Deck 17: The Capital Market

Question 1

The figure given below shows the demand curves [D₁ and D₂] and the supply curve [S₁] of capital.Figure 17.1

What is the main difference between common and preferred stocks?

A)Common stocks pay interest whereas preferred stocks pay dividends.
B)Preferred stocks carry voting rights whereas common stocks do not carry voting rights.
C)Preferred stocks pay a guaranteed dividend, while common stocks may or may not pay dividends.
D)In case of bankruptcy, preferred stockholders have a right to the company's asset, whereas common stockholders do not have such rights.
E)Common stocks can be converted into preferred stocks while preferred stocks cannot be converted into common stocks.

Answer 1

Preferred stocks pay a guaranteed dividend, while common stocks may or may not pay dividends.

Question 2

The figure given below shows the demand curves [D₁ and D₂] and the supply curve [S₁] of capital.Figure 17.1

In Figure 17.1, if the initial demand curve is D₁, the equilibrium quantity of capital demanded is:

A)Q₁.
B)Q₃.
C)0.
D)Q₄.
E)Q₂.

Answer 2

Q₂.

Question 3

The figure given below shows the demand curves [D₁ and D₂] and the supply curve [S₁] of capital.Figure 17.1

Stocks that offer a guaranteed fixed periodic payment or dividend are known as:

A)common stock.
B)restricted stock.
C)close-ended stock.
D)preferred stock.
E)open-ended stock.

Answer 3

preferred stock.

Question 4

The following figures show the demand (D) and supply (S) curves of micro and macro economists.Figure 16.6

​Which of the following will shift the demand curve for capital leftward?

A)​Introduction of supercomputers in the resource market
B)​A fall in the market interest rates
C)​An increase in the price of capital
D)​Business expectations of increased regulations
E)​A rise in the equilibrium wage of labor

Question 5

The figure given below shows the demand curves [D₁ and D₂] and the supply curve [S₁] of capital.Figure 17.1

Dividend yield is:

A)the annual dividend payment per share.
B)the annual dividend per share divided by the price of each share.
C)the current stock price divided by the dividend per share.
D)the year-on-year change in the annual dividend payment.
E)the dollar value change in the stock price from the previous day's closing price.

Question 6

The figure given below shows the demand curves [D₁ and D₂] and the supply curve [S₁] of capital.Figure 17.1

In Figure 17.1, if the demand curve for capital shifts to D₂, the equilibrium price and quantity of capital are:

A)P₁ and Q₁.
B)P₂ and Q₂.
C)P₅ and Q₁.
D)P₃ and Q₃.
E)P₄ and Q₄.

Question 7

The following figures show the demand (D) and supply (S) curves of micro and macro economists.Figure 16.6

When the rate of interest rises, the resulting change in the demand for capital is shown graphically by:

A)a movement down along the demand curve.
B)a rightward shift of the demand curve.
C)a leftward shift of the demand curve.
D)a movement up along the demand curve.
E)an outward rotation of the demand curve.

Question 8

The figure given below shows the demand curves [D₁ and D₂] and the supply curve [S₁] of capital.Figure 17.1

In Figure 17.1, if the initial demand curve is D₁, the equilibrium price of capital is:

A)P₂.
B)P₄.
C)P₁.
D)P₅.
E)P₃.

Question 9

The figure given below shows the demand curves [D₁ and D₂] and the supply curve [S₁] of capital.Figure 17.1

The largest stock exchange in the world is:

A)the Munich Stock Exchange.
B)the London Stock Exchange.
C)the New York Stock Exchange.
D)the Tokyo Stock Exchange.
E)the Shanghai Stock Exchange.

Question 10

The following figures show the demand (D) and supply (S) curves of micro and macro economists.Figure 16.6

The demand curve for capital:

A)shows the positive relation between capital usage and the quantity of capital demanded.
B)shows the positive relation between aggregate output and the quantity of capital demanded.
C)shows the negative relation between rate of inflation and the quantity of capital demanded.
D)shows the positive relation between technological change and the quantity of capital demanded.
E)shows the negative relation between price of capital and the quantity of capital demanded.

Question 11

The figure given below shows the demand curves [D₁ and D₂] and the supply curve [S₁] of capital.Figure 17.1

In Figure 17.1, if the initial demand curve is D₁, the capital market is in equilibrium at:

A) point a.
B) point b.
C) point c.
D) point d.
E) point f.

