1、1081Chapter 26Saving, Investment, and the Financial SystemMultiple Choice1. When opening a restaurant you may need to buy ovens, freezers, tables, and cash registers. Economists call these expendituresa. capital investment.b. investment in human capital.c. business consumption expenditures.d. None o
2、f the above is correct.ANS: A PTS: 1 DIF: 1 REF: 26-1TOP: Investment MSC: Interpretive2. When a country saves a larger portion of its GDP, it will havea. more capital and higher productivity.b. more capital and lower productivity.c. less capital and higher productivity.d. less capital and lower prod
3、uctivity.ANS: A PTS: 1 DIF: 1 REF: 26-1TOP: Investment MSC: Definitional3. Institutions in the economy that help to match one persons saving with another persons investment are collectively called thea. Federal Reserve system.b. banking system.c. monetary system.d. financial system.ANS: D PTS: 1 DIF
4、: 1 REF: 26-1TOP: Financial system MSC: Definitional4. Lekeishas income exceeds her expenditures. Lekeisha is aa. saver who demands money from the financial system.b. saver who supplies money to the financial system.c. borrower who demands money from the financial system.d. borrower who supplies mon
5、ey to the financial system.ANS: B PTS: 1 DIF: 2 REF: 26-1TOP: Supply of loanable funds MSC: Definitional5. Which of the following is not correct?a. When a country saves more, it has more capital.b. A supplier of loanable funds borrows money.c. The interest rate adjusts to balance the quantity suppli
6、ed of and the quantity demanded of loanable funds.d. If Mary buys equipment for her factory, Mary is engaging in capital investment.ANS: B PTS: 1 DIF: 1 REF: 26-1TOP: Investment | Capital | Market for loanable fundsMSC: Definitional6. Lucy starts her own psychiatric practice, but her expenditures to
7、 open the practice exceed her income. Lucy is aa. saver who demands money from the financial system.b. saver who supplies money to the financial system.c. borrower who demands money from the financial system.d. borrower who supplies money to the financial system.ANS: C PTS: 1 DIF: 1 REF: 26-1TOP: Su
8、pply of loanable funds MSC: Definitional1082 Chapter 26/Saving, Investment, and the Financial System7. A bond is aa. financial intermediary.b. certificate of indebtedness.c. certificate of partial ownership in an enterprise.d. None of the above is correct.ANS: B PTS: 1 DIF: 1 REF: 26-1TOP: Bonds MSC
9、: Definitional8. Which of the following would be an example of direct finance?a. A saver buys shares in a mutual fund.b. A saver deposits money into a credit union.c. A saver buys a bond a corporation has just issued so it can purchase capital.d. None of the above is correct.ANS: C PTS: 1 DIF: 1 REF
10、: 26-1TOP: Bonds | Direct finance MSC: Interpretive9. A certificate of indebtedness that specifies the obligations of the borrower to the holder is called aa. bond.b. stock.c. mutual fund.d. All of the above are correct.ANS: A PTS: 1 DIF: 1 REF: 26-1TOP: Bonds MSC: Definitional10. If the governments
11、 expenditures exceeded its receipts, it would likelya. lend money to a bank or other financial intermediary.b. borrow money from a bank or other financial intermediary.c. buy bonds directly from the public.d. sell bonds directly to the public.ANS: D PTS: 1 DIF: 2 REF: 26-1TOP: Bonds | Direct finance
12、 MSC: Interpretive11. Megasoft wants to finance the purchase of new equipment for developing security software called Doors, but they have limited internal funds. Megasoft will likely a. demand loanable funds by buying bonds.b. demand loanable funds by selling bonds.c. supply loanable funds by buyin
13、g bonds.d. supply loanable funds by selling bonds.ANS: B PTS: 1 DIF: 2 REF: 26-1TOP: Investment | Market for loanable funds MSC: Interpretive12. Skyline Chili wants to finance the purchase of new equipment for its restaurants, but they have limited internal funds. Skyline will likely a. demand loana
14、ble funds by buying bonds.b. demand loanable funds by selling bonds.c. supply loanable funds by buying bonds.d. supply loanable funds by selling bonds.ANS: B PTS: 1 DIF: 2 REF: 26-1TOP: Investment | Market for loanable funds MSC: Interpretive13. If Proctor and Gamble sells a bond it isa. borrowing d
15、irectly from the public.b. borrowing indirectly from the public.c. lending directly to the public.d. lending indirectly to the public.ANS: A PTS: 1 DIF: 2 REF: 26-1TOP: Bonds | Direct finance MSC: InterpretiveChapter 26/Saving, Investment, and the Financial System 108314. Which of the following is c
16、orrect?a. The maturity of a bond refers to the amount to be paid back.b. The principal of the bond refers to the person selling the bond.c. A bond buyer cannot sell a bond before it matures.d. None of the above is correct.ANS: D PTS: 1 DIF: 1 REF: 26-1TOP: Bonds MSC: Definitional15. Which of the fol
17、lowing is not a nonsensical headline?a. British perpetuities about to mature.b. Disney issues new bonds with term of $1,000 each.c. Government bonds currently pay less interest than corporate bonds.d. Standard and Poors judges new junk bond to have very low credit risk.ANS: C PTS: 1 DIF: 2 REF: 26-1
