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72. The price of a stock will decrease, ceteris paribus, for all of the following reasons except
73. The price of a stock will decrease, ceteris paribus, when
74. The price of a stock will decrease, ceteris paribus, when
75. The primary economic role of financial markets is to
76. Large swings in stock prices are usually caused by
77. The Dow Jones Industrial Average is an arithmetic average of _____ blue-chip industrial stocks.
78. A bond is
A. A share in a corporation.
93. Bonds may be issued by all of the following except
80. All of the following are allowed to issue bonds except
81. Bonds may be issued by the U.S.
82. When a corporation issues a bond, it is
A. Issuing dividends to shareholders.
83. The initial bond purchaser
84. The advantage to a corporation of issuing bonds instead of stock is that
85. Par value is the
86. Par value is the
87. Default refers to the
88. Lenders are typically compensated for the risk of default with
A. Shares of the company's profits.
89. The interest rate set for a bond at the time of issuance is the
A. Coupon rate.
90. If a corporation issues bonds that it cannot sell, this is an indication that
A. Expectations of future sales are low.
91. Treasury bonds typically have lower coupon rates than corporate bonds because
92. Liquidity is
A. The ability of an asset to be converted to cash.
94. An increased willingness to lend money to a company can be shown by the
94. Changes in expectations or opportunity costs
95. Which of the following is true if investors expect greater future profits from a company?
96. The annual interest payment divided by the bond's price is
97. As the price of an existing bond increases,
A. The current yield decreases.
98. There is an inverse relationship between the price of an existing bond and its
99. Suppose a company's bond sold for $900 last month and this month the price is $750. The annual
interest payment is $60. The current yield on this bond is
A. 8.0 percent.
100. Suppose a company's bond sold for $900 last month and this month the price is $1,200. The annual interest
payment is $90. The current yield on this bond is
101. Suppose a company's bond sold for $100 last month and this month the price is $90. The annual interest
payment is $18. The current yield on this bond is
A. 20 percent.
102. How does a recession impact the financial markets?
103. Which of the following is not true about venture capitalists?
104. Venture capitalists
105. Which of the following is not true of venture capitalists?
106. In return for their financial backing, venture
capitalists A. Are exempt from risk.
107. An In the News article is titled "Where Do Start-ups Get Their Money?" Venture capital is important to
an economy because it
108. An In the News article is titled "Where Do Start-ups Get Their Money?" Venture capital does all of the following
except
109. According to "Where Do Start-Ups Get Their Money?" venture capital is not an option for most entrepreneurs.
Where does the majority of funding come from for start-ups?
110. In the article "Yahoo, Microsoft Gain Slim Search Share from Google," all of the following are true except
A. Google still dominates the search engine market.
111. Financial intermediaries change the mix of output by transferring financial capital from savers to dissavers
(borrowers).
TRUE
112. Financial intermediaries increase the probability of a risky venture being funded by concentrating the risk
among a few investors.
FALSE
113. The primary economic function of financial intermediaries is to help allocate scarce resources to desired uses.
114. Financial intermediaries reduce search and information costs.
115. A risk premium compensates people who invest in risky ventures that succeed.
116. If the opportunity cost of money is zero, the expected value of future dollars is equal to their present value.
117. One reason why present dollars are worth more than future dollars is because income-earning investment
opportunities exist.
118. The present discounted value of a future payment will decrease when interest rates decrease.
119. The longer one has to wait for a future payment, the greater the present value it has.
120. If interest rates are high, the future payoff for every dollar saved is low.
121. The possibility of nonpayment is taken into account in the calculation of the present discounted value.
122. When the interest rate rises, the demand for loanable funds falls and the supply of loanable funds rises.
123. The lower the cost of funds, the greater the amount of loanable funds demanded.
124. The demand for loanable funds increases when the expected rate of return increases.
125. A major problem of owning a corporation is unlimited liability.
126. A corporation can elect to divide corporate profits into either dividends or retained earnings.
127. The total monetary returns associated with stock ownership result from dividends and capital gains.
128. Profits used by a corporation for investment or unforeseen contingencies are known as retained earnings.
129. An initial public offering occurs when a stock is first sold to the general public.
130. A corporation can use an initial public offering of stock to borrow money that it must pay back.
131. Stock prices will increase, ceteris paribus, when the prevailing interest rate increases.
132. A price/earnings ratio is the price of a stock divided by the earnings per share.
133. When the risk factor associated with a stock increases, the expected rate of return increases.
134. External shocks to the stock market have little impact on stock prices since investors consider only the long run.
135. When a corporation issues a bond, it is borrowing funds.
136. The par value is the amount to be repaid when a bond matures.
137. The market value of a bond on any given day is also known as its par value.
138. Potential investors expect to be compensated for additional risk by above-average interest rates.
139. The liquidity of an asset refers to the ability of the asset to be converted into cash.
140. If the price of an existing bond increases, the current yield increases.
141. There is an inverse relationship between the price of a bond and its current yield.
142. Venture capitalists share in the risks and rewards by financing new ventures.
143. Venture capital increases the pace of innovation.
144. Venture capital reduces the rate of economic growth.
145. List the factors that influence the supply of loanable funds and the factors that influence the demand for
loanable fund.
146. Explain the concept of a risk premium. What purpose do risk premiums serve?
147. What does a price/earnings ratio measure? What does a price/earnings ratio of 33.4 imply?
148. Calculate the current yield on a bond that has an annual interest payment of $200 and a resale price of
$1,550. What is the relationship between bond prices and yield?
149. Why do businesses incorporate, and why do investors buy stocks?
Chapter 18 Test Bank Summary
Category
# of Questions
AACSB: Analytic
23
AACSB: Reflective Thinking
126
Accessibility: Keyboard Navigation
142
Blooms: Analyze
15
Blooms: Apply
7
Blooms: Evaluate
1
Blooms: Remember
23
Blooms: Understand
103
Difficulty: 01 Easy
24
Difficulty: 02 Medium
104
Difficulty: 03 Hard
21
Learning Objective: 18-01 How present discounted values are computed.
45
Learning Objective: 18-02 The difference between stocks and bonds.
55
Learning Objective: 18-03 Key financial parameters for stocks and bonds.
27
Learning Objective: 18-04 How risks and rewards are reflected in current values.
22
Topic: IN THE NEWS
4
Topic: THE BOND MARKET
36
Topic: THE ECONOMY TOMORROW
4
Topic: THE PRESENT VALUE OF FUTURE PROFITS
43
Topic: THE ROLE OF FINANCIAL MARKETS
19
Topic: THE STOCK MARKET
43