Question 12

The following figures show the demand (D) and supply (S) curves of micro and macro economists.Figure 16.6

When a new generation of computers, which are faster and more powerful than the previous generation, is introduced into the resource market:

A)many firms do not change their demand for capital.
B)many firms increase their demand for capital.
C)many firms decrease their demand for capital.
D)the quantity demanded of capital declines.
E)the quantity demanded of capital increases.

Question 13

The following figures show the demand (D) and supply (S) curves of micro and macro economists.Figure 16.6

If the price of capital falls, _____.

A)the supply of capital increases
B)the quantity supplied of capital decreases
C)the quantity supplied of capital increases
D)the quantity supplied of capital remains unchanged
E)the supply of capital decreases

Question 14

The figure given below shows the demand curves [D₁ and D₂] and the supply curve [S₁] of capital.Figure 17.1

​Which of the following is true of American Depository Receipts (ADRs)?

A)ADRs cannot be sold "over the counter."
B)​Each ADR is backed by a specific number of the issuer's local shares.
C)​An ADR is a stock that trades in foreign countries but represents a specified number of shares in a U.S. corporation.
D)​For foreign companies, ADRs are an easy way to purchase raw material from U.S. producers.
E)​ADRs are issued or sponsored in the United States by the federal government.

Question 15

The following figures show the demand (D) and supply (S) curves of micro and macro economists.Figure 16.6

All of the following will shift the demand curve for capital, except:

A)future expectations about the demand for the good produced by a firm.
B)technological changes.
C)the price of capital.
D)the entry of new firms into the market.
E)the change in the interest rate.

Question 16

The figure given below shows the demand curves [D₁ and D₂] and the supply curve [S₁] of capital.Figure 17.1

The unique alphabetic name that identifies a listed stock is known as the:

A)stock's nickname.
B)stock's alpha sign.
C)ticker symbol.
D)alternative name.
E)fixed call number.

Question 17

The figure given below shows the demand curves [D₁ and D₂] and the supply curve [S₁] of capital.Figure 17.1

In Figure 17.1, if the price set in the market is P₃ when the demand curve is D₁, then:

A)the market will be in equilibrium.
B)there will be an excess demand for capital of the amount Q₄ - Q₁.
C)there will be a shortage of capital in the market by the amount Q₄ - Q₂.
D)there will be a surplus of capital in the market by the amount Q₃ - Q₁.
E)there will be a surplus of capital in the market by the amount Q₃ - Q₂.

Question 18

The following figures show the demand (D) and supply (S) curves of micro and macro economists.Figure 16.6

A firm decides to hire more equipment if:

A)the average revenue it earns by selling its output is equal to its average cost.
B)its total revenue is greater than the total cost of hiring the equipment.
C)the marginal revenue product of the additional unit of equipment is greater than the marginal factor cost.
D)its average revenue is greater than the average cost of hiring equipment.
E)the price of its product is greater than the average cost of production.

Question 19

The figure given below shows the demand curves [D₁ and D₂] and the supply curve [S₁] of capital.Figure 17.1

If the P/E ratio is equal to 50, it implies that investors in the stock are willing to pay:

A)$25 for every $2 of the earnings that the company generates during a period.
B)$100 for every $1 of the earnings that the company generates during a period.
C)$500 for every $1 of the earnings that the company generates during a period.
D)$50 for every $1 of the earnings that the company generates during a period.
E)$5 for every $1 of the earnings that the company generates during a period.

Question 20

The figure given below shows the demand curves [D₁ and D₂] and the supply curve [S₁] of capital.Figure 17.1

The financial capital of a firm includes the:

A)​service provided by its accountants.
B)​credit cards provided to its top executives.
C)equity and ​bonds issued by it.
D)loans accepted from ​banks.
E)​computers purchased for its office staff.

Question 21

The figure given below shows the demand curves [D₁ and D₂] and the supply curve [S₁] of capital.Figure 17.1

​If you invest $2,500 in a mutual fund with a 5 percent front-end load, _____.

A)​$50 will be used to pay for the sales charge and $2,000 will be invested in the fund
B)​there will be no sales charge and the entire $2,500 will be invested in the fund
C)​the fees for the fund manager will be paid only after a period of 20 years
D)​​$125 will be paid to the fund manager and $2,375 will be invested in the fund
E)a fixed amount of $250 will be paid to the fund manager every year

Question 22

The figure given below shows the demand curves [D₁ and D₂] and the supply curve [S₁] of capital.Figure 17.1

Compute the actual investment in a mutual fund carrying a front-end load of 10 percent on a sum of $10,000 invested by an individual.

