127. Refer to Table 26-1. What was Hershey’s earnings per share?
a.
$29.90
b.
$2.79
c.
$1.50
d.
$0.36
128. Refer to Table 26-1. Assume that the closing price was also the average price at which each stock transaction took
place. What was the total dollar volume of Graco stock traded that day?
a.
$68,770,900
b.
$6,877,090
c.
$687,709
d.
$6,877.1
129. Refer to Table 26-1. Which firm had the P/E ratio that was closest to the historically typical P/E ratio?
a.
b.
c.
d.
Use the following table to answer the following questions.
Table 26-2
Stock
Sym
Yld %
P/E
Vol 1000s
Hi
Lo
Close
Net
Chg.
Boeing Co.
BA
1.90
19.83
10,325
105.65
103.10
101.87
-1.99
Eli Lily and Co.
LLY
3.80
12.41
1,794
51.72
51.17
51.45
0.02
Kraft Foods Group
KRFT
3.50
21.42
1,078
56.51
57.75
56.69
0.04
Kellogg Co.
K
2.60
26.18
680
66.25
66.69
66.50
0.12
130. Refer to Table 26–2. Which company had the highest dollar dividend per share?
a.
Boeing Co.
b.
Eli Lilly and Co.
c.
Kraft Foods Group
d.
Kellogg Co.
131. Refer to Table 26–2. Which company had the lowest dollar dividend per share?
a.
Boeing Co.
b.
Eli Lilly and Co.
c.
Kraft
d.
Kellogg Co.
132. Refer to Table 26–2. Which company had the highest earnings per share?
a.
Boeing Co.
b.
Eli Lilly and Co.
c.
Kraft
d.
Kellogg Co.
133. Refer to Table 26–2. Which company had the lowest earnings per share?
a.
Boeing Co.
b.
Eli Lilly and Co.
c.
Kraft
d.
Kellogg Co.
134. Refer to Table 26–2. For which stock(s) is(are) the P/E ratio less than what is historically typical?
a.
Boeing Co.
b.
Eli Lilly and Co.
c.
Boeing Co. and Eli Lilly and Co.
d.
All are higher than what is historically typical.
135. Higher education subsidies in the form of the federal government’s student loan program have the potential to
a.
reduce the number of people who attend college.
b.
reduce the number of universities and colleges in the future.
c.
create a credit bubble and debt crisis.
d.
reduce the default risk on student loans.
136. Higher education subsidies in the form of the federal government’s student loan program
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.
137. An article in the textbook suggests that one method to correct the higher education inefficiency is to
a.
provide free higher education to all Americans.
b.
have college students sell equity in themselves.
c.
reduce interest rates on student loans.
d.
increase the number of colleges and universities in the United States.
138. A mutual fund
a.
is a financial institution that stands between savers and borrowers.
b.
is a financial intermediary.
c.
allows people with small amounts of money to diversify their holdings.
d.
All of the above are correct.
139. Financial intermediaries are
a.
the same as financial markets.
b.
individuals who make profits by buying a stock low and selling it high.
c.
a more general name for financial assets such as stocks, bonds, and checking accounts.
d.
financial institutions through which savers can indirectly provide funds to borrowers.
140. Which of the following is both a financial institution and a financial intermediary?
a.
banks
b.
stock exchanges
c.
the bond market
d.
All of the above are correct.
141. Which of the following statements is correct?
a.
Stocks, bonds, and deposits are all similar in that each provides a common medium of exchange.
b.
Most buyers of stocks and bonds prefer those issued by large and familiar companies.
c.
Banks charge borrowers a slightly lower interest rate than they pay to depositors.
d.
None of the above is correct.
142. Which of the following is a financial intermediary?
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 bonds
143. Which of the following are financial intermediaries?
a.
both banks and mutual funds
b.
banks but not mutual funds
c.
mutual funds but not banks
d.
neither banks or mutual funds
144. Which of the following is an example of financial intermediation?
a.
John buys shares of stock issued by a fast food company.
b.
A foreign government buys bonds issued by the U.S. Treasury.
c.
Susan makes a deposit at a bank and the bank uses this money to make an auto loan to Ferguson.
d.
None of the above is correct.
145. Which of the following statements is correct?
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.
146. Which of the following statements is correct?
a.
A large, well-known corporation such as Intel generally would use financial intermediation to finance
expansion of its facilities.
b.
On average, managed funds outperform indexed funds.
c.
Unlike corporate bonds and stocks, checking accounts are a medium of exchange.
d.
A mutual fund is a financial market.
147. Which of the following is both a store of value and a common medium of exchange?
a.
corporate bonds
b.
mutual funds
c.
checking account balances
d.
All of the above are correct.
148. A checking deposit functions as
a.
a medium of exchange and as a store of value.
b.
a medium of exchange, but not as a store of value.
c.
a store of value, but not as a medium of exchange.
d.
neither a medium of exchange nor as a store of value.
