Question 1

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 futures exchange that primarily deals in the trading of futures contracts and options. The other three choices are important stock exchanges in the United States.

Question 2

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

Accepted Answer

When a firm sells new shares of stock, the supply of the stock increases, which leads to a decrease in the price. This is because an increase in supply without a corresponding increase in demand will lead to greater competition among sellers and a decrease in price.

Question 3

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

Accepted Answer

Each share of stock represents ownership in the firm, not indebtedness or term finance.

Question 4

As chief financial officer you sell newly issued bonds on behalf of your firm.Your firm is

Accepted Answer

Selling newly issued bonds means that the firm is issuing debt securities to raise funds. By doing so, the firm is borrowing directly from investors who purchase the bonds. Therefore, the correct answer is A) borrowing directly.

Question 5

Which of the following people purchased the correct asset to meet his or her objective?

Accepted Answer

Tim's objective was to get a high return even if it meant taking some risk. Therefore, investing in stock issued by Specific Electric (which is riskier than bonds) was the correct asset to meet his objective. Purchasing bonds (A and C) would not allow for equity ownership, which Michelle and Jennifer wanted.

Question 6

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

The answer of In the late summer of 2005 some...

Question 7

People who buy newly issued stock in a corporation such as Crate and Barrel provide

Accepted Answer

People who buy newly issued stock in a corporation provide equity finance, which means they become part owners of the company. This gives them the right to receive dividends and to vote on important corporate matters.

Question 8

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 9

If Huedepool Beer runs into financial difficulty,the stockholders as

Accepted Answer

Bondholders have priority over stockholders in terms of repayment in the event of financial difficulty or bankruptcy. Therefore, stockholders would be paid after bondholders.

Question 10

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 deliberately selects an incompetent CEO, it is likely that the company's performance will suffer and investors will not want to buy shares, leading to a decrease in demand for shares and a decline in their price.

Question 11

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 12

Stock represents

Accepted Answer

Stock represents a claim to a share of the profits of a firm, ownership in a firm, and equity finance. Therefore, all of the above options are correct.

Question 13

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

Accepted Answer

The discovery of defective tires would decrease the demand for this company's stock, as it would negatively impact the company's reputation and potentially lead to financial losses. As a result, the price of the stock would likely fall. The supply of the stock may or may not decrease depending on whether shareholders decide to sell their shares in response to the news. However, the decrease in demand would have a greater impact on the price of the stock.

Question 14

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, the demand for the stock increases because investors want to buy more of the stock. With higher demand, the price of the stock also increases because sellers are willing to charge a higher price to sell their shares. Therefore, both the demand for the stock and the price will rise.

Question 15

People who buy stock in a corporation such as General Electric become

Accepted Answer

When people buy stock in a corporation such as General Electric, they become part owners of the company. Therefore, the benefits of holding the stock depend on General Electric's profits, such as dividends, capital appreciation, and voting rights.

Question 16

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 could potentially reduce hunger cravings is seen as a positive development for the company, indicating potential future success and profits. This would increase demand for the company's shares, driving up the stock price.

Question 17

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

Accepted Answer

All of the above statements are correct. When a firm sells shares of stock, the supply and demand for those shares determine the price per share. Each share represents ownership in the company, and this is known as equity finance. Therefore, all three options are correct.

Question 18

The bond market

Accepted Answer

Both the bond market and the stock market are financial markets, as they are places where financial securities are bought and sold. A financial intermediary, on the other hand, is an institution that helps facilitate transactions between buyers and sellers, such as a bank or brokerage firm.

Question 19

The prices of stock traded on exchanges are determined by

Accepted Answer

Prices of stock are determined by the forces of supply and demand in the market. While corporate stock administration and the administrators of NASDAQ may have some influence, ultimately it is the market participants who determine the price of the stock.

Question 20

Which of the following would likely make the interest rate on a bond higher than otherwise?

Accepted Answer

Both high credit risk and a long term would likely make the interest rate on a bond higher than otherwise. High credit risk means that the issuer of the bond is seen as a greater risk of defaulting on their payments, so investors will demand a higher return in exchange for taking on that risk. A long term also means that investors will have their money tied up for a longer period of time, so they will demand a higher return to compensate for that lack of liquidity.

Quiz 18: Saving,investment,and the Financial System

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

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

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

As chief financial officer you sell newly issued bonds on behalf of your firm.Your firm is

Which of the following people purchased the correct asset to meet his or her objective?

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?

People who buy newly issued stock in a corporation such as Crate and Barrel provide

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

If Huedepool Beer runs into financial difficulty,the stockholders as

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,

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

Stock represents

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

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

People who buy stock in a corporation such as General Electric become

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

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

The bond market

The prices of stock traded on exchanges are determined by

Which of the following would likely make the interest rate on a bond higher than otherwise?