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Chapter 32 Please read the following: 1. After carefully reading each question, mark your answers in the appropriate spaces in the on-line testing system at www.agu.edu. 2. Submit any inquiries through "Contact Us" on the webpage, or by contacting Student Services at studentservices@agu.edu MULTIPLE CHOICE: Question 1: An institution that makes savings available to dissavers (e.g. investors) is known as: (a) A financial repository An independent financial association A financial intermediary A stock and bond intermediary Question 2: Which of the following is an example of a financial intermediary? (a) Stock markets Flea markets COG Real estate markets Gun shows Question 3: The function of financial intermediaries is to transfer purchasing power from: (a) Dissavers to consumers (b) Consumers to savers Savers to dissavers (d) Dissavers to savers Question 4: Market participants are likely to save a portion of current income if they: (a) Place a higher value on future consumption than on current consumption (b) Place a higher value on current consumption than on future consumption Believe that banks might fail (d) Believe that money will lose much of its value in the future. In deciding to save rather than spend, people effectively reallocate their spending over time. That is, people save now in order to spend more in the futureQuestion 5: Higher interest rates: (a) Decrease the quantity of loanable funds (b) Decrease the level of risk (0) Increase the quantity of loanable funds ((1) Increase the level of risk Question 6: Risk premiums do all of the following except: (a) Help explain why banks charge different customers different interest rates (b) Allocate limited resources only to the safest investors (c) Are the difference in the rates of return on risky and safe investments (d) Compensate people who nance risky ventures Question 7: All of the following statements about banks in Zimbabwe in 2009 are true except: (a) Political instability increased the risk of bank failures (b) Banks were paying 100,000 percent interest on deposits (c) Few people deposited their money into Zimbabwe banks (d) The risk of losing deposits at Zimbabwe banks, even if they failed, was low because of deposit insurance Question 8: Present discounted value refers to the: (a) Future value of today's dollars (b) Value today of future payments adjusted for ination (0) Value today of future payments adjusted for interest accrual (d) Value today of future payments adjusted for risk Question 9: Higher interest rates: (a) Reect a higher opportunity cost of money (b) Raise the present value of future payments (0) Lower the future value of current dollars ((1) Result in a higher risk premium Question 10: The present discounted value of a future payment will decrease when the: (a) Interest rate increases (b) Future payment is closer to the present (c) Risk of nonpayment increases (d) Opportunity cost of money decreases Question 11: Shares of ownership in a corporation are known as: (a) Corporate stock (b) Corporate bonds (c) Retained earnings (d) Savings bonds Question 12: Dividends are equal to: Capital gains minus retained earnings Corporate profits Corporate profits plus retained earnings Corporate profits minus retained earnings Question 13: Retained earnings are: ) The only motive for purchasing stock Equal to corporate profits Direct increases to shareholder wealth The amount of corporate profit not paid out in dividends Question 14: Capital gains are: The only motive for purchasing stock Profits used for investment in new plants and equipment An increase in the market value of an asset The amount of corporate profit paid out for each share of stock Question 15: The first sale to the general public of stock in a corporation is referred to as: An original public sale An initial public offering A public bond offering A public stock auction Question 16: The P/E ratio, or price to earnings ratio of a stock, can be computed using which of the following formulas? (Revenue per share) : (Price of stock share) (Price of stock share) + (Revenue per share) (Earnings per share) + (Price of stock share) (Price of stock share) + (Earnings per share) Question 17: Ceteris paribus, the price of a stock will definitely increase when the: (a) Supply of the stock increases Prevailing interest rate increases Demand for the stock increases Demand for the stock and supply of the stock both decrease Question 18: A bond is: (a) A share in a corporation (b) A coupon used to collect a dividend An insurance policy investors purchase to protect against the possibility of falling stock prices (d) A certificate acknowledging a debt and the amount of interest to be paid each year until repayment; an IOUQuestion 19: Bonds may be issued by all of the following except: (a) Corporations (b) The federal government (c) Local governments (d) Individuals Question 20: When a corporation issues a bond, it is: (a) Issuing dividends to shareholders (b) Lending money to the owners of the corporation (c) Borrowing funds from the initial buyer of the bond (d) Making an initial public offering Question 21: Par value is the: (a) Face value of a bond; the amount to be repaid when the bond is due (b) Increase in the market value of an asset (c) Rate of return on a share of stock (d) Rate of interest to be paid on a bond Question 22: Default refers to the: (a) Rate of interest to be paid on a bond (b) Amount to be repaid when the bond is due (c) Failure to make scheduled interest or principal payments on a bond (d) Failure of stock to increase in value Question 23: How does a recession impact the nancial markets? (a) It decreases loanable funds (b) It increases loanable funds (c) It decreases risk (d) It increases stock prices Question 24: Which of the following is not true about venture capitalists? (a) They provide nancial support for entrepreneurial ideas (b) They share in the risks and rewards of entrepreneurial ideas (c) They are a critical link between entrepreneurial ideas and market reality (d) They issue shares of the IPO Question 25: In return for their nancial backing, venture capitalists: (a) Are exempt from risk (b) Share in the prots that may result (c) Are guaranteed a return on their investment (d) Are repaid 3 xed amount of interest