149. In addition to
a.
performing financial intermediation, banks are important in that they help create a medium of exchange.
b.
serving as financial markets, mutual funds are important in that they help create a store of value.
c.
serving as stores of value, stocks and bonds also serve as media of exchange.
d.
All of the above are correct.
150. Stocks and bonds
a.
and checking accounts are all stores of value and commonly function as mediums of exchange.
b.
and checking accounts are all stores of value, but only stocks and bonds commonly function as mediums of
exchange.
c.
and checking accounts are all stores of value, but only checking accounts commonly function as mediums of
exchange.
d.
and checking accounts all commonly function as mediums of exchange, but only stocks and bonds are a store
of value.
151. A U.S. Treasury bond is a
a.
store of value and common medium of exchange.
b.
store of value, but not a common medium of exchange.
c.
a common medium of exchange, but not a store of value.
d.
neither a store of value nor a common medium of exchange.
152. A mutual fund
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.
153. Mutual funds
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.
154. The primary advantage of mutual funds is that they
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.
155. It is claimed that mutual funds have two advantages. The first is that mutual funds allow people with small amounts
of money to diversify. The second is that mutual funds provide the skills of professional money managers who buy stocks
they believe will be the most profitable and thereby increase the return that mutual fund depositors earn on their savings.
a.
Economists strongly agree with both claims.
b.
Economists are skeptical of both claims.
c.
Economists are skeptical of the first claim, but strongly agree with the second.
d.
Economists strongly agree with the first claim, but are skeptical of the second.
156. The primary advantage of mutual funds is that they
a.
always make a return that “beats the market.”
b.
allow people with small amounts of money to diversify.
c.
provide customers with a medium of exchange.
d.
All of the above are correct.
157. The old adage, “Don’t put all your eggs in one basket,” is very similar to a modern bit of advice concerning financial
matters:
a.
“Buy low-risk bonds.”
b.
“Use a medium of exchange.”
c.
“Diversify.”
d.
“Intermediate.”
158. As a money management fee, mutual funds usually charge their customers
a.
between 0.25 and 2.0 percent of assets each year.
b.
between 1.5 and 3.0 percent of assets each year.
c.
nothing, because they receive commissions from the firms whose stock they buy.
d.
a flat fee of about $50.
159. It is claimed that a secondary advantage of mutual funds is that
a.
an investor can avoid investment charges and fees.
b.
they give ordinary people access to loanable funds for investing.
c.
they usually outperform stock market indexes.
d.
they give ordinary people access to the skills of professional money managers.
160. Index funds
a.
typically have a higher rate of return and higher costs than managed mutual funds.
b.
typically have a higher rate of return and lower costs than managed mutual funds.
c.
typically have a lower rate of return and higher costs than managed mutual funds.
d.
typically have a lower rate of return and lower costs than managed mutual funds.
161. Index funds
a.
buy all the stocks in a given stock index.
b.
promise to beat the market by a certain percentage known as an index.
c.
provide a return that is adjusted for changes in the consumer price index.
d.
buy industries within a particular category of the North American Industry Classification System.
162. Managed funds
a.
typically have a higher rate of return and higher costs than index funds.
b.
typically have a higher rate of return and lower costs than index funds.
c.
typically have a lower rate of return and higher costs than index funds.
d.
typically have a lower rate of return and lower costs than index funds.
163. Which of the following statements about mutual funds is correct?
a.
A mutual fund is a financial intermediary.
b.
A mutual fund acquires its funds primarily by selling shares to the public.
c.
People who buy shares from a mutual fund accept all of the risk and return associated with the mutual fund’s
portfolio.
d.
All of the above are correct.
164. Which advantage(s) do mutual funds claim to provide?
a.
diversification and access to the skills of professional money managers
b.
diversification but not access to the skills of professional money managers
c.
access to the skills of professional money managers but not diversification
d.
neither diversification nor access to the skills of professional money managers.
165. Which of the following is not a characteristic of a bond?
a.
its tax treatment
b.
its credit risk
c.
its term
d.
its dividend yield
166. Borrowers can (and sometimes do) default on their loans when
a.
the dividend yield on their shares of stock reaches zero.
b.
they convert their bonds into perpetuities.
c.
they declare bankruptcy.
d.
they cannot find enough buyers of their bonds to sell all the bonds they wish to sell.
167. Which of the following numbers is not associated with shares of a company’s stock?
a.
term
b.
dividend
c.
price
d.
price-earnings ratio
168. Which of the following statements is correct?
a.
NASDAQ is an important stock exchange in the United States.
b.
The demand for a corporation’s stock is largely based on people’s perception of the corporation’s profitability
in the future.
c.
