ECO 315 - Midterm 1 Review

Question 1 of 32

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A main disadvantage of owning equity rather than bond equity is that the holder is a residual claimant and the firm.

Select one of the following:

  • True
  • False

Question 2 of 32

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The firm must pay all its debt holders before it can pay its equity holders?

Select one of the following:

  • True
  • False

Question 3 of 32

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An advantage to holding is equity is that equity holders benefit directly from any increase in the corporation's profits or asset value.

Select one of the following:

  • True
  • False

Question 4 of 32

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Debit holders do not benefit in any increase in the corporation's profits or asset value because their payments are fixed.

Select one of the following:

  • True
  • False

Question 5 of 32

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A security is a financial instrument that is a claim on the issuer's future income or assets (or any financial claim or piece of property that is subject to ownership)?

Select one of the following:

  • True
  • False

Question 6 of 32

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Bond's account of 32% of all financial business external financing?

Select one of the following:

  • True
  • False

Question 7 of 32

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Stock - A security that is a claim on the earnings and assets of a corporation.

Select one of the following:

  • True
  • False

Question 8 of 32

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A bond is

Select one or more of the following:

  • a debt security that promises to make periodic payments for a specific period of time.

  • When a firm sells a bond, it is effectively borrowing from the public, instead of the bank.

  • is basically an IOU and it stipulates that when the corporation owes the bond's buyer a certain stream of payments til the bond matures - when the bond is paid off.

Question 9 of 32

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When you purchase stock, you're purchasing a partial ownership of the company.

Select one of the following:

  • True
  • False

Question 10 of 32

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Stocks are also called equities.

Select one of the following:

  • True
  • False

Question 11 of 32

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A main advantage of owning equity rather than bond equity is that the holder is a residual claimant.

Select one of the following:

  • True
  • False

Question 12 of 32

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A financial intermediary is

Select one or more of the following:

  • an institution that pools the savings of a LARGE number of households and channels it in the form of a loan to other households and firms

  • an institution that pools the savings of a SMALL number of households and channels it in the form of a loan to other households and firms

Question 13 of 32

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Financial intermediaries channels funds from lenders

Select one or more of the following:

  • = savers or investors

  • = dissavers or spenders

Question 14 of 32

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Financial intermediaries channel funds to borrowers

Select one or more of the following:

  • = dissavers or spenders

  • = savers or investors

Question 15 of 32

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Direct financing:

Select one or more of the following:

  • borrowers borrow directly from lenders through financial markets (debt, equity markets) by selling them securities (bonds, stocks)

  • borrowers borrow indirectly from lenders through financial intermediaries (commercial banks): bank loans

Question 16 of 32

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Indirect financing:

Select one or more of the following:

  • borrowers borrow indirectly from lenders through financial intermediaries (commercial banks): bank loans

  • borrowers borrow directly from lenders through financial markets (debt, equity markets) by selling them securities (bonds, stocks).

Question 17 of 32

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Benefits of well-function financial system

Select one or more of the following:

  • efficient allocation of resources

  • allows for the timing of purchases for what is desired at prferred times - thus improving the economic welfaire

Question 18 of 32

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The rate of return is defined as a payment to the owner plus the change in its value, expressed as a fraction of its purchase.

Select one of the following:

  • True
  • False

Question 19 of 32

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investment banks

Select one of the following:

  • not really banks, help companies raise funds by issuing new securities

  • accept deposits, make loans for a variety of purposes & some also deal in securities markets

Question 20 of 32

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Commercial Banks

Select one of the following:

  • not really banks, help companies raise funds by issuing new securities

  • accepts deposits, makes loans for variety of purposes & some deal in securities markets

Question 21 of 32

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Economic growth

Select one of the following:

  • Increase in real GDP, standards of living and productivity

  • Decrease in real GDP, standards of living and productivity

Question 22 of 32

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Present value

Select one of the following:

  • value of future dollars in terms of today's dollars

  • value of 1 dollar today in terms of dollars @ some future time

Question 23 of 32

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Yield to Maturity = interest rate that equates the PV of future cash flow payments to its price today

Select one of the following:

  • True
  • False

Question 24 of 32

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Because corporations do not actually raise any funds in secondary markets, secondary
markets are less important to the economy than primary markets are.”
Is this statement true, false, or uncertain?

Select one of the following:

  • True
  • False

Question 25 of 32

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Future value (FV)

Select one of the following:

  • value of 1 dollar today in terms of dollars @ some future time

  • value of future dollars in terms of today's dollars

Question 26 of 32

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If you suspect that a company will go bankrupt next year, which would you rather hold,
bonds issued by the company or equities issued by the company? Why?

Select one of the following:

  • Bonds issued by the company

  • Equities issued by the company

Question 27 of 32

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Is everybody worse off when interest rates rise?

Select one of the following:

  • Yes

  • No

Question 28 of 32

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Calculate the present value of a $1,000 discount bond with five years to maturity if the
yield to maturity is 6%

Select one of the following:

  • 757.20

  • 747.10

  • 747.26

Question 29 of 32

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Money market instruments

Select one or more of the following:

  • are short-term securities whose maturity is less than 1 year

  • are securities whose maturity is greater than 1 year

  • undergo lease price fluctuations, and hence, are less risky than long-term instruments in general

Question 30 of 32

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Money Market Instruments (involving short-term securities ) include which of the following:

Select one or more of the following:

  • US Treasury bills (T-bills)

  • Negotiable Certificates of Deposits (CDs)

  • Commercial Papers (CPs)

  • Banker's acceptances

  • Repurchase agreements (Repos)

  • Federal funds (Fed funds) - interbank loans

  • Eurodollars (or Eurocurrencies)

Question 31 of 32

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Capital Market Instruments:

Select one of the following:

  • Instruments whose maturity is GREATER than 1 year

  • Instruments whose maturity is LESSthan 1 year

Question 32 of 32

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Capital Market instruments include:

Select one or more of the following:

  • Stocks

  • Corporate bonds

  • US government securities (T-Notes and T-Bonds)

  • US government agency securities: Ginnie Mae (GNMA), Fannie Mae (FNMA)

  • Mortgages and Mortgage-backed securities (MBS)

  • Bank loans: consumer loans

  • Foreign bonds vs. Eurobonds: international bond markets

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ECO 315 - Midterm 1 Review

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