Question 1

The most important determinant of how much an individual will pay for a share of stock is

Accepted Answer

The expectation of future profit is the most important determinant of how much an individual will pay for a share of stock. Investors buy stocks with the hope of making a profit, and the expectation of future profit is what drives the demand for a company's shares, ultimately determining the stock price. Factors such as the corporation's past performance, industry trends, and economic conditions can all influence an investor's expectation of future profit.

Question 2

The price of a stock will increase,ceteris paribus,when

Accepted Answer

When future earnings expectations increase, people are more likely to invest in the stock, leading to an increase in demand and therefore an increase in price. None of the other options are likely to lead to an increase in stock price.

Question 3

Bonds may be issued by all of the following except

Accepted Answer

Bonds are typically issued by corporations, governments (federal, state, and local), and other organizations or entities seeking to raise capital. However, individuals cannot issue bonds as they do not have the legal authority or resources to do so.

Question 4

The purpose of an initial public offering is to

Accepted Answer

The purpose of an initial public offering (IPO) is to raise funds for investment and growth by selling shares of the company to the public. This allows the company to access capital from a wider pool of investors, which can be used to fund expansion, research and development, or other strategic initiatives. The other options - testing demand for a product, changing the board of directors, and borrowing funds - may be important activities for a company, but they are not the primary purpose of an IPO.

Question 5

Ceteris paribus,the price of a stock will definitely increase when the

Accepted Answer

According to the law of demand, when the demand for a stock increases, its price will increase as well. Therefore, ceteris paribus, the price of a stock will definitely increase when the demand for the stock increases. None of the other options provided would directly lead to an increase in the price of a stock.

Question 6

Suppose the Martin Microchip Corporation earns a profit of $20 per share of stock.If the prevailing interest rate is 10 percent and the stock is currently selling for $100 per share,what is the current price/earnings ratio?

Accepted Answer

The price/earnings (P/E) ratio is calculated by dividing the current market price of the stock by its earnings per share (EPS). In this case, the EPS is $20 and the stock price is $100, so the P/E ratio is $100/$20 = 5.

Question 7

An initial public offering

Accepted Answer

An IPO allows a company to raise funds by selling shares to the public, thereby raising money without increasing debt.

Question 8

The price of a stock will increase,ceteris paribus,when

Accepted Answer

When consumer confidence increases, it indicates that people are more likely to spend money and invest in companies, leading to an increase in demand for stocks and thus driving up the price. The other options all have negative effects on the economy and market, leading to a decrease in demand for stocks and a decrease in price.

Question 9

If Shoffner Inc. ,a publicly traded corporation,has a share price of $125,revenues of $15.35 per share,and profits of $5.25 per share,what is the P/E ratio for Shoffner Inc.shares?

Accepted Answer

P/E ratio is calculated by dividing the share price by the earnings per share. P/E ratio = Share Price / Earnings per share. 
So, P/E ratio for Shoffner Inc. shares = 125 / 5.25 = 23.81. Therefore, the best choice is A.

Question 10

A bond is

Accepted Answer

A bond is a certificate acknowledging a debt and the amount of interest to be paid each year until repayment; an IOU.

Question 11

Large swings in stock prices are usually caused by

Accepted Answer

Large swings in stock prices are usually caused by widespread changes in expectations. This can be due to various reasons such as changes in global economic conditions, political events, industry-specific news, or company-specific news. These changes in expectations can lead to shifts in demand and supply for stocks, causing significant price movements. Decreases in interest rates or supply of stocks, and increases in dividend payments may have some impact on stock prices, but they are not the main drivers of large swings.

Question 12

The primary economic role of financial markets is to

Accepted Answer

The primary economic role of financial markets is to allocate resources to profitable businesses and away from businesses with losses. Financial markets allow for the efficient allocation of capital by providing a mechanism for investors to allocate their savings to the most productive investments. This allocation of resources leads to economic growth and increased prosperity. While investors may gain profits and earn dividends as a result of financial market activity, these are secondary outcomes of the market's primary role in allocating resources. Providing loanable funds to the government is not the primary role of financial markets.

