Question 1

The number of shares of Biggie Corporation stock outstanding in 2007 was 100 million. In 2007, Biggie stock paid a dividend of $2.40 per share and its dividend yield was 4 percent. If the price-earnings ratio is 16, then Biggie's total earnings in 2007 amounted to

Accepted Answer

A)   $1.92 million.
B)   $87.50 million.
C)   $375.00 million.
D)   $960.00 million.E) A) and C)
F) A) and B)

Question 2

Use the following table to answer the following questions.
Table 8-2
 
-Refer to Table 8-2. Which company had the lowest earnings per share?

Accepted Answer

A)   Boeing Co.
B)   Eli Lilly and Co.
C)   H. J. Heinz and Co.
D)   Kellog Co.E) A) and B)
F) B) and C)

Question 3

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 C)
F) A) and B) B

Question 4

A mutual fund

Accepted Answer

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

Question 5

Stocks and bonds

Accepted Answer

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

Question 6

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

Accepted Answer

A)   the interest it pays is taxed and it is long term
B)   the interest it pays is taxed and it is short term
C)   the interest it pays is tax exempt and it is long term
D)   the interest it pays is tax exempt and it is short termE) B) and D)
F) B) and C)

Question 7

In the language of macroeconomics, investment refers to

Accepted Answer

A)   saving.
B)   the purchase of new capital.
C)   the purchase of stocks, bonds, or mutual funds.
D)   All of the above are correct.E) B) and D)
F) All of the above

Question 8

If the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded,

Accepted Answer

A)   there is a surplus and the interest rate is above the equilibrium level.
B)   there is a surplus and the interest rate is below the equilibrium level.
C)   there is a shortage and the interest rate is above the equilibrium level.
D)   there is a shortage and the interest rate is below the equilibrium level.E) B) and C)
F) A) and B)

Question 9

Institutions that help to match one person's saving with another person's investment are collectively called the

Accepted Answer

A)   Federal Reserve system.
B)   banking system.
C)   monetary system.
D)   financial system.E) A) and B)
F) A) and D) D

Question 10

Suppose the government finds a major defect in one of a company's products and demands that the product be taken off the market. We would expect that the

Accepted Answer

A)   supply of existing shares of the stock and the price will both rise.
B)   supply of existing shares of the stock and the price will both fall.
C)   demand for existing shares of the stock and the price will both rise.
D)   demand for existing shares of the stock and the price will both fall.E) All of the above
F) A) and D)

Question 11

Bolivia had a smaller budget deficit in 2003 than in 2002. Other things the same, we would expect this reduction in the budget deficit to have

Accepted Answer

A)   increased both interest rates and investment.
B)   increased interest rates and decreased investment.
C)   decreased interest rates and increased investment.
D)   decreased both interest rates and investment.E) None of the above
F) A) and D)

Question 12

A national chain of grocery stores wants to finance the construction of several new stores. The firm has limited internal funds, so it likely will

Accepted Answer

A)   demand the required funds by buying bonds.
B)   demand the required funds by selling bonds.
C)   supply the required funds by buying bonds.
D)   supply the required funds by selling bonds.E) All of the above
F) A) and B)

Question 13

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) B) and C)

Question 14

Owners of bonds that were issued by the federal government are not required to pay federal income tax on the interest income.

Accepted Answer

A) True 
 B)False

Question 15

Use the following table to answer the following questions.
Table 8-2
 
-Refer to Table 8-2. Which company had the lowest dollar dividend?

Accepted Answer

A)   Boeing Co.
B)   Eli Lilly and Co.
C)   H. J. Heinz and Co.
D)   Kellog Co.E) A) and B)
F) A) and C)

Question 16

Midwestern corporation issues bonds. Southern corporation issues stock. Which corporation used equity financing?

Accepted Answer

A)   both Midwestern corporation and Southern corporation
B)   Midwestern corporation but not Southern corporation
C)   Southern corporation but not Midwestern corporation
D)   neither Midwestern nor Southern corporationE) A) and D)
F) A) and C) C

Question 17

When the U.S. government is in debt during a given year, it follows that its budget is in deficit for that year.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following lists correctly identifies the four expenditure categories of GDP?

Accepted Answer

A)   consumption, government purchases, investment, net-exports
B)   consumption, investment, depreciation, net-exports
C)   consumption, saving, investment, depreciation,
D)   consumption, government purchases, investment, savingsE) A) and C)
F) B) and D)

Question 19

If, for an imaginary closed economy, investment amounts to $12,000 and the government is running a $2,000 deficit, then private saving must amount to $10,000.

Accepted Answer

A) True 
 B)False

Question 20

If the government instituted an investment tax credit, then which of the following would be higher in equilibrium?

Accepted Answer

A)   saving and the interest rate
B)   saving but not the interest rate
C)   the interest rate but not saving
D)   neither saving nor the interest rateE) All of the above
F) A) and C)

Exam 8: Saving, Investment, and the Financial System

The number of shares of Biggie Corporation stock outstanding in 2007 was 100 million. In 2007, Biggie stock paid a dividend of $2.40 per share and its dividend yield was 4 percent. If the price-earnings ratio is 16, then Biggie's total earnings in 2007 amounted to

Correct AnswerverifiedShow Answer

Use the following table to answer the following questions. Table 8-2 -Refer to Table 8-2. Which company had the lowest earnings per share?

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedB

A mutual fund

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Stocks and bonds

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

Correct AnswerverifiedShow Answer

In the language of macroeconomics, investment refers to

Correct AnswerverifiedShow Answer

If the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded,

Correct AnswerverifiedShow Answer

Institutions that help to match one person's saving with another person's investment are collectively called the

Correct AnswerverifiedD

Suppose the government finds a major defect in one of a company's products and demands that the product be taken off the market. We would expect that the

Correct AnswerverifiedShow Answer

Bolivia had a smaller budget deficit in 2003 than in 2002. Other things the same, we would expect this reduction in the budget deficit to have

Correct AnswerverifiedShow Answer

A national chain of grocery stores wants to finance the construction of several new stores. The firm has limited internal funds, so it likely will

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

Owners of bonds that were issued by the federal government are not required to pay federal income tax on the interest income.

Correct AnswerverifiedShow Answer

Use the following table to answer the following questions. Table 8-2 -Refer to Table 8-2. Which company had the lowest dollar dividend?

Correct AnswerverifiedShow Answer

Midwestern corporation issues bonds. Southern corporation issues stock. Which corporation used equity financing?

Correct AnswerverifiedC

When the U.S. government is in debt during a given year, it follows that its budget is in deficit for that year.

Correct AnswerverifiedShow Answer

Which of the following lists correctly identifies the four expenditure categories of GDP?

Correct AnswerverifiedShow Answer

If, for an imaginary closed economy, investment amounts to $12,000 and the government is running a $2,000 deficit, then private saving must amount to $10,000.

Correct AnswerverifiedShow Answer

If the government instituted an investment tax credit, then which of the following would be higher in equilibrium?

Correct AnswerverifiedShow Answer

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B

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D

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C

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