Question 1

Over-the-Rhine Cheese Corporation had a P/E ratio of 20,retained earnings of $1.70 per share and a dividend of $0.80.What was its dividend yield?

Accepted Answer

A)   1.25%
B)   1.60%
C)   3.33%
D)   7.50%E) A) and D)
F) B) and C)

Question 2

Fran buys 1,000 shares of stock issued by Miller Brewing.In turn,Miller uses the funds to buy new machinery for one of its breweries.

Accepted Answer

A)   Fran and Miller are both investing.
B)   Fran and Miller are both saving.
C)   Fran is investing; Miller is saving.
D)   Fran is saving; Miller is investing.E) B) and D)
F) A) and B)

Question 3

Bay City Mining,Inc.has a price of $20 a share,outstanding shares of 2.5 million,retained earnings of $1 million dollars,and a dividend yield of 2 percent.It has a price-earnings ratio of

Accepted Answer

A)   50,which is high by historical standards.
B)   50,which is low by historical standards.
C)   25,which is high by historical standards.
D)   25,which is low by historical standards.E) All of the above
F) None of the above

Question 4

If the demand for loanable funds shifts to the right,then the equilibrium interest rate

Accepted Answer

A)   and quantity of loanable funds rise.
B)   and quantity of loanable funds fall.
C)   rises and the quantity of loanable funds falls.
D)   falls and the quantity of loanable funds rises.E) B) and C)
F) C) and D)

Question 5

What would happen in the market for loanable funds if the government were to decrease the tax rate on interest income?

Accepted Answer

A)   There would be an increase in the amount of loanable funds borrowed.
B)   There would be a reduction in the amount of loanable funds borrowed.
C)   There would be no change in the amount of loanable funds borrowed.
D)   The change in loanable funds is uncertain.E) A) and B)
F) None of the above

Question 6

By definition,equity finance

Accepted Answer

A)   is accomplished when units of government sell bonds.
B)   is accomplished when firms sell bonds.
C)   is accomplished when firms sell shares of stock.
D)   involves "fair" interest rates or dividend yields.E) C) and D)
F) A) and B)

Question 7

Which of the following is correct?

Accepted Answer

A)   In a closed economy,equilibrium in the market for loanable funds occurs where saving = investment.
B)   Investment is the source for the supply of loanable funds.
C)   If there is a surplus in the market for loanable funds,the interest rate rises.
D)   All of the above are correctE) B) and D)
F) None of the above

Question 8

A low price-earnings ratio indicates that either the stock is

Accepted Answer

A)   undervalued or people are relatively optimistic about the corporation's prospects.
B)   overvalued or people are relatively optimistic about the corporation's prospects.
C)   overvalued or people are relatively pessimistic about the corporation's prospects.
D)   undervalued or people are relatively pessimistic about the corporation's prospects.E) C) and D)
F) None of the above

Question 9

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) A) and B)
F) A) and C)

Question 10

Institutions that help to match one person's saving with another person's investment are collectively called the

Accepted Answer

A)   Federal Reserve system.
B)   banking system.
C)   monetary system.
D)   financial system.E) A) and B)
F) All of the above

Question 11

What would happen in the market for loanable funds if the government were to decrease the tax rate on interest income?

Accepted Answer

A)   The supply of and demand for loanable funds would shift right.
B)   The supply of and demand for loanable funds would shift left.
C)   The supply of loanable funds would shift right and the demand for loanable funds would shift left.
D)   None of the above is correct.E) C) and D)
F) None of the above

Question 12

Kathleen is considering expanding her dress shop.If interest rates rise she is

Accepted Answer

A)   less likely to expand.This illustrates why the supply of loanable funds slopes downward.
B)   more likely to expand.This illustrates why the supply of loanable funds slopes upward.
C)   less likely to expand.This illustrates why the demand for loanable funds slopes downward.
D)   more likely to expand.This illustrates why the demand for loanable funds slopes upward.E) None of the above
F) A) and D)

Question 13

Longview Corporation has a stock price of $50,has issued 2,000,000 shares of stock,has retained earnings of $4 million dollars,and a dividend yield of 4 percent.The price-earnings ratio for Longview stock is

Accepted Answer

A)   25,which is high compared to historical standards of the market.
B)   25,which is low compared to historical standards of the market.
C)   12.5,which is low compared to historical standards of the market.
D)   12.5,which is high compared to historical standards of the market.E) B) and D)
F) A) and B)

Question 14

If Congress instituted an investment tax credit,the interest rate would

Accepted Answer

A)   rise and saving would rise.
B)   fall and saving would fall.
C)   rise and saving would fall.
D)   fall and saving would rise.E) B) and C)
F) B) and D)

Question 15

Ethan purchases a new house for $170,000.Ethan's purchase of the house contributes $170,000 to which magnitude in the identity Y = C + I + G?

