Question 1

Table 26-1
 
-Refer to Table 26-1.In dollar terms,which company paid the highest dividend per share?

Accepted Answer

A)   GenMills
B)   Gillette
C)   Graco
D)   HersheyE) A) and B)
F) A) and C)

Question 2

Which of the following is correct?

Accepted Answer

A)   Joan takes some of her income and buys mutual fund shares.Joan's purchase will be included in the investment category of GDP.
B)   If a share of stock in Virtual Pizza Corporation sells for $77,the earnings per share are $5,and the dividend per share is $2,then the P/E ratio is 11.
C)   In order to use equity finance,a firm must sell about equal values of stocks and bonds.
D)   None of the above is correct.E) A) and B)
F) All of the above

Question 3

Which of the following is not correct?

Accepted Answer

A)   American families save a larger fraction of their incomes than their counterparts in many other countries such as Germany and Japan.
B)   Saving is an important long-run determinant of a nation's standard of living.
C)   A change in tax laws that encouraged greater saving would lower interest rates.
D)   Taxes on interest income can substantially decrease the future value of current saving.E) B) and C)
F) A) and D)

Question 4

Figure 26-3.The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. 1 to S2 is called A)  an increase in the supply of loanable funds. B)  an increase in the quantity of loanable funds supplied. C)  a decrease in the supply of loanable funds. D)  a decrease in the quantity of loanable funds supplied." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 26-3.A shift of the supply curve from S1 to S2 is called

Accepted Answer

A)   an increase in the supply of loanable funds.
B)   an increase in the quantity of loanable funds supplied.
C)   a decrease in the supply of loanable funds.
D)   a decrease in the quantity of loanable funds supplied.E) None of the above
F) B) and D)

Question 5

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

Accepted Answer

A)   creditors of General Electric,so the benefits of holding the stock depend on General Electric's profits.
B)   creditors of General Electric,but the benefits of holding the stock do not depend on General Electric's profits.
C)   part owners of General Electric,so the benefits of holding the stock depend on General Electric's profits.
D)   part owners of General Electric,but the benefits of holding the stock do not depend on General Electric's profits.E) A) and B)
F) B) and D)

Question 6

Which of the following events could explain an increase in interest rates together with an increase in investment?

Accepted Answer

A)   The government runs a larger deficit.
B)   The government institutes an investment tax credit.
C)   The government replaces the income tax with a consumption tax.
D)   None of the above is correct.E) All of the above
F) B) and D)

Question 7

Table 26-2
 
-Refer to Table 26-2.Which company had the highest dollar dividend?

Accepted Answer

A)   Boeing Co.
B)   Eli Lilly and Co.
C)   H.J.Heinz and Co.
D)   Kellog Co.E) B) and D)
F) All of the above

Question 8

At the broadest level,the financial system moves the economy's scarce resources from

Accepted Answer

A)   the rich to the poor.
B)   financial institutions to business firms and government.
C)   households to financial institutions.
D)   savers to borrowers.E) None of the above
F) A) and D)

Question 9

As a money management fee,mutual funds usually charge their customers

Accepted Answer

A)   between 0.5 and 2.0 percent of assets each year.
B)   between 1.5 and 3.0 percent of assets each year.
C)   nothing,because they receive commissions from the firms whose stock they buy.
D)   a flat fee of about $50.E) All of the above
F) B) and C)

Question 10

Index funds

Accepted Answer

A)   buy all the stocks in a given stock index.
B)   promise to beat the market by a certain percentage known as an index.
C)   provide a return that is adjusted for changes in the consumer price index.
D)   buy industries within a particular category of the North American Industry Classification System.E) All of the above
F) A) and B)

Question 11

The fact that borrowers sometimes default on their loans by declaring bankruptcy is directly related to the characteristic of a bond called

Accepted Answer

A)   credit risk.
B)   interest risk.
C)   term risk.
D)   private risk.E) B) and C)
F) A) and C)

