41.A person's house is part of her(1 im)

money

wealth

liabilities

income

42.Bonds issued by state and local governments are called ________ bonds(1 im)

Treasury

corporate

commercial

municipal

43.Debt contracts(1 im)

are used less frequently to raise capital than are equity contracts

are agreements by the borrowers to pay the lenders fixed dollar amounts at periodic intervals

never result in a loss for the lender

have a higher cost of state verification than equity contracts.

44.The view that expectations change relatively slowly over time in response to new information is known in economics as(1 im)

slow-response expectations

irrational expectations

rational expectations

adaptive expectations

45.A clause in a debt contract requiring that the borrower purchase insurance against loss of the asset financed with the loan is called a(1 im)

collateral-insurance clause

proscription covenant.

restrictive covenant

prescription covenant

46.There is ________ for any bond whose time to maturity matches the holding period.(1 im)

no interest-rate risk

a large interest-rate risk

rate-of-return risk

yield-to-maturity risk

47.Which of the following are TRUE for a coupon bond?(1 im)

The price of a coupon bond and the yield to maturity are positively related

The yield to maturity is greater than the coupon rate when the bond price is above the par value.

When the coupon bond is priced at its face value, the yield to maturity equals the coupon rate

The yield is less than the coupon rate when the bond price is below the par value.

48.In the Gordon growth model, a decrease in the required rate of return on equity(1 im)

increases the future stock price

increases the current stock price

reduces the future stock price.

reduces the current stock price

49.Which of the following securities has the lowest interest rate?(1 im)

junk bonds

investment-grade bonds

corporate Baa bonds

U.S. Treasury bonds

50.If a forecast is made using all available information, then economists say that the expectation formation is(1 im)

adaptive

rational

reasonable

irrational

51.Of the four factors that influence asset demand, which factor will cause the demand for all assets to increase when it increases, everything else held constant?(1 im)

expected returns

liquidity

wealth

risk

52.The stock market is(1 im)

where foreign exchange rates are determined

interest rates are determined

the market where most borrowers get their funds

the most widely followed financial market in the United States

53.An increase in an asset's expected return relative to that of an alternative asset, holding everything else constant, ________ the quantity demanded of the asset.(1 im)

decreases

erases

has no effect on

increases

54.The ________ interest rate more accurately reflects the true cost of borrowing.(1 im)

real

discount

market

nominal

55.The decline in stock prices from 2000 through 2002(1 im)

increased individuals' willingness to spend

had no effect on individual spending

reduced individuals' willingness to spend

increased individual wealth.

56.To an economist, ________ is anything that is generally accepted in payment for goods and services or in the repayment of debt.(1 im)

credit

money

income

wealth

57.The demand for houses decreases, all else equal, when(1 im)

real estate prices are expected to increase

stock prices become more volatile

gold prices are expected to increase

wealth increases

58.Recent financial innovation makes the Federal Reserve's job of conducting monetary policy(1 im)

easier, since the Fed now knows what to consider money

more difficult, since the Fed now knows what to consider money

more difficult, since the Fed no longer knows what to consider money

easier, since the Fed no longer knows what to consider money.

59.Money ________ transaction costs, allowing people to specialize in what they do best.(1 im)

enhances

increases

eliminates

reduces

60.Of the four effects on interest rates from an increase in the money supply, the initial effect is, generally, the(1 im)

expected inflation effect

price level effect

income effect

liquidity effect

61.If a corporation begins to suffer large losses, then the default risk on the corporate bond will(1 im)

decrease and the bond's return will become less uncertain, meaning the expected return on the corporate bond will rise

increase and the bond's return will become less uncertain, meaning the expected return on the corporate bond will fall

decrease and the bond's return will become less uncertain, meaning the expected return on the corporate bond will fall.

increase and the bond's return will become more uncertain, meaning the expected return on the corporate bond will fall

