Question 1

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). This is when a private company goes public, selling shares of its stock to public investors for the first time. This is often a significant milestone for a company and can generate a lot of media attention and investor interest.

Question 2

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

To find the P/E ratio, divide the share price by the earnings per share. P/E Ratio = Share Price / Earnings per Share. 
P/E Ratio = $125 / $5.25 = 23.81.

Question 3

Bonds may be issued by the U.S.

Accepted Answer

Bonds are typically issued by the Treasury Department of the U.S. government. Congress may pass laws related to bonds, but they are not typically the issuer. The Federal Reserve Bank primarily manages monetary policy and may purchase or sell bonds, but they do not issue them. The Immigration and Naturalization Agency has no role in issuing bonds.

Question 4

A bond is

Accepted Answer

A bond is a debt security in which the issuer (borrower) promises to repay the bondholder (lender) the borrowed amount (principal) at a specified future date (maturity) and to pay periodic interest payments until maturity. Therefore, a bond is a promise to repay a loan.

Question 5

An initial public offering

Accepted Answer

An initial public offering allows a company to raise money by selling shares of ownership in the company to the public. This allows a company to raise money without increasing debt, which is helpful for investment and growth.

Question 6

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

Accepted Answer

The Dow Jones Industrial Average includes 30 blue-chip industrial stocks, making it an average of those 30 stocks.

Question 7

All of the following are allowed to issue bonds except

Accepted Answer

The Federal Reserve is not allowed to issue bonds. Its main function is to regulate the monetary policy of the United States, rather than to fund its operations through the issuance of debt.

Question 8

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

Accepted Answer

When the demand for a stock increases, the market price will increase in order to match the increase in demand. Other things remaining constant (ceteris paribus), the price of a stock will go up if the demand for it in the market increases.

Question 9

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

Accepted Answer

An increase in interest rates tends to make stocks less attractive to investors, leading to a decrease in demand and therefore a decrease in the stock price. Choices A, C, and D would all lead to an increase in demand for the stock and therefore an increase in the stock price.

Question 10

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

Accepted Answer

A decrease in stock prices often occurs during times of fear and uncertainty, such as when terrorist attacks occur.

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, such as changes in economic data, political developments, or major news events that affect investors' perceptions of the future profitability of companies or entire industries. Interest rates, supply of stocks, and dividend payments can also impact stock prices, but they typically have less dramatic effects on market volatility.

Question 12

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

Accepted Answer

The correct formula to calculate the P/E ratio of a stock is to divide the price of the stock share by the earnings per share (EPS). Therefore, the correct choice is D. Option A and B are incorrect because they use revenue per share instead of earnings per share. Option C is incorrect because it has the denominator and numerator switched.

Question 13

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

Accepted Answer

Holding stock does not provide payments on the firm's debt, as that is the responsibility of bondholders. The other options, potential capital gains, selection of the board of directors, and potential dividends, are all reasons why an individual would hold stock.

Question 14

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

Accepted Answer

Consumer confidence increasing would actually increase demand for the stock, thus causing the price to increase rather than decrease. The remaining options (A, B, and C) are all factors that would lead to a decrease in price, as they would increase the supply or decrease the demand for the stock.

Question 15

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. In this case, the stock is selling for $100 per share and the earnings per share is $20, so the P/E ratio is $100/$20 = 5.

Question 16

The primary economic role of financial markets is to

Accepted Answer

Financial markets allocate resources to profitable businesses and away from businesses with losses. This helps to efficiently allocate resources in the economy and promote economic growth. While investors may gain profits and shareholders may earn dividends, these are secondary effects of the primary role of financial markets in resource allocation. The federal government may also borrow funds in financial markets, but this is not the primary role of financial markets.

Question 17

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

Accepted Answer

Future earnings expectations are a major factor that influences the stock price. If a company is expected to have higher earnings in the future due to factors such as favorable market conditions, expansion plans, or cost-cutting measures, investors will be willing to pay more for the stock, which increases its price.

Question 18

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 larger pool of investors and can provide liquidity for shareholders. A is incorrect because an IPO is not necessarily related to a new product. B is incorrect because a change in board membership is not a primary purpose of an IPO. C is also incorrect because an IPO involves selling shares to the public, not borrowing funds.

Question 19

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

Accepted Answer

Consumer confidence has a positive effect on the stock market. When consumers are confident, they are more likely to spend money, which in turn benefits businesses and their stock prices. The other options given (A, C, and D) would have a negative effect on the stock market.

Question 20

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 stock with the expectation that they will earn a return on their investment, so the potential for future profit is the main factor that drives stock prices. The other options listed may have an impact on the stock price, but they are not as significant as the expectation of future profit.

Quiz 18: Financial Markets

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

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?

Bonds may be issued by the U.S.

A bond is

An initial public offering

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

All of the following are allowed to issue bonds except

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

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

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

Large swings in stock prices are usually caused by

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

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

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

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?

The primary economic role of financial markets is to

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

The purpose of an initial public offering is to

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

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