Question 1

The efficient markets hypothesis says that asset prices embody all publicly available information.

Accepted Answer

The efficient markets hypothesis asserts that asset prices always incorporate all publicly available information. In other words, financial markets are so efficient that they immediately reflect all publicly available information in asset prices. This implies that it is impossible for investors to consistently outperform the market through expert analysis or information gathering. Instead, the theory suggests that stock prices move randomly, and that it is impossible to consistently acquire a return above the normal market return.

Question 2

Human capital refers to:

Accepted Answer

Human capital refers to the knowledge, skills, and abilities possessed by workers as a result of education, training, and experience. It is a type of intangible capital that contributes to productivity and economic growth.

Question 3

Changes in the prices of stock are the result of changes in the supply and demand for stocks of investors.

Accepted Answer

Changes in supply and demand are fundamental factors that drive price changes in the stock market. When demand exceeds supply, prices increase, and when supply exceeds demand, prices decrease. It is a basic principle of economics.

Question 4

Life insurance companies are financial intermediaries that sell policies to savers and guarantee a payment to the policyholder's beneficiaries when the policyholder dies.

Accepted Answer

This statement is correct. Life insurance companies sell policies to individuals, who then make regular premium payments to the company. In the event of the policyholder's death, the company pays out a lump sum or regular payments to the beneficiaries named in the policy. This is a way for savers to provide financial security for their loved ones in the event of their unexpected death.

Question 5

The value of a stock depends primarily on investors' assessments of its value in the past.

Accepted Answer

The value of a stock depends primarily on investors' assessments of its future potential, including factors such as the company's financial performance, market trends, and growth prospects. While past performance may be considered, it is not the sole determinant of a stock's value.

Question 6

A life insurance company is a financial intermediary that sets up a stock portfolio of shares of companies and then sells shares of the stock portfolio to investors.

Accepted Answer

A life insurance company is a financial intermediary that sells life insurance policies, not shares of stock portfolios. While they may invest in stocks and other assets to help fund the policies, they do not sell shares of those investments directly to investors.

Question 7

Banks are non-profit financial intermediaries that collect the savings of their members and invest those funds in a diversified portfolio of assets to provide income to members when they retire.

Accepted Answer

Banks can be either for-profit or non-profit institutions. While they do collect savings from their members and invest those funds, their primary goal is to make a profit by charging interest on loans and other services they offer.

Question 8

If the price of a share of stock is expected to rise,then demanders will demand more of it today,owners will be less willing to sell it today,and its price will rise today.

Accepted Answer

According to the law of demand, if the expected price of a share of stock is to rise, its demand will increase today. As a result, owners may be less willing to sell it, and its price will go up today.

Question 9

This year,Alan purchases a home built in the 1950s.Alan's purchase:

Accepted Answer

The answer of This year,Alan purchases a home built in...

Question 10

Human capital development often comes from:

Accepted Answer

Human capital development typically comes from government and private spending for education. While investment spending by businesses can also contribute, it is most effective when used in conjunction with education and training programs. Financial markets and the private sector may also play a role, but they are not the primary drivers of human capital development.

Question 11

The purchaser of a share of stock receives interest each year from the stock and then receives the purchase price of the stock at its maturity.

Accepted Answer

This statement is inaccurate. The purchaser of a share of stock receives dividends (not interest) and does not receive the purchase price of the stock at its maturity since stocks do not have a maturity date.

Question 12

By doing research on the companies in their portfolios,mutual funds reduce transactions costs for their investors.

Accepted Answer

By researching the companies in their portfolio, mutual funds are able to make informed investment decisions and avoid frequent buying and selling of stocks, which can result in reducing transaction costs for their investors.

Question 13

Domestic savings and foreign savings are:

Accepted Answer

Domestic savings and foreign savings both provide sources of funds for investment spending. Domestic savings come from individuals and businesses within the country, while foreign savings come from individuals and businesses outside of the country. Investment spending refers to the purchase of capital goods and other long-term investments to improve productivity and economic growth. Without savings, there would be limited funds available for investment spending, and government spending alone may not be enough to support sustained economic growth.

Question 14

Which of the following is TRUE of an open economy?

Accepted Answer

In an open economy, exports (X) and imports (IM) are included in the calculation of GDP, which leads to the equation GDP = C + I + G + X - IM.

Question 15

Implicit rent is an estimate of the amount that homeowners would pay if they had to rent their home and is also an estimate of the benefit of owning a home.

Accepted Answer

Implicit rent is an estimate of the amount that homeowners would pay if they had to rent their home and is also an estimate of the benefit of owning a home. Therefore, the statement is true.

Question 16

If an economy is closed and wishes to increase its investment spending:

Accepted Answer

In a closed economy, there is no foreign saving to be utilized. Therefore, the only source of funding for increasing investment spending would be domestic saving.

Question 17

Mutual funds allow investors with a relatively small amount of money to indirectly hold a diversified portfolio,which allows them to invest in stocks more safely than they could otherwise.

Accepted Answer

Mutual funds pool the money of multiple investors to create a diversified portfolio, which spreads the risk across many different companies and industries. This allows investors to hold a diversified portfolio even with a small amount of money, reducing the impact of any one company or industry performing poorly. Therefore, mutual funds are a relatively safe way to invest in stocks.

Question 18

Some economists have challenged the efficient markets hypothesis because they believe that stocks may be incorrectly priced when markets behave irrationally.

Accepted Answer

Economists have challenged the efficient markets hypothesis because they believe that stocks may be incorrectly priced due to irrational market behavior.

Question 19

Fundamentals are the underlying determinants of a company's future profits.

Accepted Answer

This statement is true. Fundamentals, such as revenue growth, profit margins, and market share, provide insight into a company's financial performance and ability to generate future profits.

Question 20

The majority of financial assets that Canadians own are held through financial intermediaries rather than directly.

Accepted Answer

According to data from Statistics Canada, the majority of financial assets that Canadians own are held through financial intermediaries such as banks, insurance companies, and mutual fund companies, rather than directly through investments in stocks, bonds, and other securities.

Quiz 10: Savings, Investment Spending, and the Financial System