A)$1,000
B)$10,000
C)$11,000
D)$9,000
E)$12,000

Question 23

The figure given below shows the demand curves [D₁ and D₂] and the supply curve [S₁] of capital.Figure 17.1

A stock index measures the:

A)change in dividend payments of a group of stocks.
B)fluctuation in the price-to-earnings ratio of each share.
C)change in the trading volume in the stock exchange.
D)price movements of a group of stocks.
E)change in the number of enlisted companies.

Question 24

The figure given below shows the demand curves [D₁ and D₂] and the supply curve [S₁] of capital.Figure 17.1

Consider a mutual fund with a 6 percent back-end load that decreases to 0 percent in the seventh year. How much of the load will an investor have to bear if she sells it off in the seventh year?

A)1 percent of the load
B)0 percent of the load
C)2 percent of the load
D)6 percent of the load
E)4 percent of the load

Question 25

The figure given below shows the demand curves [D₁ and D₂] and the supply curve [S₁] of capital.Figure 17.1

The fees paid to a mutual fund manager is called:

A)fund fee.
B)service fee.
C)load.
D)dividend.
E)agency fee.

Question 26

The figure given below shows the demand curves [D₁ and D₂] and the supply curve [S₁] of capital.Figure 17.1

​If a company's market cap is $5,000,000 and the value of all stocks in the index is $100,000,000, then that company has a weight of _____ of the index.

A)​1 percent
B)​20 percent
C)​5 percent
D)​0.5 percent
E)​2 percent

Question 27

The figure given below shows the demand curves [D₁ and D₂] and the supply curve [S₁] of capital.Figure 17.1

The acronym NAVPS in the mutual fund table denotes:

A)the percentage change in the asset value of the mutual fund from the close of the previous day's trading.
B)the highest and lowest values that the mutual fund has experienced over the last one year.
C)the highest asset value at which the fund was sold during the past week.
D)the percentage change in the asset value of the mutual fund from the previous week.
E)the value of the mutual fund divided by the number of shares of the fund.

Question 28

The figure given below shows the demand curves [D₁ and D₂] and the supply curve [S₁] of capital.Figure 17.1

Consider a mutual fund with a 6 percent back-end load that decreases to 0 percent in the seventh year. How much of the load will an investor have to bear if she sells it off in the second year?

A)4 percent of the load
B)3 percent of the load
C)6 percent of the load
D)5 percent of the load
E)2 percent of the load

Question 29

The figure given below shows the demand curves [D₁ and D₂] and the supply curve [S₁] of capital.Figure 17.1

Mutual funds that invest only in companies that meet certain criteria and usually exclude companies that produce tobacco, weapons, or alcoholic beverages are known as:

A)socially responsible funds.
B)global funds.
C)equity funds.
D)fixed-income funds.
E)money market funds.

Question 30

The figure given below shows the demand curves [D₁ and D₂] and the supply curve [S₁] of capital.Figure 17.1

Mutual funds that attempt to mimic the performance of a broad market index, such as the Dow Jones Industrial Average, are known as:

A)socially responsible funds.
B)index funds.
C)equity funds.
D)fixed-income funds.
E)money market funds.

Question 31

The figure given below shows the demand curves [D₁ and D₂] and the supply curve [S₁] of capital.Figure 17.1

The product of the stock price and the total outstanding shares of that stock is referred to as:

A)market capitalization.
B)floating capital.
C)book value.
D)financial value.
E)face value.

Question 32

The figure given below shows the demand curves [D₁ and D₂] and the supply curve [S₁] of capital.Figure 17.1

Which of the following indexes includes the stocks of 500 companies that are widely owned and that represent all sectors of the U.S. economy?

A)Standard & Poor's 500
B)Dow Jones Industrial Average
C)BSE Sensex
D)Mid-Cap-50
E)NSE 20 Share Index

Question 33

The figure given below shows the demand curves [D₁ and D₂] and the supply curve [S₁] of capital.Figure 17.1

Most stock indexes use which of the following measures to weight the companies that participate in the index?

