Question 1

Bond A and Bond B are identical except Bond B has a longer term. Therefore, we expect Bond _____ to pay a higher rate of interest.

Accepted Answer

The answer of Bond A and Bond B are identical...

Question 2

Stock in Frozen Dreams, an ice cream manufacturer, has a price to earnings ratio of 24. Is this comparatively high or low? What are two explanations for the size of this company's price to earnings ratio?

Accepted Answer

The answer of Stock in Frozen Dreams, an ice cream...

Question 3

When someone borrows to purchase capital goods, he is using someone else's _____ to fund his _____.

Accepted Answer

The answer of When someone borrows to purchase capital goods,...

Question 4

At some point during the financial crisis of 2008-2009, people with uninsured deposits at financial institutions withdrew money from their accounts at those institutions. This phenomenon characterized which element of the financial crisis?
A)the decline in confidence in financial institutions
B)the credit crunch
C)the economic downturn
D)the decline in asset prices

Accepted Answer

The withdrawal of uninsured deposits indicates a lack of trust in the stability and solvency of financial institutions, reflecting a decline in confidence.

Question 5

The financial system is important because it helps to match one person's _____ with another person's _____.

Accepted Answer

The answer of The financial system is important because it...

Question 6

How do banks make profits?

Accepted Answer

The answer of How do banks make profits?...

Question 7

What does the maturity of a bond indicate?

Accepted Answer

The answer of What does the maturity of a bond...

Question 8

List three characteristics of a bond that would make its interest rate higher than otherwise.

Accepted Answer

The answer of List three characteristics of a bond that...

Question 9

A _____ is a certificate of indebtedness and a _____ is a claim to partial ownership in a firm.

Accepted Answer

The answer of A _____ is a certificate of indebtedness...

Question 10

What is a mutual fund?

Accepted Answer

The answer of What is a mutual fund?...

Question 11

What is the main function of the financial system?

Accepted Answer

The answer of What is the main function of the...

Question 12

The first three elements of a financial crisis are correctly represented as taking place in the following order:
A)large decline in some asset prices → insolvencies at financial institutions → decline in confidence in financial institutions
B)insolvencies at financial institutions → decline in confidence in financial institutions → large decline in some asset prices
C)insolvencies at financial institutions → economic downturn → credit crunch
D)insolvencies at financial institutions → credit crunch → economic downturn

Accepted Answer

A financial crisis typically begins with a large decline in asset prices, leading to insolvencies at financial institutions, which then causes a decline in confidence in these institutions.

Question 13

A restaurant chain announces declining revenues. What's the name of the type of risk that this news raises for holders of this chain's bonds? What does this news to do the interest rate on this chain's bonds?

Accepted Answer

The answer of A restaurant chain announces declining revenues. What's...

Question 14

Bond A and Bond B have identical characteristics except that Bond A has a higher interest rate. Which bond has a higher credit risk?

Accepted Answer

The answer of Bond A and Bond B have identical...

Question 15

_____ and _____ are the two most important financial intermediaries.

Accepted Answer

The answer of _____ and _____ are the two most...

Question 16

The two most important financial markets are the _____ market and the _____ market.

Accepted Answer

The answer of The two most important financial markets are...

Question 17

Bonds issued by state and local governments are called _____ bonds. Bonds issued by financially shaky corporations are called _____ bonds. Of these two, which type of bond usually pays a relatively higher interest rate?

Accepted Answer

The answer of Bonds issued by state and local governments...

Question 18

Concerns about the bankruptcy of an appliance manufacturer diminish after a new CEO is appointed and some of the company's less productive factories are sold. What type of risk for bondholders falls? What happens to the interest rate on this company's bonds?

Accepted Answer

The answer of Concerns about the bankruptcy of an appliance...

Question 19

If federal tax rates increased, what would happen to the interest rate on municipal bonds?

Accepted Answer

The answer of If federal tax rates increased, what would...

Question 20

What is a bond buyer promised when she buys a bond?

Accepted Answer

The answer of What is a bond buyer promised when...

Quiz 26: Saving, Investment, and the Financial System

Bond A and Bond B are identical except Bond B has a longer term. Therefore, we expect Bond _____ to pay a higher rate of interest.

Stock in Frozen Dreams, an ice cream manufacturer, has a price to earnings ratio of 24. Is this comparatively high or low? What are two explanations for the size of this company's price to earnings ratio?

When someone borrows to purchase capital goods, he is using someone else's _ to fund his _.

At some point during the financial crisis of 2008-2009, people with uninsured deposits at financial institutions withdrew money from their accounts at those institutions. This phenomenon characterized which element of the financial crisis?

The financial system is important because it helps to match one person's _ with another person's _.

How do banks make profits?

What does the maturity of a bond indicate?

List three characteristics of a bond that would make its interest rate higher than otherwise.

A _ is a certificate of indebtedness and a _ is a claim to partial ownership in a firm.

What is a mutual fund?

What is the main function of the financial system?

The first three elements of a financial crisis are correctly represented as taking place in the following order:

A restaurant chain announces declining revenues. What's the name of the type of risk that this news raises for holders of this chain's bonds? What does this news to do the interest rate on this chain's bonds?

Bond A and Bond B have identical characteristics except that Bond A has a higher interest rate. Which bond has a higher credit risk?

_ and _ are the two most important financial intermediaries.

The two most important financial markets are the _ market and the _ market.

Bonds issued by state and local governments are called _ bonds. Bonds issued by financially shaky corporations are called _ bonds. Of these two, which type of bond usually pays a relatively higher interest rate?

Concerns about the bankruptcy of an appliance manufacturer diminish after a new CEO is appointed and some of the company's less productive factories are sold. What type of risk for bondholders falls? What happens to the interest rate on this company's bonds?

If federal tax rates increased, what would happen to the interest rate on municipal bonds?

What is a bond buyer promised when she buys a bond?