Question 1

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) A) and D)
F) All of the above

Question 2

Other things the same, a higher interest rate induces people to

Accepted Answer

A)   save more, so the supply of loanable funds slopes upward.
B)   save less, so the supply of loanable funds slopes downward.
C)   invest more, so the supply of loanable funds slopes upward.
D)   invest less, so the supply of loanable funds slopes downward.E) A) and C)
F) B) and D)

Question 3

Other things the same, which bond would you expect to pay the lowest interest rate?

Accepted Answer

A)   a bond issued by a state with a very good credit rating
B)   a bond issued by the U.S. government
C)   a bond issued by a fairly new company doing genetic research
D)   a bond issued by NabiscoE) A) and C)
F) A) and D)

Question 4

Compared to short-term bonds, other things the same, long-term bonds generally have

Accepted Answer

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

Question 5

Lenders buy bonds and borrowers sell them.

Accepted Answer

A) True 
 B)False

Question 6

A bond is a

Accepted Answer

A)   financial intermediary.
B)   certificate of indebtedness.
C)   certificate of partial ownership in an enterprise.
D)   None of the above is correct.E) None of the above
F) B) and C)

Question 7

Which government policy raises the interest rate and raises investment spending?

Accepted Answer

An investm...

Question 8

A creditor of a corporation holds

Accepted Answer

A)   bonds sold by the corporation. If the corporation experiences financial difficulties stock holders are paid before bond holders.
B)   bonds sold by the corporation. If the corporation experiences financial difficulties bond holders are paid before stock holders.
C)   stocks sold by the corporation. If the corporation experiences financial difficulties stock holders are paid before bond holders.
D)   stocks sold by the corporation. If the corporation experiences financial difficulties bond holders are paid before stock holders.E) B) and C)
F) None of the above

Question 9

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) A) and B)
F) B) and C)

Question 10

Which of the following is a financial-market transaction?

Accepted Answer

A)   A saver buys shares in a mutual fund.
B)   A saver deposits money into a credit union.
C)   A saver buys a bond a corporation has just issued so it can purchase capital.
D)   None of the above is correct.E) B) and D)
F) All of the above

Question 11

An increase in the budget deficit would cause a

Accepted Answer

A)   shortage of loanable funds at the original interest rate, which would lead to falling interest rates.
B)   surplus of loanable funds at the original interest rate, which would lead to rising interest rates.
C)   shortage of loanable funds at the original interest rate, which would lead to rising interest rates.
D)   surplus of loanable funds at the original interest rate, which would lead to falling interest rates.E) B) and C)
F) None of the above

Question 12

Profits not paid out to stockholders are

Accepted Answer

A)   retained earnings.
B)   known as dividends.
C)   the denominator in the price-earnings ratio.
D)   All of the above are correct.E) A) and C)
F) None of the above

Question 13

The indirect provision of funds by savers to borrowers is accomplished by

Accepted Answer

A)   banks and other financial markets.
B)   banks and other financial intermediaries.
C)   stock markets and other financial markets.
D)   All of the above are correct.E) C) and D)
F) A) and C)

Question 14

What does the maturity of a bond indicate?

Accepted Answer

The date a...

Question 15

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

Accepted Answer

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

Question 16

Which of the following is correct?

Accepted Answer

A)   Joan takes some of her income and buys mutual fund shares. Joan's purchase will be included in the investment category of GDP.
B)   If a share of stock in Virtual Pizza Corporation sells for $77, the earnings per share are $5, and the dividend per share is $2, then the P/E ratio is 11.
C)   In order to use equity finance, a firm must sell about equal values of stocks and bonds.
D)   None of the above is correct.E) B) and D)
F) A) and C)

Question 17

If Congress instituted an investment tax credit, the interest rate would

Accepted Answer

A)   rise and saving would rise.
B)   fall and saving would fall.
C)   rise and saving would fall.
D)   fall and saving would rise.E) All of the above
F) A) and D)

Question 18

Most entrepreneurs do not have enough money of their own to start their businesses. When they acquire the necessary funds from someone else,

Accepted Answer

A)   their consumption expenditures are being financed by someone else's saving.
B)   their consumption expenditures are being financed by someone else's investment.
C)   their investments are being financed by someone else's saving.
D)   their saving is being financed by someone else's investment.E) A) and B)
F) A) and C)

Question 19

On a graph that depicts the market for loanable funds, the nominal interest rate is measured along the vertical axis.

Accepted Answer

A) True 
 B)False

Question 20

Use the following table to answer the following questions.
Table 26-1
 
-Refer to Table 26-1. What was Hershey's earnings per share?

Accepted Answer

A)   $29.90
B)   $2.79
C)   $1.50
D)   $0.36E) A) and B)
F) A) and C)

Exam 18: Saving, Investment, and the Financial System

Lenders buy bonds and borrowers sell them.

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What does the maturity of a bond indicate?

Correct AnswerverifiedThe date a...View AnswerShow Answer

Compared to short-term bonds, other things the same, long-term bonds generally have

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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

Correct AnswerverifiedShow Answer

A creditor of a corporation holds

Correct AnswerverifiedShow Answer

A bond is a

Correct AnswerverifiedShow Answer

Use the following table to answer the following questions. Table 26-1 -Refer to Table 26-1. What was Hershey's earnings per share?

Correct AnswerverifiedShow Answer

The indirect provision of funds by savers to borrowers is accomplished by

Correct AnswerverifiedShow Answer

Most entrepreneurs do not have enough money of their own to start their businesses. When they acquire the necessary funds from someone else,

Correct AnswerverifiedShow Answer

On a graph that depicts the market for loanable funds, the nominal interest rate is measured along the vertical axis.

Correct AnswerverifiedShow Answer

An increase in the budget deficit would cause a

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which government policy raises the interest rate and raises investment spending?

Correct AnswerverifiedAn investm...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following is a financial-market transaction?

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Which of the following is correct?

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Profits not paid out to stockholders are

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Other things the same, which bond would you expect to pay the lowest interest rate?

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If Congress instituted an investment tax credit, the interest rate would

Correct AnswerverifiedShow Answer

Other things the same, a higher interest rate induces people to

Correct AnswerverifiedShow Answer

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The date a...
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An investm...
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