A)The company's sales volume
B)The company's book value
C)The current profits
D)The available cash
E)The market capitalization

Question 34

The figure given below shows the demand curves [D₁ and D₂] and the supply curve [S₁] of capital.Figure 17.1

A mutual fund for which a fee is paid at the time of purchase is a:

A)no-load fund.
B)face-end load fund.
C)back-end load fund.
D)fixed-end fund.
E)front-end load fund.

Question 35

The figure given below shows the demand curves [D₁ and D₂] and the supply curve [S₁] of capital.Figure 17.1

Mutual funds that are composed of corporate and government bonds are known as:

A)risk-adjusted funds.
B)global funds.
C)equity funds.
D)fixed-income funds.
E)money market funds.

Question 36

The figure given below shows the demand curves [D₁ and D₂] and the supply curve [S₁] of capital.Figure 17.1

Which of the following measures the performance of smaller stocks in the United States?

A)S&P 500
B)NASDAQ Composite
C)Wilshire 5000
D)Russell 2000
E)Goldman Sachs Indices

Question 37

The figure given below shows the demand curves [D₁ and D₂] and the supply curve [S₁] of capital.Figure 17.1

The possible returns to a shareholder are:

A)rent and wages.
B)fixed interest and dividend.
C)fixed interest and a depreciation in the price of the stock.
D)rent and fixed interest.
E)dividend and an appreciation in the price of the stock.

Question 38

The figure given below shows the demand curves [D₁ and D₂] and the supply curve [S₁] of capital.Figure 17.1

Which of the following is true of the NASDAQ Composite Index?

A)It includes the stocks of 500 companies that are widely owned by U.S. citizens.
B)It represents all major areas of the U.S. economy.
C)It mostly includes the stocks of technology and Internet-related companies.
D)It contains more than 6,500 stocks that are traded in the United States.
E)It includes all the stocks which are on the New York Stock Exchange.

Question 39

The figure given below shows the demand curves [D₁ and D₂] and the supply curve [S₁] of capital.Figure 17.1

If people expect the price of a stock to rise in future, the demand curve for the stock:

A)becomes positively sloped.
B)shifts to the right.
C)becomes horizontal.
D)becomes vertical.
E)shifts to the left.

Question 40

The figure given below shows the demand curves [D₁ and D₂] and the supply curve [S₁] of capital.Figure 17.1

A group of stocks of individual firms that are placed into one investment pool by an investment company is commonly known as a:

A)pooled stock venue.
B)stock clump.
C)stock agreement.
D)mutual fund.
E)maximal diversified investment (MDI).

Question 41

The figure given below shows the demand [D and D'] and supply [S and S'] curves of shares of stock.Figure 17.2

Buying a newly issued bond implies:

A)borrowing money from a private bank.
B)taking over the ownership of the issuing firm.
C)lending money to the issuing firm.
D)paying the price for a service rendered by the issuing firm.
E)borrowing funds from international organizations.

Question 42

The figure given below shows the demand curves [D₁ and D₂] and the supply curve [S₁] of capital.Figure 17.1

A pervasive tradeoff in financial markets relates risk to expected returns. Which of the following statements reflects this relationship?

A)The higher the risk of an asset, the lower the expected return on the asset.
B)There is usually no relationship between risk and return.
C)The higher the risk of an asset, the higher the expected return on the asset.
D)The return on an asset is normally positively related to the risk of comparable assets.
E)The return on a risky asset cannot be compared with the return on a risk free asset.

Question 43

The figure given below shows the demand curves [D₁ and D₂] and the supply curve [S₁] of capital.Figure 17.1

If the earnings report of a firm indicates higher earnings than was expected by the investors:

A)the stock prices of the firm will decline.
B)the price of the product produced by this firm will decline.
C)the price of the product produced by this firm will rise.
D)the firm will spend more on advertising.
E)the stock prices of this firm will increase.

Question 44

The figure given below shows the demand [D and D'] and supply [S and S'] curves of shares of stock.Figure 17.2

The maturity date of a bond is:

A)the date on which the lender receives the coupon from the borrower.
B)the date on which the borrower takes the loan.
C)the date on which the bond is bought by an individual from the firm.
D)the specified time at which the borrower repays the loan.
E)the specified time at which the borrower sells the bond held by him to someone else.

Question 45

The figure given below shows the demand curves [D₁ and D₂] and the supply curve [S₁] of capital.Figure 17.1

An investment that has the same features, such as risk and ease of selling, as the investment being considered by buyers and sellers is referred to as a(n):

A)equivalent investment.
B)comparable investment.
C)twin investment.
D)dual investment.
E)duplication investment.

