Saving, Investment, and the Financial System 6339
121.
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
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.
122.
Alpha Corporation has a price of $5 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 which is
a.
high, perhaps indicating that people expect future earnings to rise.
b.
high, perhaps indicating that people expect future earnings to fall.
c.
low, perhaps indicating that people expect future earnings to rise.
d.
low, perhaps indicating that people expect future earnings to fall.
123.
A low P/E for a stock indicates that
a.
people may expect earnings to fall in the future, perhaps because the firm will be faced with
increased
competition.
b.
its dividends have been low so that no one is willing to pay very much for it.
c.
the corporation is possibly overvalued.
d.
All of the above are correct.
124.
Suppose Sarah Lee Corporation stock has a P/E ratio of 8. This P/E ratio is relatively
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.
125.
Which of the following is correct?
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.
Use the following table to answer the following questions.
Table 26-1
Stock
Sym
Yld %
P/E
Vol 1000s
Hi
Lo
Close
Net Chg.
GenMills
GIS
3.0
18.4
1659
51.57
51.10
51.09
–0.06
Microsoft
MSFT
2.6
18.6
20,315
36.15
35.59
35.67
0.02
Graco
GGG
1.5
25.3
101
68.39
67.63
68.09
0.00
Hershey
HSY
1.8
29.9
956
83.62
82.87
83.38
0.13
126.
Refer to Table 26-1. In dollar terms, which company paid the highest dividend per share?
a.
GenMills
b.
Microsoft
c.
Graco
d.
Hershey
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.
GenMills
b.
Microsoft
c.
Graco
d.
Hershey
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 that 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 0.5 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.