QUESTION 1 If the market interest rate is greater than a bond's coupon rate, then the price of the bond will be less than its face value a True b False 1 points QUESTION 2 Moral hazard exists when a one has different incentives after a transaction than before the transaction b people have an incentive to hide certain facts when they try to borrow money c we are forced to transact with someone we think is not honest d there is a positive probability that something can go wrong 1 points QUESTION 3 Suppose a new customer opens a checking account and a savings account in a commercial bank, placing $100,000 in each Later, the bank loans the customer $100,000 For this bank, a assets increased by $200,000 and liabilities increased by $100,000 b liabilities increased by $200,000 since the checking account and the savings account are liabilities while it generated no new assets c assets increased by $100,000 because the loan is an asset and liabilities increased by $200,000 because both the checking deposit and the savings deposit are liabilities to the bank d assets increased by $100,000 because the loan is an asset and liabilities increased by $100,000 because the checking deposit is a liability The savings deposit is neither an asset nor a liability 1 points QUESTION 4 You have won a $1 million prize in the lottery, but for bureaucratic rasons, you can't claim the $1 million winnings for two years If the market interest rate is 12 , what is the present value of your lottery windfall a $1,254,400 b $760,000 c $1,240,000 d $797,194 1 points QUESTION 5 If a pension fund owns stock in a corporation, the stock would be listed as an asset on its balance sheet a True b False 1 points QUESTION 6 The process by which funds are channeled from savers to investors is known as a Financial creation b Financial intermediation c Financial expedition d Financial expropriation 1 points QUESTION 7 Suppose a firm wanted to go out of business The firm sells all its assets and pays off everything it owes to creditors The stockholders would receive a the rest of the money, after everyone who has a claim against the firm is paid b nothing c one half of the money the other half of the money goes to bondholders d their annual dividend payment 1 points QUESTION 8 Which of the following formulas expresses the true relationship between savings and investment a I (T G) NX S b I G NX S c S T NX I d S (T G) NX I 1 points QUESTION 9 If a sports star signs a contract for 50 million dollars to be paid at 10 million dollars a year over five years, the contract does not cost the team owner $50 million dollars in today's dollars since a $10 million five years from now is worth less than $10 million today Less than $50 million can be invested in today's dollars and compound into $50 million over 5 years The present value of $50 million over 5 years is less than $50 million today All of the above 1 points QUESTION 10 In which of the following ways can a corporation raise new funds for investment a I only b II only c both I and II d neither I nor II e issuing new shares of stock II having existing stock resold between two owners 1 points QUESTION 11 If a bond's coupon rate is 5 and the bondholder receives a $500 interest payment annually, the face value of the bond must be a $10,000 b $25 c $1,000 d $100,000 1 points QUESTION 12 Under what circumstances would a person would prefer a promise of $100,000 now over a promise of $500,000 in ten years (Calculate the future value of the $100,000 at the different interest rates and compare that number to $500,000 Alternatively, you could calculate the present value of the $500,000 and compare it to $100,000 ) a the interest was 5 b the interest rate was 8 c the interest rate was 10 d the interest rate was 20 1 points QUESTION 13 All of the following are examples of financial intermediaries except a insurance companies b credit unions c stock exchanges d retirement funds 1 points QUESTION 14 A difference between a share of stock in a corporation and a corporate bond is that a the share of stock is a legal claim while the bond is not b the bond owner has voting rights within the corporation whereas the stockholder does not c the bond owner is entitled to receive a fixed annual coupon payment plus a lump sum payment at the bond's maturity date, whereas the stockholder is entitled to a share of future profits d stocks are issued in return for funds that are lent to the corporation 1 points QUESTION 15 Suppose that you decide to buy 100 shares of Pepsi stock (not a new issue), and you call a stock broker and ask her to make the transaction for you You will be purchasing the stock in the market known as a the primary market b the insider market c the secondary market d the collateral market 1 points QUESTION 16 The person most likely to receive a payment from a corporation in a year of losses is the a bondholder