quiz

Question 1

If interest rate is 5% and you receive a gift of $100 how much would that gift be worth in 3 years?

Answer 1

100(1.05)^3= 115.76

Question 2

Crowding out

Answer 2

a decrease in investment that results from government borrowing

Question 3

financial intermediaries

Answer 3

financial institutions through which savers can indirectly provide funds to borrowers
banks and mutual funds

Question 4

bond

Answer 4

certificate of indebtedness

Question 5

mutual fund

Answer 5

an institution that sells shares to the public and uses the proceeds to buy a portfolio of stocks and bonds

Question 6

Melissa offers you 1,000 dollars today or 1,500 in five years, the interest rate is 8%

Answer 6

1,000 (1.08)^5=1,469.32

Question 7

diversification

Answer 7

reduction of risk achieved by replacing a single risk with a large number of smaller unrelated risks

Question 8

real interest rate

Answer 8

the interest rate corrected for the effects of inflation

Question 9

two most important financial markets

Answer 9

bond and stock market

Question 10

Put 500 dollars in savings account with an interest rate of 5%, the future value in one year

Answer 10

500(1.05)=525

Question 11

Primary advantage of mutual funds

Answer 11

They allow people with small amounts of money to diversify their holdings (diversification)

Question 12

stock

Answer 12

share of ownership in a corporation

Question 13

stock price

Answer 13

Undervalued if Price < Value
-
Overvalued if Price > Value
-
Fairly valued if Price = Value

Question 14

loanable funds

Answer 14

money available for lending and borrowing

Question 15

source of supply of loanable funds

Answer 15

The supply of loanable funds comes from people and organizations, such as government and businesses, that have decided not to spend some of their money, but instead, save it for investment purposes

Question 16

properties of owning corporate stock

Answer 16

.

Question 17

The primary economic function of the financial system

Answer 17

-match one person’s saving with another person’s investment
-Moves the economy’s scarce resources
from savers to borrowers

Question 18

If you are starting a business you might buy desks, chairs, and lamps which would be considered ___

Answer 18

investment

Question 19

If you raise the funds to purchase those items you are a ___

Answer 19

.