Question 46

The figure given below shows the demand [D and D'] and supply [S and S'] curves of shares of stock.Figure 17.2

According to Figure 17.2, what will be a necessary result of a simultaneous increase in the supply of stocks from S to S' and decrease in the demand from D to D'?

A)A decrease in the price of the shares
B)An increase in the price of the shares
C)An increase in the amount of shares offered for sale
D)An increase in the volatility of the share
E)A decrease in the profits earned by the firms

Question 47

The figure given below shows the demand [D and D'] and supply [S and S'] curves of shares of stock.Figure 17.2

The face value of a bond is:

A)the amount of the coupon that is paid at equal intervals.
B)the amount repaid to the lender on maturity.
C)the percentage of company profits that is paid to the borrower.
D)equivalent to the capital gain.
E)equivalent to economic profit.

Question 48

The figure given below shows the demand [D and D'] and supply [S and S'] curves of shares of stock.Figure 17.2

A bubble or panic generally occurs in the stock market because of:

A)upswings in the business cycle.
B)expansionary monetary policies undertaken by the government.
C)irrational, or abnormal forecasts, or market valuations.
D)an increase in the profitability of the firms.
E)deliberate government actions to control inflation.

Question 49

The figure given below shows the demand curves [D₁ and D₂] and the supply curve [S₁] of capital.Figure 17.1

The financial amount that a risk averse person requires to take on risk is called:

A)risk arbitrage.
B)risk bonus.
C)risk premium.
D)risk capital.
E)risk rate.

Question 50

The figure given below shows the demand [D and D'] and supply [S and S'] curves of shares of stock.Figure 17.2

The fixed amount that the issuer of a bond agrees to pay the bondholder each year until the bond matures is called:

A)rent.
B)coupon.
C)interest.
D)load.
E)dividend.

Question 51

The figure given below shows the demand curves [D₁ and D₂] and the supply curve [S₁] of capital.Figure 17.1

Which of the following factors affects the quantity demanded of a company's stock?

A)The prices of other companies' stocks
B)The price of the company's stock
C)The returns on other possible investments
D)Expectations regarding stock price movements
E)Income of the investors

Question 52

The figure given below shows the demand [D and D'] and supply [S and S'] curves of shares of stock.Figure 17.2

Why is it unlikely for even a very successful investor to continuously outperform the market?

A)Different investors have different risk appetites.
B)Individual investors have independent strategies.
C)The stock market is not subject to sufficient government regulations.
D)Investors often mimic the strategies of the successful investor.
E)The market is always inefficient.

Question 53

The figure given below shows the demand [D and D'] and supply [S and S'] curves of shares of stock.Figure 17.2

The price of the Amazon.com stock was very high in the 1990s although the company never earned an economic profit. This demonstrates that:

A)investors' expectations of future profits alone influence the stock prices.
B)the performance of a firm has no bearing on stock prices.
C)stock markets are highly inefficient because investors vary in their risk appetites.
D)speculation based on wishful thinking by investors have a bearing on the stock prices.
E)investor expectations are generally rational.

Question 54

The figure given below shows the demand curves [D₁ and D₂] and the supply curve [S₁] of capital.Figure 17.1

Shane holds wealth worth $10,000. He considers investing it equally in two gambles one of which has a probability of 0.6 to yield a return of 10% and the other has a probability of 0.4 to yield a return of 20%. What will be Shane's total expected return from the two gambles?

A)$1,000
B)$700
C)$500
D)$900
E)$1,100

Question 55

The figure given below shows the demand [D and D'] and supply [S and S'] curves of shares of stock.Figure 17.2

Which of the following is sometimes used as a synonym to describe a bond?

A)Stock
B)Fixed-income security
C)Capital asset
D)Retained earning
E)Depreciation

Question 56

The figure given below shows the demand [D and D'] and supply [S and S'] curves of shares of stock.Figure 17.2

A bond with a par value of $1,000 is traded at $1,500. The coupon rate offered on the bond is 10 percent.The bond matures after a period of 5 years . The coupon paid to the bond holder after the end of the first year is:

A)$150.
B)$100.
C)$200.
D)$50.
E)$250

Question 57

The figure given below shows the demand curves [D₁ and D₂] and the supply curve [S₁] of capital.Figure 17.1

The price of stock is determined by:

A)the demand for the good produced by the firm.
B)the number of shares of a firm's stock that is available.
C)the performance of the stock market.
D)the performance of the Federal Reserve.
E)the demand for and supply of a company's shares.

