Question 1

When you have equity in a company,it means you:

Accepted Answer

A)  own part of a company and share in its profits.
B)  have diversified the company's risk.
C)  have diversified your risk by investing with a company.
D)  None of these is true.E) None of the above
F) A) and B)

Question 2

Crowding out is reduction in:

Accepted Answer

A)  private borrowing that is caused by an increase in government borrowing.
B)  government borrowing that is caused by an increase in private borrowing.
C)  private borrowing that is caused by an increase in corporate borrowing.
D)  corporate borrowing that is caused by an increase in private borrowing.E) None of the above
F) A) and B)

Question 3

The financial system is made up of:

Accepted Answer

A)  the institutions that bring together savers,borrowers,investors,and insurers in a set of interconnected markets where people trade financial products.
B)  the government's offices that keep watch over all transactions conducted between savers and lenders.
C)  the government's offices that regulate over all transactions conducted between borrowers and savers.
D)  None of these is true.E) B) and D)
F) A) and B)

Question 4

In the market for loanable funds,the demand curve:

Accepted Answer

A)  represents savers.
B)  is downward sloping.
C)  reflects that more people will choose to save the higher is the interest rate.
D)  All of these are correct.E) None of the above
F) A) and B)

Question 5

An example of an equity asset is:

Accepted Answer

A)  a stock.
B)  a dividend.
C)  an intermediary.
D)  a cash deposit.E) B) and C)
F) A) and B)

Question 6

When the government increases its demand for loanable funds,it causes:

Accepted Answer

A)  the demand for loanable funds curve to shift to the right,which increases interest rates.
B)  the demand for loanable funds curve to shift to the left,which increases interest rates.
C)  the demand of loanable funds curve to shift to the right,which decreases interest rates.
D)  the demand of loanable funds curve to shift to the left,which decreases interest rates.E) B) and C)
F) All of the above

Question 7

Banks act as an intermediary between buyers and sellers by:

Accepted Answer

A)  determining the price at which the quantity of funds saved will be equal to the quantity invested.
B)  determining the quantity of funds that will be saved depending on the price.
C)  determining the quantity of funds that will be borrowed,for any given quantity of savings.
D)  None of these is an intermediary function of a bank.E) A) and C)
F) B) and C)

Question 8

Bonds are a __________ liquid asset than other loans because they _____________.

Accepted Answer

A)  more;are standardized
B)  more;are guaranteed from default by the government
C)  less;are standardized
D)  less;are guaranteed from default by the governmentE) B) and C)
F) A) and C)

Question 9

Which of the following financial assets is most likely to have a higher amount of risk than the others?

Accepted Answer

A)  Stocks
B)  Bonds
C)  Mutual funds
D)  Savings accountsE) A) and B)
F) A) and C)

Question 10

In a closed economy,income equals:

Accepted Answer

A)  consumption plus net exports.
B)  consumption plus savings.
C)  consumption minus savings.
D)  savings plus investment.E) A) and D)
F) A) and C)

Question 11

The risk-free rate is:

Accepted Answer

A)  usually approximated by interest rates on U.S.government debt.
B)  the interest rate at which one would lend if there were no risk of default.
C)  lower than any other interest rate.
D)  All of these are true.E) All of the above
F) C) and D)

Question 12

If Howard takes out a $400 loan for one year at 5 percent interest annually,he will pay back a total of:

Accepted Answer

A)  $400.
B)  $440.
C)  $420.
D)  $20.E) All of the above
F) C) and D)

Question 13

A bank will charge a higher interest rate the:

Accepted Answer

A)  longer is the length of the loan,and the higher the risk of repayment.
B)  longer is the length of the loan,and the lower the risk of repayment.
C)  shorter is the length of the loan,and the higher the risk of repayment.
D)  shorter is the length of the loan,and the lower the risk of repayment.E) None of the above
F) All of the above

Question 14

Which of the following is more liquid?

Accepted Answer

A)  A privately held company's stock
B)  A publicly held company's stock
C)  A house
D)  A rare paintingE) A) and B)
F) All of the above

Question 15

The rate of return describes the:

Accepted Answer

A)  expected profit that a project will generate per dollar invested.
B)  the cost of borrowing.
C)  interest rate on loans.
D)  All of these are true.E) A) and B)
F) A) and D)

Question 16

In general,entrepreneurs prefer:

Accepted Answer

A)  more diversification,to reduce the risk of their ventures.
B)  more diversification,to increase the risk and payoff of their ventures.
C)  less diversification,to reduce the risk of the their ventures.
D)  less diversification,to increase the risk and payoff of their ventures.E) None of the above
F) B) and C)

Question 17

A company's net present value:

Accepted Answer

A)  is the discounted future value of the profits the company will make.
B)  is a measure of the current value of a stream of cash flows expected in the future.
C)  tells you the "correct" price of shares in the company.
D)  All of these are true.E) C) and D)
F) A) and B)

Question 18

The difference between the risk-free rate and the interest rate a particular investor has to pay is called the:

Accepted Answer

A)  credit spread.
B)  risk premium.
C)  Both of these are true.
D)  Neither of these is true.E) B) and C)
F) None of the above

Question 19

The basic purpose of financial markets is:

Accepted Answer

A)  to match people who want money to spend now with people who want to save their money for later.
B)  to buy and sell different currencies in order to make a profit.
C)  to sell commodities to firms as inputs.
D)  to buy commodities from firms and the government to sell to the public.E) A) and C)
F) A) and B)

Question 20

The fact that there are fewer and fewer potential investments that will generate returns high enough to make the cost of paying back a loan worthwhile is reflected in the:

Accepted Answer

A)  upward-slope of the supply curve in the market for loanable funds.
B)  downward-slope of the supply curve in the market for loanable funds.
C)  upward-slope of the demand curve in the market for loanable funds.
D)  downward-slope of the demand curve in the market for loanable funds.E) C) and D)
F) B) and D)

Exam 30: The Basics of Finance

Bonds are a __________ liquid asset than other loans because they _____________.

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The fact that there are fewer and fewer potential investments that will generate returns high enough to make the cost of paying back a loan worthwhile is reflected in the:

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In a closed economy,income equals:

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The difference between the risk-free rate and the interest rate a particular investor has to pay is called the:

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A company's net present value:

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In the market for loanable funds,the demand curve:

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The basic purpose of financial markets is:

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Crowding out is reduction in:

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If Howard takes out a $400 loan for one year at 5 percent interest annually,he will pay back a total of:

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The financial system is made up of:

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The risk-free rate is:

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When you have equity in a company,it means you:

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An example of an equity asset is:

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A bank will charge a higher interest rate the:

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When the government increases its demand for loanable funds,it causes:

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Which of the following financial assets is most likely to have a higher amount of risk than the others?

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In general,entrepreneurs prefer:

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Which of the following is more liquid?

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The rate of return describes the:

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Banks act as an intermediary between buyers and sellers by:

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Bonds are a liquid asset than other loans because they ___.

Correct Answer
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