Question 1

A certificate of ownership and claim to part of a firm's profits is called

Accepted Answer

A certificate of ownership and claim to part of a firm's profits is a definition of a stock. A physical capital refers to tools or equipment used in production, a bond is a form of debt, depreciation is the decrease in value over time of an asset, and a certificate of deposit is a type of savings account.

Question 2

A household increases its wealth by

Accepted Answer

Saving is the process of setting aside a portion of income for future use, rather than spending it on immediate consumption. By saving, households can accumulate wealth over time.

Question 3

A share of stock is a

Accepted Answer

A share of stock represents a certificate of ownership of a portion of a company's assets and earnings, and gives the owner the right to vote on important company decisions and receive dividends.

Question 4

A document that promises to pay specified sums of money on specified dates and is a debt to the issuer is called

Accepted Answer

A bond is a debt instrument that promises to pay specified sums of money on specified dates, making it a liability to the issuer. This distinguishes it from stocks, which represent ownership in a company rather than a debt owed. Net investment and gross investment are terms used in economics to describe changes in capital stock, while depreciation describes the reduction in value of an asset over time.

Question 5

Which of the following are typically financed in a "stock market"?
i.Shares sold by a firm to finance its international growth plans
ii.New mortgages for home buyers
iii.Credit card balances

Accepted Answer

Shares sold by a firm are typically financed through the stock market. Mortgages and credit card balances are typically financed through banks or other financial institutions.

Question 6

The change in the quantity of capital from one period to the next is equal to

Accepted Answer

Net investment is the change in the quantity of capital from one period to the next after accounting for depreciation. Gross investment measures the total amount of capital expenditures made in a period, including those needed to replace depreciated capital. Wealth and financial investment are broader concepts that encompass all types of assets, while depreciation represents the reduction in the value of existing capital over time.

Question 7

Which of the following are typically financed in a "bond market"?
i.A mortgage for a house
ii.State government borrowing for a new road project
iii.Your purchase of 4,000 shares in Westpac Bank

Accepted Answer

State government borrowing for infrastructure projects like roads is typically financed through the bond market, where governments issue bonds to raise funds. Mortgages and stock purchases are not typically financed through the bond market.

Question 8

Which of the following are typically financed in the loan market?
i.A mortgage for a house
iii.Credit card balances
iii.The purchase of shares in a corporation

Accepted Answer

Mortgage for a house is typically financed in the loan market. Credit card balances are also commonly financed in the loan market through personal loans or balance transfer credit cards. However, the purchase of shares in a corporation is not typically financed in the loan market as it involves investments and not necessarily a loan. Therefore, the correct choice is A) i and ii.

Question 9

During this year,Barbara earned $60,000 as a financial analyst,paid taxes of $5,000 and consumed $53,000.If Barbara's wealth was $4,000 at the beginning of the year,at the end of the year Barbara's wealth is

Accepted Answer

Barbara's savings for the year are her earnings minus taxes and consumption, which is $60,000 - $5,000 - $53,000 = $2,000. Adding this to her initial wealth of $4,000 gives her an end-of-year wealth of $6,000.

Question 10

During the year a country's income was $6.0 trillion and its consumption was $5.5 trillion.At the start of the year its wealth was $30.0 trillion.The country's wealth at the end of the year is

Accepted Answer

The answer of During the year a country's income was...

Question 11

On 1 January,Rick's Photo owned $50,000 of equipment.During the year,the value of the equipment fell by $10,000,plus Rick bought $25,000 in new equipment.Rick's company experienced ________ because ________.

Accepted Answer

Net investment is calculated by subtracting depreciation from gross investment. In this case, Rick bought $25,000 in new equipment (gross investment) and the value of the equipment fell by $10,000 (depreciation), so the net investment is $15,000 ($25,000 - $10,000).

Question 12

If capital gains equal zero,then the Ng family's wealth at the end of the year equals their wealth at the beginning of the year

Accepted Answer

If capital gains equal zero, then the Ng family's income for the year will be equal to their consumption expenditure minus personal income taxes. Therefore, their wealth at the end of the year will be equal to their wealth at the beginning of the year plus their saving (i.e. income minus consumption minus taxes).

Question 13

When Westpac Bank finances your purchase of a new car,you are

Accepted Answer

When Westpac Bank provides funds to finance a car purchase, it is offering a loan to the borrower. Therefore, the borrower is borrowing in the loan market.

Question 14

Assuming there are no capital gains,a nation's wealth at the start of a year is equal to the wealth at the start of the previous year plus

Accepted Answer

A nation's wealth at the start of a year is equal to the wealth at the start of the previous year plus saving during the year, as savings are the portion of income not consumed and contribute to the accumulation of wealth.

Question 15

Lulu purchased a security that promises to pay $50 twice a year from January 15,2015 to January 15,2020 and then pay $1,000 on January 15,2020.The security is a debt to the company that issued it.The security is a

Accepted Answer

The security promises to pay periodic interest payments (twice a year) and has a maturity date where it will pay a face value ($1,000). This is the definition of a bond, which is a debt security issued by a company or government to raise capital.

Question 16

Wealth is

Accepted Answer

Wealth refers to the total value of all assets that a person owns, including both financial assets (such as savings accounts, stocks, and bonds) and physical assets (such as real estate, vehicles, and jewelry). Income, saving, and investment are all related concepts, but they are not synonymous with wealth.

Question 17

Wealth is to ________ as capital stock is to ________.

Accepted Answer

Wealth is the accumulation of saving and investment over time, while capital stock is the accumulation of investment over time. Therefore, wealth is to saving and investment as capital stock is to investment. Thus, the correct answer is E, saving;investment.

Question 18

A distinction between stocks and bonds is that

Accepted Answer

Stocks represent ownership in a company, while bonds represent a debt the company owes to the bondholder. Bonds typically have a fixed maturity date and pay interest, while stocks do not have a fixed maturity date and do not pay interest but offer the potential for capital appreciation through an increase in share price. Bonds can be sold to other investors, but stocks allow for ownership and voting rights in the company.

Question 19

On 1 January,Rick's Photo owned $50,000 of equipment.During the year,the value of the equipment fell by $10,000,plus Rick bought $25,000 in new equipment.Rick's company experienced

Accepted Answer

Net investment is calculated as the gross investment minus depreciation. Rick's gross investment is $25,000 (new equipment), and depreciation is $10,000 (value decrease), resulting in a net investment of $15,000.

Question 20

To acquire financial capital,a firm can i.obtain a loan from a bank.
Ii)issue stock.
Iii)issue bonds.

Accepted Answer

A firm can acquire financial capital through a loan from a bank, issuing stock, or issuing bonds. All three options are viable sources of funding, and a firm can choose to pursue one or more of these avenues depending on their specific needs and circumstances. A loan from a bank can provide quick access to funds, but will incur interest and require repayment. Issuing stock allows a firm to raise capital without incurring debt, but dilutes ownership and control. Issuing bonds involves borrowing from investors and paying interest, but does not dilute ownership. Therefore, the best choice(s) depends on a variety of factors, including the firm's financial situation, long-term goals, and risk tolerance.

Quiz 9: Finance,saving and Investment