Finance 303 - Financial Management » Fall 2022 » Ch2 Assignment
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Question #1
Which of the following terms relates to the process in whicha firm sells common stock to the public for the very first time?
A.
An underwriting
B.
An origination
C.
An initial public offering
D.
A financial intermediation
Question #2
The nominal rate of interest is comprised of:
A.
the real rate of interest.
B.
a commodity cross-index return.
C.
compensation for inflation.
D.
both the real rate of interest and compensation for inflation.
Question #3
If the supply of loanable funds decreases relative to the demand for those funds, then we would expect:
A.
interest rates to decrease.
B.
interest rates to remain unchanged.
C.
interest rates to increase.
D.
the cost of money to remain unchanged.
Question #4
According to the Fisher equation, if the real rate of interest is 2.5% and the nominal rate of interest is 5.3%, the rate of inflation is forecast to be approximately
A.
5.3%.
B.
7.8%.
C.
2.8%.
D.
2.7%.
Question #5
Interest rates increase when
A.
the inflation rate decreases.
B.
the demand for money increases.
C.
the supply and demand for money are equal.
D.
the supply of money increases.
Question #6
The level of interest rates tends to _____ during periods of economic expansion and _____ during periods of economic contraction.
A.
decline; stay the same
B.
rise; stay the same
C.
rise; decline
D.
decline; rise
Question #7
A primary market is a market for
A.
investors to sell stocks to other investors.
B.
companies to trade the financial derivatives such as futures and options.
C.
companies to buy back their own previously issued shares.
D.
companies to sell new securities directly to investors.
Question #8
Compared with money market instruments, capital market instruments
A.
have lower default risk.
B.
are not affected by inflation.
C.
are less marketable.
D.
have shorter maturities.
Question #9
Which of the following transactions is a secondary market transaction?
A.
Mary receiving dividends from IBM
B.
Johnny Appleseed buying 1,000 shares of Dell through NYSE
C.
MicroChip Computers selling $1,000,000 worth of bonds directly to AIG Corp.
D.
IBM issuing 100,000 shares on the NYSE for the first time
Question #10
Which of the following theories states that security prices reflect all public information, but not all private information?
A.
Nominal-form efficiency.
B.
Weak-form efficiency.
C.
Strong-form efficiency.
D.
Semistrong-form efficiency.
Question #11
Which of the following is true of an efficient market?
A.
Securities have no systematic risk.
B.
Market prices of securities of companies in the same industry are all same.
C.
All information contained in past prices of a security is reflected in its current price but that there is both public and private information that is not.
D.
Market prices adjust quickly to new information as it becomes available.
Question #12
Which of the following theories states that security prices reflect all information, whether public or private?
A.
Strong-form efficiency.
B.
Semistrong-form efficiency.
C.
Nominal-form efficiency.
D.
Weak-form efficiency.
Question #13
If inflation is anticipated to be 5 percent during the next year, while the real rate of interest for a one-year loan is 5 percent, then what should the nominal rate of interest be for a risk-free one-year loan?
A.
10 percent.
B.
5 percent.
C.
15 percent.
D.
25 percent.
Question #14
The real rate of return can be justified, at a basic level, by:
A.
compensation for deferring consumption.
B.
compensation for the level of international borrowing.
C.
compensation for inflation.
D.
all of these.
Question #15
If inflation is anticipated to be 6 percent during the next year, while the real rate of interest for a one-year loan is 5 percent, then what should the nominal rate of interest be for a risk-free one-year loan?
A.
12%.
B.
5%.
C.
11%.
D.
6%.
Question #16
If you are a borrower, which would you prefer to occur during the life of your loan?
A.
No inflation at all.
B.
A level of inflation that is exactly as anticipated at the outset of the loan.
C.
A level of inflation that is higher than that anticipated at the outset of the loan.
D.
A level of inflation that is lower than that anticipated at the outset of the loan.
Question #17
Which of the following markets has no central trading location?
A.
None of these
B.
A futures exchange.
C.
An over-the-counter market.
D.
An auction market.
Question #18
A highly liquid financial instrument with a maturity of 90 days would be traded in:
A.
none of these
B.
the money market.
C.
the bond market.
D.
the stock market.
Question #19
The term money market is used because:
A.
firms that issue securities in this market are in dire need of cash.
B.
the instruments traded in this market are close substitutes for cash.
C.
it is a market where stocks are converted into money.
D.
none of these.
Question #20
The process of converting financial securities with one set of characteristics into securities with another set of characteristics is called:
A.
financial disintermediation.
B.
none of these
C.
financial bundling.
D.
financial intermediation.
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