62.The evolution of the payments system from barter to precious metals, then to fiat money, then to checks can best be understood as a consequence of the fact that(1 im)

paper money is less accepted than checks

paper is more costly to produce than precious metals

precious metals were difficult to carry and transport

precious metals were not generally acceptable

63.To claim that a lottery winner who is to receive $1 million per year for twenty years has won $20 million ignores the process of(1 im)

face value

par value

deflation

discounting the future

64.The concept of ________ is based on the common-sense notion that a dollar paid to you in the future is less valuable to you than a dollar today.(1 im)

deflation

present value

interest

future value

65.The presence of ________ in financial markets leads to adverse selection and moral hazard problems that interfere with the efficient functioning of financial markets.(1 im)

free-riding

asymmetric information

noncollateralized risk

costly state verification

66.Although the dominance of ________ over ________ is clear in all countries, the relative importance of bond versus stock markets differs widely.(1 im)

government agencies; securities markets

financial intermediaries; securities markets

government agencies; financial intermediaries

financial intermediaries; government agencies

67.The risk premium on corporate bonds reflects the fact that corporate bonds have a higher default risk and are ________ U.S. Treasury bonds.(1 im)

tax-exempt unlike

less liquid than

lower-yielding than

less speculative than

68.Of the four sources of external funding for nonfinancial businesses, the least often used in the U.S. is(1 im)

nonbank loans

stock

bank loans

bonds

69.Moral hazard in equity contracts is known as the ________ problem because the manager of the firm has fewer incentives to maximize profits than the stockholders might ideally prefer(1 im)

principal-agent

adverse selection

free-rider

debt deflation

70.If peanuts serve as a medium of exchange, a unit of account, and a store of value, then peanuts are(1 im)

reserves

money

loanable funds

bank deposits

71.For a 3-year simple loan of $10,000 at 10 percent, the amount to be repaid is(1 im)

$13,000.

$13,310.

$10,030.

$10,300.

72. 10) Analysis of adverse selection indicates that financial intermediaries, especially banks(1 im)

despite their success in overcoming free-rider problems, nevertheless play a minor role in moving funds to corporations.

provide better-known and larger corporations a higher percentage of their external funds than they do to newer and smaller corporations which rely to a greater extent on the new issues market for funds.

have advantages in overcoming the free-rider problem, helping to explain why indirect finance is a more important source of business finance than is direct finance.

must buy securities from corporations to diversify the risk that results from holding non-tradable loans.

73.The risk that interest payments will not be made, or that the face value of a bond is not repaid when a bond matures is(1 im)

inflation risk

liquidity risk.

default risk

interest rate risk

74.Changes in stock prices(1 im)

do not affect people's wealth and their willingness to spend

occur in regular patterns

affect firms' decisions to sell stock to finance investment spending.

are unimportant to decision makers

75.If there is an excess supply of money(1 im)

individuals sell bonds, causing the interest rate to rise.

individuals sell bonds, causing the interest rate to fall

individuals buy bonds, causing interest rates to rise

individuals buy bonds, causing interest rates to fall

76.The ________ states that the nominal interest rate equals the real interest rate plus the expected rate of inflation.(1 im)

Monetarist equation

Marshall equation

Keynesian equation

Fisher equation

77.The sum of the current yield and the rate of capital gain is called the(1 im)

perpetuity yield

par value

discount yield

rate of return

78.Net worth can perform a similar role to(1 im)

economies of scale

intermediation

collateral

diversification

79.A liquid asset is(1 im)

an asset that can easily and quickly be sold to raise cash.

a share of an ocean resort

difficult to resell

always sold in an over-the-counter market

80.American businesses get their external funds primarily from(1 im)

bank loans

stock issues

loans from nonbank financial intermediaries

bonds and commercial paper issues

81.The theory of rational expectations, when applied to financial markets, is known as(1 im)

monetarism

the theory of impossibility

the efficient markets hypothesis.

the theory of strict liability

82.A disadvantage of ________made from precious metals is that it is very heavy and hard to transport from one place to another.(1 im)

electronic money

commodity money

fiat money

paper money