Question 1

Which of the following statements is correct?

Accepted Answer

A decline in stock prices suggests that investors expect corporate profits to be lower in the future, which can lead to a potential recession.

Question 2

The single most important piece of information about a stock is its

Accepted Answer

The single most important piece of information about a stock is its price because it determines the value of the company and reflects the market's perception of the company's future growth prospects. While other factors such as dividends and daily volume are important, they are secondary to a stock's price.

Question 3

The Dow Jones Industrial Average has been computed regularly since

Accepted Answer

The Dow Jones Industrial Average has been computed regularly since May 26, 1896, hence option D is the correct answer.

Question 4

If a firm sells a total of 100 shares of stock,then

Accepted Answer

Each share represents ownership of a portion of the firm. Therefore, if 100 shares are sold, the ownership of the firm is divided among these shares equally, and each share represents 1 percent of the firm's ownership.

Question 5

The Dow Jones Industrial Average is now based on the prices of the stocks of

Accepted Answer

The Dow Jones Industrial Average (DJIA) is a stock market index that measures the stock performance of 30 large publicly owned companies based in the United States. It is one of the oldest and most widely followed stock market indices, and its components are chosen by the editors of The Wall Street Journal. While there are other indexes that track a larger number of companies, such as the S&P 500 (which tracks 500 companies), the DJIA is specifically focused on a smaller group of major corporations.

Question 6

Nastech Pharmaceuticals announced it has developed a nasal spray that would reduce hunger cravings.Other things the same we would expect

Accepted Answer

The development of a new product that has potential market demand is likely to increase the demand for the company's shares, leading to an increase in the stock price. This is because investors would be interested in investing in the company, expecting future profits.

Question 7

World Wide Delivery Service Corporation develops a way to speed up its deliveries and reduce its costs.We would expect that this would

Accepted Answer

The development of a way to speed up deliveries and reduce costs is likely to increase the demand for the company's services, leading to an increase in its revenue and profits. This, in turn, can lead to an increase in the demand for the company's stock as investors become more optimistic about its future prospects. The increase in demand for the stock can cause its price to rise.

Question 8

All else equal,when people become more optimistic about a company's future,the

Accepted Answer

When people become more optimistic about a company's future, it means they believe the company will perform better and generate higher profits in the future. This will increase the demand for the stock as investors want to buy it, leading to a rise in the stock price. As demand increases, the supply of the stock may decline or remain constant, but the price will still rise due to the increased demand.

Question 9

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

When a government finds a major defect in a company's product and demands its removal from the market, it typically leads to a loss of consumer confidence and potential financial losses for the company. This negative news can cause investors to sell their shares, increasing the supply of the stock in the market. However, the demand for these shares is likely to decrease as investors become wary of the company's future profitability and regulatory compliance. This decrease in demand, coupled with an increase in supply, generally leads to a fall in the stock price.

Question 10

In the late summer of 2005 some regions of the country were suffering from drought.What effect would we expect this to have on the stock of companies such as John Deere that manufacture farm equipment?

Accepted Answer

Drought will result in lower crop yields, which will reduce farmers' incomes. As a result, farmers will be less able to purchase new farm equipment. A decrease in demand for farm machinery would translate into lower sales and profits for John Deere, lowering the demand for John Deere stock and causing the price to fall.

Question 11

The prices of stock traded on exchanges are determined by

Accepted Answer

The prices of stock traded on exchanges are determined by the supply of and demand for the stock. The Corporate Stock Administration and administrators of NASDAQ do not directly determine the price of a stock.

Question 12

Potential buyers of ABC Corporation bonds are not concerned about ABC Corporation declaring bankruptcy.Potential buyers of XYZ Corporation bonds are concerned that XYZ Corporation may declare bankruptcy.Which of the following statements is correct?

Accepted Answer

The interest rate on XYZ Corporation bonds will be high relative to the interest rate on ABC Corporation bonds because potential buyers are concerned about the possibility of bankruptcy. This makes the investment riskier, so investors will demand a higher return to compensate for the added risk. The other options are not relevant to the given information.

Question 13

In the Coen Brothers' movie The Hudsucker Proxy the board of directors picks someone to run the company who they believe will make poor decisions.If things turn out as they plan,

Accepted Answer

If the board of directors intentionally appoints a person who will make poor decisions, it is likely that the company's performance will suffer, resulting in a decline in demand for shares. As a result, the price of a share of stock in the Hudsucker corporation should decline as the demand for shares falls.

Question 14

Which of the following is not an important stock exchange in the United States?

Accepted Answer

The Chicago Mercantile Exchange is not a stock exchange, but rather a commodities exchange. The other three options listed are all important stock exchanges in the United States.

Question 15

Compared to bondholders,stockholders

Accepted Answer

Stockholders have higher risk because the value of their investment depends on the performance of the company, whereas bondholders receive a fixed payment regardless of the company's performance. However, stockholders also have the potential for higher returns if the value of the company's stock increases.

Question 16

Other things being constant,when a firm sells new shares of stock,the

Accepted Answer

When a firm sells new shares of stock, it increases the supply of the stock in the market. With an increase in supply, the price of the stock decreases as buyers have more options to choose from. This is because the demand remains constant or may increase only marginally. Therefore, Option A is the correct choice.

Question 17

A stock index is

Accepted Answer

A stock index is an average of a group of stock prices. It reflects the overall performance of the stock market by tracking the performance of a specific group of stocks. Examples of stock indices include the S&P 500 and the Dow Jones Industrial Average.

Question 18

Which of the following is a certificate of indebtedness?

Accepted Answer

A bond is a certificate of indebtedness, where the issuer (borrower) borrows money from the bondholder (lender) and agrees to pay back the amount borrowed along with interest over a set period of time. Stocks, on the other hand, represent ownership in a company and do not involve any debt or borrowing. Neither stocks nor bonds is not a correct answer because one of them is a certificate of indebtedness.

Question 19

Suppose that the tires of a certain tire manufacturer are discovered to be defective.Other things the same,this news would cause

Accepted Answer

If the tires of a certain tire manufacturer are discovered to be defective, it would damage the reputation of the company and lead to a decrease in demand for their stock. As a result, the price of the stock would fall.

Question 20

Compared to stocks,bonds offer the holder

Accepted Answer

Bonds are generally considered to have lower risk than stocks because they represent a fixed income stream and have a predetermined maturity date. However, this also means that they typically offer lower potential returns compared to the volatility and potential for growth found in the stock market.

Quiz 26: Saving, investment, and the Financial System