18、TOP: Bonds MSC: Interpretive16. The length of time until a bond matures is called thea. perpetuity.b. term.c. maturity.d. intermediation.ANS: B PTS: 1 DIF: 1 REF: 26-1TOP: Bonds | Term MSC: Definitional17. A perpetuity is distinguished from other bonds in that ita. pays continuously compounded inter
19、est.b. pays interest only when it matures.c. never matures.d. will be used to purchase another bond when it matures unless the owner specifies otherwise.ANS: C PTS: 1 DIF: 1 REF: 26-1TOP: Perpetuity MSC: Definitional18. Which of the following is correct?a. Some bonds have terms as short as a few mon
20、ths.b. Because they are so risky, junk bonds pay a low rate of interest.c. Corporations buy bonds to raise funds.d. All of the above are correct.ANS: A PTS: 1 DIF: 1 REF: 26-1TOP: Bonds MSC: Interpretive19. Which of the following is not correct?a. If you buy a bond from a corporation, you can sell t
21、he bond to someone else before it matures.b. Date to maturity refers to the scheduling of periodic interest rate payments on a bond.c. A bond is an IOU.d. There are millions of different bonds in the U.S. economy.ANS: B PTS: 1 DIF: 1 REF: 26-1TOP: Bonds MSC: Definitional20. A bond that never matures
22、 is known as a a. perpetuity.b. an intermediary bond.c. an indexed bond.d. a junk bond.ANS: A PTS: 1 DIF: 1 REF: 26-1TOP: Perpetuity MSC: Definitional1084 Chapter 26/Saving, Investment, and the Financial System21. Which of the following is correct?a. Lenders sell bonds and borrowers buy them.b. Long
23、-term bonds usually pay a lower interest rate than do short-term bonds because long-term bonds are riskier.c. Junk bonds refer to bonds that have been resold many times.d. None of the above is correct.ANS: D PTS: 1 DIF: 1 REF: 26-1TOP: Bonds MSC: Definitional22. Long-term bonds are generallya. less
24、risky than short-term bonds and so pay higher interest.b. less risky than short-term bonds and so pay lower interest.c. more risky than short-term bonds and so pay higher interest.d. more risky than short-term bonds and so pay lower interest.ANS: C PTS: 1 DIF: 1 REF: 26-1TOP: Bonds and risk MSC: Def
25、initional23. Compared to long-term bonds, other things the same, short-term bonds generally havea. more risk and so pay higher interest.b. less risk and so pay lower interest.c. less risk and so pay higher interest.d. about the same risk and so pay about the same interest.ANS: B PTS: 1 DIF: 1 REF: 2
26、6-1TOP: Bonds and risk MSC: Definitional24. On which bond is default most likely?a. a junk bondb. a municipal bondc. a U.S. government bondd. a corporate bond issued by Proctor and Gamble.ANS: A PTS: 1 DIF: 1 REF: 26-1TOP: Bonds and risk MSC: Definitional25. Assuming that the bonds below have the sa
27、me term and principal and that the state or local government which issues the municipal bond has a good credit rating, which list has bonds ordered from the one that pays the most interest to the one that pays the least interest?a. corporate bond, municipal bond, U.S. government bondb. corporate bon
28、d, U.S. government bond, municipal bondc. municipal bond, U.S. government bond, corporate bondd. U.S. government bond, municipal bond, corporate bondANS: B PTS: 1 DIF: 2 REF: 26-1TOP: Bonds and risk MSC: Interpretive26. Other things the same, as the maturity of a bond becomes longer, the bond will p
29、aya. less interest because it has less risk.b. less interest because it has more risk.c. more interest because it has more riskd. There is no relation between term to maturity and risk.ANS: C PTS: 1 DIF: 2 REF: 26-1TOP: Bonds and risk MSC: InterpretiveChapter 26/Saving, Investment, and the Financial
30、 System 108527. Suppose the city of Cincinnati has a high credit rating.a. The high credit rating and the tax status of municipal bonds should both make the interest rate lower than otherwise.b. The high credit rating and the tax status of municipal bonds should both make the interest rate higher th
31、an otherwise.c. The high credit rating should make the interest rate higher than otherwise. The tax status of municipal bonds should make the interest rate lower than otherwise.d. The high credit rating should make the interest rate lower than otherwise. The tax status of municipal bonds should make
32、 the interest rate higher than otherwise.ANS: A PTS: 1 DIF: 2 REF: 26-1TOP: Interest on bonds MSC: Applicative28. Municipal bonds pay a relatively a. low rate of interest because of their high-default risk and because the interest they pay is subject to federal income tax.b. low rate of interest bec
33、ause of their low-default risk and because the interest they pay is not subject to federal income tax.c. high rate of interest because of their high-default risk and because federal taxes must be paid on the interest they pay.d. high rate of interest because of their low-default risk and because the