Question 58

The figure given below shows the demand [D and D'] and supply [S and S'] curves of shares of stock.Figure 17.2

According to Figure 17.2, what sort of change in the market environment would increase the supply of stocks from S to S' and decrease the demand from D to D'?

A)A perceived increase in the firms' expected future profits
B)A new perception that the economy is about to enter a period of expansion
C)News revealing that stocks prices will increase in the future
D)News that the economy is likely go into a recession soon
E)A perceived improvement in the firms' performance compared to the previous year

Question 59

The figure given below shows the demand curves [D₁ and D₂] and the supply curve [S₁] of capital.Figure 17.1

If the current shareholders begin to believe that the prices of the stocks are likely to rise in the future, the supply curve of shares will:

A)shift to the right.
B)become perfectly elastic.
C)slope downward.
D)shift to the left.
E)become perfectly inelastic.

Question 60

The figure given below shows the demand curves [D₁ and D₂] and the supply curve [S₁] of capital.Figure 17.1

Risk is typically measured:

A)by comparing the size of a firm to other firms operating in the market.
B)by looking at the economic profit that a firm has earned in the past few years.
C)by determining whether the bonds issued by a firm are of high or low value.
D)by comparing how much the stock price fluctuates compared with an average firm.
E)by comparing how much the price of the bond falls whenever the price of a firm's product rises.

Question 61

The figure given below shows the demand [D and D'] and supply [S and S'] curves of shares of stock.Figure 17.2

Which of the following factors led to the housing bubble in the U.S. in 2006?

A)Increased amount of lending to subprime borrowers
B)Decreased money supply by Federal Reserve
C)Future expectation about downward movement of prices of the houses
D)Federal Reserve raised the market rate of interest
E)Increase in the supply of houses

Question 62

The figure given below shows the demand [D and D'] and supply [S and S'] curves of shares of stock.Figure 17.2

If $30 is paid for a share of stock and the earning per share is $3, how long will it take for the firm's earnings to add up to the purchase price?

A)30 years
B)3 years
C)27 years
D)10 years
E)90 years

Question 63

The figure given below shows the demand [D and D'] and supply [S and S'] curves of shares of stock.Figure 17.2

If the coupon-rate of a particular bond increases:

A)the supply of the bond increases.
B)the price of the bond declines.
C)the demand for the bond declines.
D)the supply of the bond decreases.
E)the demand for the bond increases.

Question 64

The figure given below shows the demand [D and D'] and supply [S and S'] curves of shares of stock.Figure 17.2

Which of the following describes the relationship between bond prices and bond yields?

A)There is a positive relationship between the yield and the price.
B)Every 1% increase in the bond price results in a 2% increase in the yield.
C)When the bond price is greater than the annual interest, yield is greater than one.
D)Bond price divided by the bid price is equal to the yield.
E)There is an inverse relationship between the yield and the price.

Question 65

The figure given below shows the demand [D and D'] and supply [S and S'] curves of shares of stock.Figure 17.2

Why are bonds less risky than stocks?

A)The dividend given on shares is usually less than the coupon-rate on bonds.
B)Bonds can be issued only by the government whereas shares are issued by private firms.
C)Bondholders have a claim on the assets of the firm whereas the shareholders do not.
D)Shareholders are entitled to a share of the company's earnings.
E)The higher the profit of the firm, the greater the share of the bondholders.

Question 66

The figure given below shows the demand [D and D'] and supply [S and S'] curves of shares of stock.Figure 17.2

A bond that provides no interest payments but instead is issued at a value that is lower than its face value is called:

A)a no-interest bond.
B)a load-free bond.
C)a no-load bond.
D)a zero-coupon bond.
E)a coupon bond.

Question 67

The figure given below shows the demand [D and D'] and supply [S and S'] curves of shares of stock.Figure 17.2

Notes are debt securities which have a maturity period of:

A)0-5 years.
B)10-15 years.
C)0-1 year.
D)10-20 years.
E)1-10 years.

Question 68

The figure given below shows the demand [D and D'] and supply [S and S'] curves of shares of stock.Figure 17.2

When the price of a stock rises significantly higher than what can be justified by the dividends the firm can be expected to pay in the future, a(n) _____ is said to have occurred.