Accepted Answer

A)   C
B)   I
C)   G
D)   None of the above are correct.E) A) and B)
F) All of the above

Question 16

The term loanable funds refers to all income that is not used for consumption.

Accepted Answer

A) True 
 B)False

Question 17

Joan uses some of her income to buy mutual fund shares.A macroeconomist refers to Joan's purchase as investment.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following restrictions implies that private saving and investment are equal for a closed economy?

Accepted Answer

A)   Consumption and private saving are equal.
B)   The economy's government is running neither a surplus nor a deficit.
C)   Private saving and public saving are both zero.
D)   No restriction is necessary; private saving and investment are equal for all closed economies.E) B) and C)
F) None of the above

Question 19

Stock in Creole Cuisine Restaurants is selling at $25 per share.Creole Cuisine had earnings of $5 a share and a dividend yield of 5 percent.The dividend is

Accepted Answer

A)   $0.25 and the price-earnings ratio is 5.
B)   $.25 and the price-earnings ratio is 6.7.
C)   $1.25 and the price-earnings ratio is 5.
D)   $1.25 and the price-earnings ratio is 6.7.E) B) and C)
F) A) and B)

Question 20

If the supply of loanable funds shifts to the right,then the equilibrium interest rate

Accepted Answer

A)   and quantity of loanable funds rise.
B)   and quantity of loanable funds fall.
C)   rises and the quantity of loanable funds falls.
D)   falls and the quantity of loanable funds rises.E) A) and D)
F) C) and D)

Exam 18: Saving,investment,and the Financial System

Bay City Mining,Inc.has a price of $20 a share,outstanding shares of 2.5 million,retained earnings of $1 million dollars,and a dividend yield of 2 percent.It has a price-earnings ratio of

Correct AnswerverifiedShow Answer

Which of the following restrictions implies that private saving and investment are equal for a closed economy?

Correct AnswerverifiedShow Answer

The term loanable funds refers to all income that is not used for consumption.

Correct AnswerverifiedShow Answer

By definition,equity finance

Correct AnswerverifiedShow Answer

What would happen in the market for loanable funds if the government were to decrease the tax rate on interest income?

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

Institutions that help to match one person's saving with another person's investment are collectively called the

Correct AnswerverifiedShow Answer

If the supply of loanable funds shifts to the right,then the equilibrium interest rate

Correct AnswerverifiedShow Answer

What would happen in the market for loanable funds if the government were to decrease the tax rate on interest income?

Correct AnswerverifiedShow Answer

Ethan purchases a new house for $170,000.Ethan's purchase of the house contributes $170,000 to which magnitude in the identity Y = C + I + G?

Correct AnswerverifiedShow Answer

Kathleen is considering expanding her dress shop.If interest rates rise she is

Correct AnswerverifiedShow Answer

Fran buys 1,000 shares of stock issued by Miller Brewing.In turn,Miller uses the funds to buy new machinery for one of its breweries.

Correct AnswerverifiedShow Answer

Joan uses some of her income to buy mutual fund shares.A macroeconomist refers to Joan's purchase as investment.

Correct AnswerverifiedShow Answer

If the demand for loanable funds shifts to the right,then the equilibrium interest rate

Correct AnswerverifiedShow Answer

If Congress instituted an investment tax credit,the interest rate would

Correct AnswerverifiedShow Answer

Over-the-Rhine Cheese Corporation had a P/E ratio of 20,retained earnings of $1.70 per share and a dividend of $0.80.What was its dividend yield?

Correct AnswerverifiedShow Answer

Stock in Creole Cuisine Restaurants is selling at $25 per share.Creole Cuisine had earnings of $5 a share and a dividend yield of 5 percent.The dividend is

Correct AnswerverifiedShow Answer

Longview Corporation has a stock price of $50,has issued 2,000,000 shares of stock,has retained earnings of $4 million dollars,and a dividend yield of 4 percent.The price-earnings ratio for Longview stock is

Correct AnswerverifiedShow Answer

A low price-earnings ratio indicates that either the stock is

Correct AnswerverifiedShow Answer

The primary economic function of the financial system is to

Correct AnswerverifiedShow Answer

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