34、 interest they pay is not subject to federal income tax.ANS: B PTS: 1 DIF: 2 REF: 26-1TOP: Interest on bonds MSC: Definitional29. Which of the following bond buyers did not buy the bond that best met their objective?a. Mia wanted a bond with a high interest rate and was willing to take a lot of risk
35、. She purchased a junk bond.b. Anna wanted a bond that would let her best avoid federal income taxes. She purchased a municipal bond.c. Bill wanted to purchase a bond that was unlikely to have default. He purchased a bond that Standards and Poors rated a low credit risk.d. Toby held long-term bonds
36、rather than short-term ones to avoid risk.ANS: D PTS: 1 DIF: 1 REF: 26-1TOP: Bonds MSC: Applicative30. Interest on bonds issued by state and local governments with good credit ratingsa. is not subject to federal income tax and so these bonds have a higher interest rate than otherwise comparable bond
37、s issued by the U.S. government.b. is not subject to federal income tax and so these bonds have a lower interest rate than otherwise comparable bonds issued by the U.S. government.c. is subject to federal income tax and so these bonds have a higher interest rate than otherwise comparable bond issued
38、 by the U.S. government.d. is subject to federal income tax and so these bonds have a lower interest rate than otherwise comparable bond issued by the U.S. government.ANS: B PTS: 1 DIF: 2 REF: 26-1TOP: Interest on bonds MSC: Definitional31. Other things the same, bonds are likely to have higher inte
39、rest rates if they have a. tax exemptions and short terms.b. tax exemptions and long terms.c. no tax exemptions and short terms.d. no tax exemptions and long terms.ANS: D PTS: 1 DIF: 1 REF: 26-1TOP: Interest on bonds MSC: Definitional32. Other things the same, which bond would you expect to pay the
40、highest interest rate?a. a bond issued by the U.S. governmentb. a bond issued by IBMc. a bond issued by New York Stated. a bond issued by a new restaurant chainANS: D PTS: 1 DIF: 1 REF: 26-1TOP: Interest on bonds MSC: Applicative1086 Chapter 26/Saving, Investment, and the Financial System33. Other t
41、hings the same, which bond would you expect to pay the lowest interest rate?a. a bond issued by a state with a very good credit ratingb. a bond issued by the U.S. governmentc. a bond issued by a fairly new company doing genetic researchd. a bond issued by NabiscoANS: A PTS: 1 DIF: 2 REF: 26-1TOP: In
42、terest on bonds MSC: Applicative34. You are thinking of buying a bond from Knight Corporation. You know that this bond is long term and you know that Knights business ventures are risky and uncertain. You then consider another bond with a shorter term to maturity issued by a company with good prospe
43、cts and an established reputation. Which of the following is correct?a. The longer term would tend to make the interest rate on the bond issued by Knight higher, while the higher risk would tend to make the interest rate lower.b. The longer term would tend to make the interest rate on the bond issue
44、d by Knight lower, while the higher risk would tend to make the interest rate higher.c. Both the longer term and the higher risk would tend to make the interest rate lower on the bond issued by Knight.d. Both the longer term and the higher risk would tend to make the interest rate higher on the bond
45、 issued by Knight.ANS: D PTS: 1 DIF: 2 REF: 26-1TOP: Interest on bonds MSC: Applicative35. Jerry has the choice of two bonds, one that pays 3 percent interest and one that pays 6 percent interest. Which of the following is most likely?a. The 6 percent bond is less risky than the 3 percent bond.b. Th
46、e 6 percent bond is a U.S. government bond, and the 3 percent bond is a junk bond.c. The 6 percent bond has a longer term than the 3 percent bond.d. The 6 percent bond is a municipal bond, and the 3 percent bond is a U.S. government bond.ANS: C PTS: 1 DIF: 2 REF: 26-1TOP: Interest on bonds MSC: Appl
47、icative36. Lacey, a financial advisor has told her clients the following things. Which of her statements is not correct?a. “U.S. government bonds generally have a higher rate of interest than municipal bonds.“b. “The interest received on corporate bonds is taxable.“c. “U.S. government bonds have the
48、 lowest default risk.“d. “If you purchase a bond, you must hold it until it matures.“ANS: D PTS: 1 DIF: 2 REF: 26-1TOP: Bonds MSC: Applicative37. The sale of stocksa. and bonds to raise money is called debt finance.b. and bonds to raise money is called equity finance.c. to raise money is called debt
49、 finance, while the sale of bonds to raise funds is called equity finance.d. to raise money is called equity finance, while the sale of bonds to raise funds is called debt finance.ANS: D PTS: 1 DIF: 1 REF: 26-1TOP: Debt financing | Equity financing MSC: Definitional38. Fred sells newly issued bonds. Ethel sells newly issued stocks. Who uses direct finance?a. Only Fred.b. Only Ethel.c. Both Fred and Ethel.d. Neither Fred nor Ethel.ANS: C PTS: 1 DIF: 1 REF: 26-1TOP: Direct finance | Indirect finance MSC: DefinitionalChapter 26/Saving, Investment, and the Financial System 10873
