Question 1

Explain why the demand for loanable funds slopes downward and why the supply of loanable funds slopes upward.

Accepted Answer

When the interest rate rises investment ...

Question 2

Suppose the issuer of a bond fails to pay some of the interest or principal that was promised to the bondholders.This failure is referred to as a

Accepted Answer

A)   breach.
B)   default.
C)   risk.
D)   term failure.E) A) and C)
F) A) and B)

Question 3

The sale of stocks

Accepted Answer

A)   and bonds to raise money is called debt finance.
B)   and bonds to raise money is called equity finance.
C)   to raise money is called debt finance,while the sale of bonds to raise funds is called equity finance.
D)   to raise money is called equity finance,while the sale of bonds to raise funds is called debt finance.E) A) and B)
F) All of the above

Question 4

Figure 26-3.The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. 
-Refer to Figure 26-3.Which of the following movements shows the effects of the government going from a budget deficit to a budget surplus?

Accepted Answer

A)   a movement from Point A to Point B
B)   a movement from Point B to Point A
C)   a movement from Point A to Point F
D)   a movement from Point C to Point BE) B) and C)
F) A) and D)

Question 5

An increase in the demand for loanable funds increases the equilibrium interest rate and increases the equilibrium level of saving.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following are effects of an increased budget deficit?

Accepted Answer

A)   the supply of loanable funds does not change;a higher interest rate reduces private saving
B)   the supply of loanable funds does not change;a higher interest rate raises private saving
C)   at any interest rate the supply of loanable funds is less;a higher interest rate reduces private saving
D)   at any interest rate the supply of loanable funds is less;a higher interest rate raises private savingE) None of the above
F) B) and C)

Question 7

A bond buyer is a

Accepted Answer

A)   saver.Bond buyers must hold their bonds until maturity.
B)   saver.Bond buyers may sell their bonds prior to maturity.
C)   borrower.Bond buyers must hold their bonds until maturity.
D)   borrower.Bond buyers may sell their bonds prior to maturity.E) A) and D)
F) C) and D)

Question 8

If the demand for loanable funds shifts to the right,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) None of the above
F) B) and C)

Question 9

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

Question 10

A low price-earnings ratio indicates that either the stock is

Accepted Answer

A)   undervalued or people are relatively optimistic about the corporation's prospects.
B)   overvalued or people are relatively optimistic about the corporation's prospects.
C)   overvalued or people are relatively pessimistic about the corporation's prospects.
D)   undervalued or people are relatively pessimistic about the corporation's prospects.E) C) and D)
F) B) and D)

Question 11

The Dow Jones Industrial Average has been computed regularly since

Accepted Answer

A)   1976
B)   1948
C)   1913
D)   1896.E) None of the above
F) A) and B)

Question 12

A particular stock pays an annual dividend of $2 per share and the annual dividend yield is 4 percent.The price of a share of this stock is

Accepted Answer

A)   $2.08.
B)   $5.00.
C)   $8.00
D)   $50.00.E) B) and C)
F) C) and D)

Question 13

Over-the-Rhine Cheese Corporation had a P/E ratio of 20,retained earnings of $1.50 per share and a dividend of $.50.What was its dividend yield?

Accepted Answer

A)   1.25%
B)   1.67%
C)   3.33%
D)   7.50%E) All of the above
F) B) and C)

Question 14

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) A) and B)
F) None of the above

Question 15

National saving is equal to Y - T - C.

Accepted Answer

A) True 
 B)False

Question 16

Table 26-1
 
-Refer to Table 26-1.What was Hershey's earnings per share?

Accepted Answer

A)   $38
B)   $1.64
C)   $1.31
D)   $0.61E) C) and D)
F) B) and C)

Question 17

Which of the following is correct?

Accepted Answer

A)   Lenders sell bonds and borrowers buy them.
B)   Long-term bonds usually pay a lower interest rate than do short-term bonds because long-term bonds are riskier.
C)   The term junk bonds refers to bonds that have been resold many times.
D)   None of the above is correct.E) A) and B)
F) None of the above

Question 18

When a corporation experiences financial problems,bondholders are paid before stockholders.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following statements is correct?

Accepted Answer

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.E) A) and B)
F) None of the above

Question 20

Which of the following statements is not correct?

Accepted Answer

A)   If GDP is rising faster than debt,the government is,in some sense,living within its means.
B)   The ratio of debt to GDP in the United States has always been less than one.
C)   Debts during wars may distribute the burden of fighting the war more evenly across generations.
D)   During times of peace the ratio of debt to GDP sometimes rose.E) All of the above
F) C) and D)

Exam 26: Saving, investment, and the Financial System

Which of the following is a financial-market transaction?

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Explain why the demand for loanable funds slopes downward and why the supply of loanable funds slopes upward.

Correct AnswerverifiedWhen the interest rate rises investment ...View AnswerShow Answer

Which of the following statements is not correct?

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A low price-earnings ratio indicates that either the stock is

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Which of the following are effects of an increased budget deficit?

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A bond buyer is a

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

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National saving is equal to Y - T - C.

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Table 26-1 -Refer to Table 26-1.What was Hershey's earnings per share?

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Which of the following statements is correct?

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If the demand for loanable funds shifts to the right,then the equilibrium interest rate

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Which of the following is correct?

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The sale of stocks

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A particular stock pays an annual dividend of $2 per share and the annual dividend yield is 4 percent.The price of a share of this stock is

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When a corporation experiences financial problems,bondholders are paid before stockholders.

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An increase in the demand for loanable funds increases the equilibrium interest rate and increases the equilibrium level of saving.

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Suppose the issuer of a bond fails to pay some of the interest or principal that was promised to the bondholders.This failure is referred to as a

Correct AnswerverifiedShow Answer

The Dow Jones Industrial Average has been computed regularly since

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Figure 26-3.The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. -Refer to Figure 26-3.Which of the following movements shows the effects of the government going from a budget deficit to a budget surplus?

Correct AnswerverifiedShow Answer

Over-the-Rhine Cheese Corporation had a P/E ratio of 20,retained earnings of $1.50 per share and a dividend of $.50.What was its dividend yield?

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When the interest rate rises investment ...
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