b investment banker c stockholder d cashier 1 points QUESTION 17 Imagine that an entrepreneur has raised $10 million to pursue a business opportunity $5 million was raised in debt financing with 8 fixed annual interest, and $5 million was raised in equity financing (The entrepreneur is paid a salary but has no equity stake ) After one year, the entrepreneur shuts down the venture, having earned $13 million How much did the equity holders make a $6 5 million b $7 6 million c $5 million d $6 96 million 1 points QUESTION 18 On a bank's balance sheet, are listed as assets, while are listed as liabilities a loans and T bills checking and savings accounts b checking and savings accounts loans and T bills c loans and checking accounts T bills and savings accounts d deposits loans 1 points QUESTION 19 A bond is defined by its a rate of return, face value, and coupon rate b market interest rate, rate of return, and coupon rate c face value, coupon rate, and maturity date d inception date, face value, and maturity date 1 points QUESTION 20 If you buy 100 shares of Exxon stock online, you are trading on the primary market a True b False 1 points QUESTION 21 A firm can obtain funds for investing by a selling stock b selling bonds c reinvesting profits d all of the above 1 points QUESTION 22 Liabilities of financial intermediaries include all of the following except a home mortgage loans b checking account deposits in a bank c savings account deposits in a bank d none of the above 1 points QUESTION 23 The financial institutions in our banking system are all in the business of transferring funds from savers to investors This process is known as a lobbying b parachuting c money laundering d financial intermediation 1 points QUESTION 24 Which of the following is NOT a role played by financial intermediaries a diversifying risk b lowering transactions costs c printing money d guaranteeing the safety of deposits 1 points QUESTION 25 If there is a bond with a face value of $500 that pays $50 in interest annually, which of the following statements must be true a The rate of return is equal to 10 b The market interest rate must be less than 10 c The market interest rate must be more than 10 d The coupon rate is equal to 10 1 points

Question

QUESTION 1 If the market interest rate is greater than a bond's coupon rate, then the price of the bond will be less than its face value  a True b False 1 points QUESTION 2 Moral hazard exists when a one has different incentives after a transaction than before the transaction  b people have an incentive to hide certain facts when they try to borrow money  c we are forced to transact with someone we think is not honest  d there is a positive probability that something can go wrong  1 points QUESTION 3 Suppose a new customer opens a checking account and a savings account in a commercial bank, placing $100,000 in each  Later, the bank loans the customer $100,000  For this bank, a assets increased by $200,000 and liabilities increased by $100,000  b liabilities increased by $200,000 since the checking account and the savings account are liabilities while it generated no new assets  c assets increased by $100,000 because the loan is an asset and liabilities increased by $200,000 because both the checking deposit and the savings deposit are liabilities to the bank  d assets increased by $100,000 because the loan is an asset and liabilities increased by $100,000 because the checking deposit is a liability  The savings deposit is neither an asset nor a liability  1 points QUESTION 4 You have won a $1 million prize in the lottery, but for bureaucratic rasons, you can't claim the $1 million winnings for two years  If the market interest rate is 12 , what is the present value of your lottery windfall  a $1,254,400 b $760,000 c $1,240,000 d $797,194 1 points QUESTION 5 If a pension fund owns stock in a corporation, the stock would be listed as an asset on its balance sheet  a True b False 1 points QUESTION 6 The process by which funds are channeled from savers to investors is known as a Financial creation  b Financial intermediation  c Financial expedition  d Financial expropriation  1 points QUESTION 7 Suppose a firm wanted to go out of business  The firm sells all its assets and pays off everything it owes to creditors  The stockholders would receive a the rest of the money, after everyone who has a claim against the firm is paid  b nothing  c one half of the money  the other half of the money goes to bondholders  d their annual dividend payment  1 points QUESTION 8 Which of the following formulas expresses the true relationship between savings and investment  a I (T G) NX   S b I G NX S c S T NX I d S (T G) NX I 1 points QUESTION 9 If a sports star signs a contract for 50 million dollars to be paid at 10 million dollars a year over five years, the contract does not cost the team owner $50 