A)stock market crash
B)arbitrage
C)stock market bubble
D)bull run
E)short sale

Question 69

The figure given below shows the demand [D and D'] and supply [S and S'] curves of shares of stock.Figure 17.2

Yield on a bond refers to:

A)the coupon-rate of the bond.
B)the money earned by selling a bond.
C)the return from a bond after its maturity.
D)the difference between the face value of a bond and the bond price.
E)the annual return until the bond matures.

Question 70

The figure given below shows the demand [D and D'] and supply [S and S'] curves of shares of stock.Figure 17.2

The quantity of capital demanded changes when one of the nonprice determinants of demand change.

Question 71

The figure given below shows the demand [D and D'] and supply [S and S'] curves of shares of stock.Figure 17.2

Which of the following names is given to the corporate bonds that carry the maximum risk?

A)Risky-time bonds
B)Failure bonds
C)Revelation bonds
D)Blue-chip bonds
E)Junk bonds

Question 72

The figure given below shows the demand [D and D'] and supply [S and S'] curves of shares of stock.Figure 17.2

Which of the following factors leads to a drastic rise in the price of assets?

A)Increased supply of assets
B)Increase in the market rate of interest
C)Reduced demand for money
D)Increased liquidity in the economy
E)Contractionary monetary and fiscal policies being undertaken by the government

Question 73

The figure given below shows the demand [D and D'] and supply [S and S'] curves of shares of stock.Figure 17.2

The Dot-Com bubble in the U.S. occurred due to:​

A)​a rapid fall in the stock prices of manufacturing companies.
B)​a rise in housing prices relative to the rental cost of housing.
C)​a dramatic rise in the shares of stock in the South Sea Company.
D)​an unforeseen rise in the price of tulip bulbs which were the major exports of the U.S at that time.
E)​the exceptionally high price-to-earnings ratios of high-tech companies in the U.S.

Question 74

The figure given below shows the demand [D and D'] and supply [S and S'] curves of shares of stock.Figure 17.2

During a stock market bubble, the price/earnings [P/E] ratio:

A)hits high levels.
B)falls to zero.
C)becomes negative.
D)remains constant.
E)declines to a very low level.

Question 75

The figure given below shows the demand [D and D'] and supply [S and S'] curves of shares of stock.Figure 17.2

If bonds and stocks are considered to be substitute goods, and the investors expect stock prices to drop in the near future, _____.

A)the price of bonds will also decline
B)the supply of bonds will increase
C)the interest rate on bonds will decline
D)the demand for stocks will increase
E)the demand for bonds will decline

Question 76

The figure given below shows the demand [D and D'] and supply [S and S'] curves of shares of stock.Figure 17.2

A bond with a par value of $1,000 is traded at $2,000. The interest rate offered on the bond is 10 percent per annum. The bond matures after a period of 5 years. The yield from the bond is:

A)5 percent.
B)10 percent.
C)20 percent.
D)15 percent.
E)2.5 percent.

Question 77

The figure given below shows the demand [D and D'] and supply [S and S'] curves of shares of stock.Figure 17.2

The U.S. government bonds are likely to be less risky because:

A)the government always runs a balanced budget.
B)the government bonds are backed by gold.
C)the government can raise taxes to redeem the bonds at maturity.
D)the government has limited liability to repay.
E)the government always has an excess reserve of foreign exchange.

Question 78

The figure given below shows the demand [D and D'] and supply [S and S'] curves of shares of stock.Figure 17.2

If the par value of a bond is $200, and the bid price of the bond is $90, it implies that:

A)the bond is sold at $110.
B)the bond was bought at $110.
C)the bond is trading at a discount of 10 percent of its par value.
D)the bond is trading at 45 percent of its par value.
E)the bond is trading at a premium of 15 percent.

Question 79

The figure given below shows the demand [D and D'] and supply [S and S'] curves of shares of stock.Figure 17.2

According to the ratings given by Standard and Poor's​, a bond rating of _____ implies that the issuer of bonds is in default.

A)​A
B)​B
C)​C
D)​D
E)​BB

Question 80

The figure given below shows the demand [D and D'] and supply [S and S'] curves of shares of stock.Figure 17.2

According to the ratings given by Moody's and Standard and Poor's, _____ bonds are corporate bonds that carry the lowest risk and offer a lower yield.

A)A+
B)white collar
C)AA
D)blue chip
E)AA+