Question 13

Which of the following is not a reason to hold stock?

Accepted Answer

Holding stock does not typically provide payments on the firm's debt. Rather, bondholders or lenders typically receive payments on the firm's debt. The reasons to hold stock include potential capital gains, taking part in the selection of the board of directors, and receiving potential dividends.

Question 14

The P/E ratio,or price to earnings ratio of a stock,can be computed using which of the following formulas?

Accepted Answer

The P/E ratio is calculated by dividing the price of the stock share by the earnings per share. This gives investors an idea of whether a stock is overpriced or undervalued relative to its earnings. Thus, the correct formula is (Price of stock share)÷ (Earnings per share).

Question 15

Bonds may be issued by the U.S.

Accepted Answer

The Treasury is responsible for issuing bonds on behalf of the U.S. government. Congress passes laws that authorize the issuance of bonds, but they do not directly issue them. The Federal Reserve Bank and the Immigration and Naturalization Agency are not authorized to issue bonds.

Question 16

The first sale to the general public of stock in a corporation is referred to as

Accepted Answer

The first sale of stock in a corporation to the general public is known as an initial public offering (IPO). During an IPO, a company issues shares of stock to the public in order to raise capital. It is the first time that the general public can purchase shares and become part-owners of the company.

Question 17

The Dow Jones Industrial Average is an arithmetic average of ________ blue-chip industrial stocks.

Accepted Answer

The Dow Jones Industrial Average is composed of 30 blue-chip industrial stocks.

Question 18

The price of a stock will decrease,ceteris paribus,when

Accepted Answer

An increase in interest rates generally leads to a decrease in the demand for stocks as investors shift their investments towards higher yielding bonds or other financial instruments. This decrease in demand leads to a decrease in the price of the stock, ceteris paribus.

Question 19

The price of a stock will decrease,ceteris paribus,for all of the following reasons except

Accepted Answer

Consumer confidence increasing would suggest a positive outlook on the stock market and potentially lead to an increase in demand for stocks, which would not cause a decrease in the price of a specific stock. The other options would lead to a decrease in price due to either an oversupply or decreased demand for the stock.

Question 20

The price of a stock will decrease,ceteris paribus,when

Accepted Answer

The presence of terrorism and fear can cause investors to sell their stocks, leading to a decrease in stock prices. A, B, and D are all factors that could potentially increase demand for stocks and drive up prices.

Quiz 32: Financial Markets

The most important determinant of how much an individual will pay for a share of stock is

The price of a stock will increase,ceteris paribus,when

Bonds may be issued by all of the following except

The purpose of an initial public offering is to

Ceteris paribus,the price of a stock will definitely increase when the

Suppose the Martin Microchip Corporation earns a profit of $20 per share of stock.If the prevailing interest rate is 10 percent and the stock is currently selling for $100 per share,what is the current price/earnings ratio?

An initial public offering

The price of a stock will increase,ceteris paribus,when

If Shoffner Inc. ,a publicly traded corporation,has a share price of $125,revenues of $15.35 per share,and profits of $5.25 per share,what is the P/E ratio for Shoffner Inc.shares?

A bond is

Large swings in stock prices are usually caused by

The primary economic role of financial markets is to

Which of the following is not a reason to hold stock?

The P/E ratio,or price to earnings ratio of a stock,can be computed using which of the following formulas?

Bonds may be issued by the U.S.

The first sale to the general public of stock in a corporation is referred to as

The Dow Jones Industrial Average is an arithmetic average of ________ blue-chip industrial stocks.

The price of a stock will decrease,ceteris paribus,when

The price of a stock will decrease,ceteris paribus,for all of the following reasons except

The price of a stock will decrease,ceteris paribus,when