Question 1

Bountiful Tractors has a share price of $60,retained earnings of $2 per share,and a dividend yield of 2 percent.What is Bountiful Tractor's price-earnings ratio?

Accepted Answer

A)  23.1
B)  18.75
C)  15
D)  30E) B) and D)
F) C) and D)

Question 2

A municipal bond is

Accepted Answer

A)  issued by the federal government.
B)  issued by state and local governments.
C)  issued by corporations.
D)  issued by households.E) A) and C)
F) None of the above

Question 3

Which of the following would likely make the interest rate on a bond higher than otherwise?

Accepted Answer

A)  both high credit risk and a long term
B)  high credit risk but not a long term
C)  a long term but not a high credit risk
D)  neither high credit risk nor a long termE) B) and C)
F) All of the above

Question 4

Longview Corporation has a stock price of $60,has issued 1,000,000 shares of stock,has retained earnings of $3 million dollars,and a dividend yield of 5 percent.The price-earnings ratio for Longview stock is

Accepted Answer

A)  20,which is high compared to historical standards of the market.
B)  20,which is low compared to historical standards of the market.
C)  10,which is low compared to historical standards of the market.
D)  10,which is high compared to historical standards of the market.E) All of the above
F) None of the above

Question 5

In the late summer of 2005 some regions of the country were suffering from drought.What effect would we expect this to have on the stock of companies such as John Deere that manufacture farm equipment?

Accepted Answer

A)  raise the demand for existing shares of the stock,causing the price to rise
B)  decrease the demand for existing shares of the stock,causing the price to fall
C)  raise the supply of the existing shares of stock,causing the price to rise
D)  raise the supply of the existing shares of stock,causing the price to fallE) C) and D)
F) B) and D)

Question 6

Two of the economy's most important financial intermediaries are

Accepted Answer

A)  suppliers of funds and demanders of funds.
B)  banks and the bond market.
C)  the stock market and the bond market.
D)  banks and mutual funds.E) A) and B)
F) A) and C)

Question 7

Which of the following is correct?

Accepted Answer

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.E) A) and B)
F) A) and C)

Question 8

If people expect future earnings of Galt Corporation to be high relative to current earnings,then

Accepted Answer

A)  the P/E ratio of its stock will be high.A P/E ratio of 8 is relatively high.
B)  the P/E ratio of its stock will be high.A P/E ratio of 8 is relatively low.
C)  the P/E ratio of its stock will be low.A P/E ratio of 8 is relatively high.
D)  the P/E ratio of its stock will be low.A P/E ratio of 8 is relatively low.E) A) and D)
F) C) and D)

Question 9

Which of the following is not an important stock exchange in the United States?

Accepted Answer

A)  New York Stock Exchange
B)  American Stock Exchange
C)  Chicago Mercantile Exchange
D)  NASDAQE) B) and C)
F) A) and D)

Question 10

Jerry has the choice of two bonds,one that pays 5 percent interest and one that pays 2 percent interest.Which of the following is most likely?

Accepted Answer

A)  The 2 percent bond is more risky than the 5 percent bond.
B)  The 5 percent bond is a U.S.government bond,and the 2 percent bond is a junk bond.
C)  The 2 percent bond has a longer term than the 5 percent bond.
D)  The 2 percent bond is a municipal bond,and the 5 percent bond is a U.S.government bond.E) A) and B)
F) A) and C)

Question 11

Owners of municipal bonds

Accepted Answer

A)  are not required to pay federal income tax on the interest income.
B)  usually receive a higher interest rate compared to bonds issued by corporations.
C)  usually receive a higher interest rate compared to stock issued by corporations.
D)  pay taxes on the dividends earned from these bonds.E) B) and C)
F) C) and D)

Question 12

As chief financial officer you sell newly issued bonds on behalf of your firm.Your firm is

Accepted Answer

A)  borrowing directly.
B)  borrowing indirectly.
C)  lending directly.
D)  lending indirectly.E) A) and B)
F) All of the above

Question 13

Which of the following is an example of financial intermediation?

Accepted Answer

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.E) A) and B)
F) All of the above

Question 14

A perpetuity is distinguished from other bonds in that it

Accepted Answer

A)  pays continuously compounded interest.
B)  pays interest only when it matures.
C)  never matures.
D)  will be used to purchase another bond when it matures unless the owner specifies otherwise.E) A) and C)
F) A) and B)

Question 15

A bond is a

Accepted Answer

A)  financial intermediary.
B)  certificate of indebtedness.
C)  certificate of partial ownership in an enterprise.
D)  None of the above is correct.E) All of the above
F) C) and D)

Question 16

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

Accepted Answer

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.E) A) and B)
F) A) and C)

Question 17

A low P/E for a stock indicates that

Accepted Answer

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

Question 18

Which of the following are financial intermediaries?

Accepted Answer

A)  both banks and mutual funds
B)  banks but not mutual funds
C)  mutual funds but not banks
D)  neither banks or mutual fundsE) C) and D)
F) A) and C)

Question 19

Which of the following numbers is not associated with shares of a company's stock?

Accepted Answer

A)  term
B)  dividend
C)  price
D)  price-earnings ratioE) B) and D)
F) A) and B)

Question 20

When a large,well-known corporation wishes to borrow directly from the public,it can

Accepted Answer

A)  sell bonds.
B)  sell shares of stock.
C)  go to a bank for a loan.
D)  All of the above are correct.E) A) and B)
F) All of the above

Exam 13: Saving Investment and the Financial System: Financial Institutions in the US economy

Which of the following would likely make the interest rate on a bond higher than otherwise?

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Two of the economy's most important financial intermediaries are

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Which of the following is correct?

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Which of the following is not an important stock exchange in the United States?

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As chief financial officer you sell newly issued bonds on behalf of your firm.Your firm is

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In the late summer of 2005 some regions of the country were suffering from drought.What effect would we expect this to have on the stock of companies such as John Deere that manufacture farm equipment?

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Bountiful Tractors has a share price of $60,retained earnings of $2 per share,and a dividend yield of 2 percent.What is Bountiful Tractor's price-earnings ratio?

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Which of the following numbers is not associated with shares of a company's stock?

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A low P/E for a stock indicates that

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Which of the following are financial intermediaries?

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A perpetuity is distinguished from other bonds in that it

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Jerry has the choice of two bonds,one that pays 5 percent interest and one that pays 2 percent interest.Which of the following is most likely?

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A bond is a

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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

Correct AnswerverifiedShow Answer

Longview Corporation has a stock price of $60,has issued 1,000,000 shares of stock,has retained earnings of $3 million dollars,and a dividend yield of 5 percent.The price-earnings ratio for Longview stock is

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If people expect future earnings of Galt Corporation to be high relative to current earnings,then

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Owners of municipal bonds

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When a large,well-known corporation wishes to borrow directly from the public,it can

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Which of the following is an example of financial intermediation?

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A municipal bond is

Correct AnswerverifiedShow Answer

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