Q 21-40 Flashcards
Credit money derives its value from the
a. government’s promise to redeem it
b. promise of banks and the government
ultimately to redeem it in gold
c. willingness of people to accept it in
exchange
d. value of the commodities on which it is based
e. Constitution’s protection of property rights
c. willingness of people to accept it in exchange
Chapter 1, p. 12-14
The liquidity of an asset depends on
a. the ease with which it can be bought and sold
b. the transactions costs of buying and selling the asset
c. how stable and predictable its price i
d. all the above
e. a and c only
d. all the above
Chapter 1, p. 15-16
A financial system
a. consists of the arrangements used to create and exchange claims
b. requires the existence of a stock market
c. is not needed if there is a division of labor
d. does not affect the economy’s productivity
e. is the same as the exchange mechanism
a. consists of the arrangements used to create and exchange claims
Chapter 2, p. 19-20
The division of labor
a. requires devotion of effort to the exchange of various products
b. means everyone produces to meet his or her own needs only
c. only makes sense in an economy based on agriculture
d. benefits savers more than investors
e. means that borrowers and lenders are not brought together
a. requires devotion of effort to the exchange of various products
Chapter 2, p. 19-20
Equity
a. means ownership of some property by a single individual or by a group of individuals
b. is another form of debt
c. has a fixed value regardless of the asset’s market value
d. never decreases in value
e. entitles its owner to a fixed payment called a dividend
a. means ownership of some property by a single individual or by a group of individuals
Chapter 2, p. 19-20
As a partner in a small business, Mark has 45 percent of its equity. If the business earns $566, he is entitled to
a. nothing
b. $254.70
c. $45
d. $566
e. none of the above
b. $254.70
Chapter 2, p. 20-21
A corporation is a form of ownership that is
a. like a partnership because owners of the corporation are liable for its debts
b. unlike a partnership because owners of the corporation are liable for its debts
c. like a partnership because owners of the corporation are not liable for its debt
d. unlike a partnership because owners of the corporation are not liable for its debts
e. identical to a partnership in every aspect
d. unlike a partnership because owners of the corporation are not liable for its debts
Chapter 2, p. 20-23
A corporation is legally obligated to
a. pay the agreed-upon interest to creditors
b. pay dividends to its stockholders
c. plow all its earnings back into its business
d. do all the above
e. do a and b only
a. pay the agreed-upon interest to creditors
Chapter 2, p. 20-23
Stockholders are residual claimants. This means they
a. get whatever is left over after the firm has paid off its suppliers and employees but not yet met its interest payments
b. get whatever is left over after the firm has paid off its suppliers and employees and after the firm has met its interest payments
c. are last in line to take a hit if the company incurs a loss
d. cannot be paid more than the interest paid by the corporation
e. must receive payments from the corporation they own
b. get whatever is left over after the firm has paid off its suppliers and employees and after the firm has met its interest payments
Chapter 2, p. 20-23
A bond
a. pays interest only in those years in which the borrower makes a profit
b. pays a fixed rate of interest called the coupon rate
c. has no face value
d. cannot be resold by the lender
e. is all the above
b. pays a fixed rate of interest called the coupon rate
The buyer of a bond
a. has the option of redeeming it before its due date
b. cannot sell it before its due date if there is a call-protection clause
c. may sell the bond before maturity but only for a price equal to its face value
d. may sell the bond before maturity but only for a price less than its face value
e. is none of the above
e. is none of the above
Chapter 2, p. 20-24
Suppose you buy a bond at 8 percent, interest rates rise to 10 percent, and you hold on to the 8 percent bond. In this case you
a. avoid any losses
b. avoid an explicit loss but you suffer an opportunity cost
c. avoid both explicit loss and any possible opportunity costs
d. have clearly gained
e. have done none of the above
b. avoid an explicit loss but you suffer an opportunity cost
Chapter 2, p. 20-24
If a bond is sold before its due date, its selling price
a. will be less than its face value if prevailing interest rates are less than its coupon rate
b. will be less than its face value if prevailing interest rates are greater than its coupon rate
c. will be greater than its face value if prevailing interest rates are greater than its coupon rate
d. will be greater than its face value if prevailing interest rates are not less than its coupon rate
e. must equal its face value
b. will be less than its face value if prevailing interest rates are greater than its coupon rate
Chapter 2, p. 20-24
The term junk bond is applied to bonds that
a. are classified as unusually unsafe
b. are issued by about a thousand corporations in the United States
c. range from almost investment grade to those of bankrupt companies
d. have resulted in losses to investors
e. have a low rate of return
c. range from almost investment grade to those of bankrupt companies
Chapter 2, p. 20-24
Preferred stock
a. is the common stock of extremely sound corporations
b. has less safety than common stock but has potentially higher capital gains
c. has more safety than common stock but has potentially higher capital gains
d. has more safety than common stock but does not have as great a potential for capital gains
e. is exchanged for convertible bonds
d. has more safety than common stock but does not have as great a potential for capital gains
Chapter 2, p. 20-24