Question 12

Other things the same,an increase in the interest rate

Accepted Answer

A)   would shift the demand for loanable funds to the right.
B)   would shift the demand for loanable funds to the left.
C)   would increase the quantity of loanable funds demanded.
D)   would decrease the quantity of loanable funds demanded.E) C) and D)
F) B) and D)

Question 13

All or part of a firm's profits may be paid out to the firm's stockholders in the form of

Accepted Answer

A)   retained earnings.
B)   dividends.
C)   interest payments.
D)   capital accounts.E) B) and D)
F) A) and B)

Question 14

In a small closed economy investment is $20 billion and private saving is $22 billion.What are public saving and national saving?

Accepted Answer

A)   $24 billion and $2 billion
B)   $20 billion and -$2 billion
C)   $2 billion and $24 billion
D)   -$2 billion and $20 billionE) A) and D)
F) None of the above

Question 15

The primary economic function of the financial system is to

Accepted Answer

A)   keep interest rates low.
B)   provide expert advice to savers and investors.
C)   match one person's consumption expenditures with another person's capital expenditures.
D)   match one person's saving with another person's investment.E) All of the above
F) A) and D)

Question 16

Municipal bonds pay a relatively

Accepted Answer

A)   low rate of interest because of their high default risk and because the interest they pay is subject to federal income tax.
B)   low rate of interest because of their low default risk and because the interest they pay is not subject to federal income tax.
C)   high rate of interest because of their high default risk and because federal taxes must be paid on the interest they pay.
D)   high rate of interest because of their low default risk and because the interest they pay is not subject to federal income tax.E) C) and D)
F) A) and B)

Question 17

Other things the same,corporate bonds generally feature higher interest rates than U.S.government bonds.

Accepted Answer

A) True 
 B)False

Question 18

A low P/E for a stock indicates that

Accepted Answer

A)   people may expect earnings to fall in the future,perhaps because the firm will be faced with increased competition.
B)   its dividends have been low so that no one is willing to pay very much for it.
C)   the corporation is possibly overvalued.
D)   All of the above are correct.E) A) and D)
F) All of the above

Question 19

A government may use deficit financing to smooth tax rates over time.

Accepted Answer

A) True 
 B)False

Question 20

In the market for loanable funds,the interaction of the demand for,and supply of,loanable funds determines the equilibrium level of

Accepted Answer

A)   the inflation rate.
B)   gross domestic product.
C)   the real interest rate.
D)   the nominal interest rate.E) A) and B)
F) A) and C)

Exam 26: Saving, investment, and the Financial System

A government may use deficit financing to smooth tax rates over time.

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All or part of a firm's profits may be paid out to the firm's stockholders in the form of

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Figure 26-3.The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. -Refer to Figure 26-3.A shift of the supply curve from S1 to S2 is called

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

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Table 26-2 -Refer to Table 26-2.Which company had the highest dollar dividend?

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A low P/E for a stock indicates that

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Which of the following is not correct?

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At the broadest level,the financial system moves the economy's scarce resources from

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Which of the following events could explain an increase in interest rates together with an increase in investment?

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In a small closed economy investment is $20 billion and private saving is $22 billion.What are public saving and national saving?

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The primary economic function of the financial system is to

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In the market for loanable funds,the interaction of the demand for,and supply of,loanable funds determines the equilibrium level of

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Municipal bonds pay a relatively

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As a money management fee,mutual funds usually charge their customers

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Table 26-1 -Refer to Table 26-1.In dollar terms,which company paid the highest dividend per share?

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Index funds

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Other things the same,an increase in the interest rate

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Which of the following is correct?

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Other things the same,corporate bonds generally feature higher interest rates than U.S.government bonds.

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The fact that borrowers sometimes default on their loans by declaring bankruptcy is directly related to the characteristic of a bond called

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Figure 26-3.The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. -Refer to Figure 26-3.A shift of the supply curve from S₁ to S₂ is called

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