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 initial public offering
B.
An origination
C.
An underwriting
D.
A financial intermediation
Question #2
The nominal rate of interest is comprised of:
A.
the real rate of interest.
B.
compensation for inflation.
C.
a commodity cross-index return.
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.
the cost of money to remain unchanged.
D.
interest rates to increase.
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.
2.8%.
B.
5.3%.
C.
7.8%.
D.
2.7%.
Question #5
Interest rates increase when
A.
the supply and demand for money are equal.
B.
the demand for money increases.
C.
the inflation rate decreases.
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.
companies to trade the financial derivatives such as futures and options.
B.
companies to buy back their own previously issued shares.
C.
companies to sell new securities directly to investors.
D.
investors to sell stocks to other investors.
Question #8
Compared with money market instruments, capital market instruments
A.
are not affected by inflation.
B.
are less marketable.
C.
have lower default risk.
D.
have shorter maturities.
Question #9
Which of the following transactions is a secondary market transaction?
A.
IBM issuing 100,000 shares on the NYSE for the first time
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.
Mary receiving dividends from IBM
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.
Strong-form efficiency.
C.
Weak-form efficiency.
D.
Semistrong-form efficiency.
Question #11
Which of the following is true of an efficient market?
A.
Market prices adjust quickly to new information as it becomes available.
B.
Market prices of securities of companies in the same industry are all same.
C.
Securities have no systematic risk.
D.
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.
Question #12
Which of the following theories states that security prices reflect all information, whether public or private?
A.
Semistrong-form efficiency.
B.
Strong-form efficiency.
C.
Weak-form efficiency.
D.
Nominal-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.
15 percent.
B.
5 percent.
C.
10 percent.
D.
25 percent.
Question #14
The real rate of return can be justified, at a basic level, by:
A.
all of these.
B.
compensation for inflation.
C.
compensation for the level of international borrowing.
D.
compensation for deferring consumption.
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.
6%.
B.
11%.
C.
12%.
D.
5%.
Question #16
If you are a borrower, which would you prefer to occur during the life of your loan?
A.
A level of inflation that is lower than that anticipated at the outset of the loan.
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.
No inflation at all.
Question #17
Which of the following markets has no central trading location?
A.
A futures exchange.
B.
None of these
C.
An auction market.
D.
An over-the-counter market.
Question #18
A highly liquid financial instrument with a maturity of 90 days would be traded in:
A.
the stock market.
B.
none of these
C.
the bond market.
D.
the money market.
Question #19
The term money market is used because:
A.
none of these.
B.
the instruments traded in this market are close substitutes for cash.
C.
it is a market where stocks are converted into money.
D.
firms that issue securities in this market are in dire need of cash.
Question #20
The process of converting financial securities with one set of characteristics into securities with another set of characteristics is called:
A.
financial bundling.
B.
financial intermediation.
C.
financial disintermediation.
D.
none of these
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