government deficit and positive investment.Which of the following is correct?

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

A perpetuity is

Correct AnswerverifiedShow Answer

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