Compared to the Standard & Poor’s 500 Index, the Dow Jones Industrial Average incorporates the stock prices
of a much smaller number of corporations.
d.
All of the above are correct.
169. Which of the following statements is correct?
a.
NASDAQ is an important stock exchange in the United States.
b.
The Standard & Poor’s 500 Index and the New York Stock Exchange are two examples of stock indexes.
c.
The most significant influence on the demand for a corporation’s stock is the number of shares of the stock
that the corporation has issued.
d.
All of the above are correct.
170. What do we call financial institutions through which savers can indirectly provide funds to borrowers?
a.
stock markets
b.
financial institutions
c.
financial markets
d.
financial intermediaries
171. Banks
a.
play a role in creating an asset that people can use as a medium of exchange.
b.
are financial intermediaries, but mutual funds are not financial intermediaries.
c.
are financial markets, as are bond markets.
d.
All of the above are correct.
172. Who accepts all of the risk associated with a mutual fund’s portfolio of stocks and/or bonds?
a.
the fund’s managers
b.
the fund’s shareholders
c.
the federal government
d.
the corporations that originally issued the stocks and/or bonds held by the fund
173. The bond market, the stock market, banks, pension funds, and insurance companies are all financial
a.
systems.
b.
markets.
c.
institutions.
d.
intermediaries.
174. Which of the following both make the interest rate on a bond higher than otherwise?
a.
the interest it pays is taxed and it was issued by a financially strong corporation
b.
the interest it pays is taxed and it was issued by a financially weak corporation
c.
the interest it pays is tax exempt and it was issued by a financially strong corporation
d.
the interest it pays is tax exempt and it was issued by a financially weak corporation
175. Which of the following would both make the interest rate on a bond higher than otherwise?
a.
the interest it pays is taxed and it is long term
b.
the interest it pays is taxed and it is short term
c.
the interest it pays is tax exempt and it is long term
d.
the interest it pays is tax exempt and it is short term
176. Midwestern corporation issues bonds. Southern corporation issues stock. Which corporation used equity financing?
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 corporation
177. Which of the following is a certificate of indebtedness?
a.
both stocks and bonds
b.
stocks but not bonds
c.
bonds but not stocks
d.
neither stocks nor bonds
178. Which of the following involves financial intermediation?
a.
a bank makes a loan
b.
a household buys stock issued by a corporation
c.
a foreign government purchases U.S. government bonds
d.
All of the above are correct.
179. If a firm wants to borrow it can
a.
supply bonds by selling them.
b.
supply bonds by buying them.
c.
demand bonds by selling them.
d.
demand bonds by buying them.
180. A bond buyer is a
a.
saver. Long term bonds have less risk than short term bonds.
b.
saver. Long term bonds have more risk than short term bonds.
c.
borrower. Long term bonds have less risk than short term bonds.
d.
borrower. Long term bonds have more risk than short term bonds.
181. A creditor of a corporation holds
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.
182. Which of the following statements about mutual funds is correct?
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.
183. By definition, equity finance
a.
is accomplished when units of government sell bonds.
b.
is accomplished when firms sell bonds.
c.
is accomplished when firms sell shares of stock.
d.
involves “fair” interest rates or dividend yields.
184. The indirect provision of funds by savers to borrowers is accomplished by
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.
185. If a firm’s price-earnings ratio is relatively low, then it might be an indication that
a.
the demand for the stock is relatively high.
b.
the supply of the stock is relatively low.
c.
people expect the firm’s earnings to rise.
d.
people expect the firm’s earnings to fall.
186. Rank the following in order of highest to lowest interest rate:
a.
1 year AAA municipal bond, 1 year AA municipal bond, 1 year corporate bond, 5 year corporate bond
b.
5 year corporate bond, 1 year corporate bond, 1 year AAA municipal bond, 1 year AA municipal bond
c.
5 year corporate bond, 1 year corporate bond, 1 year AA municipal bond, 1 year AAA municipal bond
d.
1 year AA municipal bond, 1 year AAA municipal bond, 1 year corporate bond, 5 year corporate bond
187. A tech company loses a high-profile patent-infringement case against its top competitor. Which of the following is
true?
a.
Demand for the company’s stock decreases, while the price of a share falls.
b.
Demand for the company’s stock decreases, while the price of a share rises.
c.
Supply of the company’s stock decreases, while the price of a share falls.
d.
Supply of the company’s stock decreases, while the price of a share falls.
188. The price-earnings ratio for Wavina Coporation increased from 15 to 17. This suggests that
a.
the stock might be overvalued.
b.
people expect earnings to decline in the future.
c.
the stock is cheap.
d.
people expect share prices to fall.
189. The dividend yield is
a.
a financial intermediary.
b.
reported as a percentage of the stock’s price.
c.
the same as retained earnings.
d.
a function of the company’s earnings per share and the stock’s price.