million dollars in today's dollars since  a $10 million five years from now is worth less than $10 million today Less than $50 million can be invested in today's dollars and compound into $50 million over 5 years The present value of $50 million over 5 years is less than $50 million today All of the above  1 points QUESTION 10 In which of the following ways can a corporation raise new funds for investment  a I only b II only c both I and II d neither I nor II e issuing new shares of stock II  having existing stock resold between two owners 1 points QUESTION 11 If a bond's coupon rate is 5  and the bondholder receives a $500 interest payment annually, the face value of the bond must be           a $10,000 b $25 c $1,000 d $100,000 1 points QUESTION 12 Under what circumstances would a person would prefer a promise of $100,000 now over a promise of $500,000 in ten years  (Calculate the future value of the $100,000 at the different interest rates and compare that number to $500,000  Alternatively, you could calculate the present value of the $500,000 and compare it to $100,000 ) a the interest was 5   b the interest rate was 8   c the interest rate was 10   d the interest rate was 20   1 points QUESTION 13 All of the following are examples of financial intermediaries except a insurance companies  b credit unions  c stock exchanges  d retirement funds  1 points QUESTION 14 A difference between a share of stock in a corporation and a corporate bond is that a the share of stock is a legal claim while the bond is not  b the bond owner has voting rights within the corporation whereas the stockholder does not  c the bond owner is entitled to receive a fixed annual coupon payment plus a lump sum payment at the bond's maturity date, whereas the stockholder is entitled to a share of future profits  d stocks are issued in return for funds that are lent to the corporation  1 points QUESTION 15 Suppose that you decide to buy 100 shares of Pepsi stock (not a new issue), and you call a stock broker and ask her to make the transaction for you  You will be purchasing the stock in the market known as a the primary market  b the insider market  c the secondary market  d the collateral market  1 points QUESTION 16 The person most likely to receive a payment from a corporation in a year of losses is the a bondholder  b investment banker c  stockholder  d cashier  1 points QUESTION 17 Imagine that an entrepreneur has raised $10 million to pursue a business opportunity  $5 million was raised in debt financing with 8  fixed annual interest, and $5 million was raised in equity financing  (The entrepreneur is paid a salary but has no equity stake ) After one year, the entrepreneur shuts down the venture, having earned $13 million  How much did the equity holders make  a $6 5 million b $7 6 million c $5 million d $6 96 million 1 points QUESTION 18 On a bank's balance sheet,                are listed as assets, while                are listed as liabilities  a loans and T bills  checking and savings accounts b checking and savings accounts  loans and T bills c loans and checking accounts  T bills and savings accounts d deposits  loans 1 points QUESTION 19 A bond is defined by its a rate of return, face value, and coupon rate  b market interest rate, rate of return, and coupon rate  c face value, coupon rate, and maturity date  d inception date, face value, and maturity date  1 points QUESTION 20 If you buy 100 shares of Exxon stock online, you are trading on the primary market  a True b False 1 points QUESTION 21 A firm can obtain funds for investing by a selling stock  b selling bonds  c reinvesting profits  d all of the above  1 points QUESTION 22 Liabilities of financial intermediaries include all of the following except a home mortgage loans  b checking account deposits in a bank  c savings account deposits in a bank  d none of the above  1 points QUESTION 23 The financial institutions in our banking system are all in the business of transferring funds from savers to investors  This process is known as a lobbying  b parachuting  c money laundering  d financial intermediation  1 points QUESTION 24 Which of the following is NOT a role played by financial intermediaries  a diversifying risk b lowering transactions costs c printing money d guaranteeing the safety of deposits 1 points QUESTION 25 If there is a bond with a face value of $500 that pays $50 in interest annually, which of the following statements must be true  a The rate of return is equal to 10   b The market interest rate must be less than 10   c The market interest rate must be more than 10   d The coupon rate is equal to 10   1 points

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QUESTION 1 If the market interest rate is greater than a bond's coupon rate, then the price of the bond will be less than its

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