Quiz on Stock Market

Started on Tuesday, 24 March 2020, 2:04 PM

State Finished
Completed on Tuesday, 24 March 2020, 2:44 PM
Time taken 39 mins 58 secs
Grade 20.00 out of 20.00 (100%)
Question 1
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Stockholders are residual claimants, meaning that they
Select one:
A. have the first priority claim on all of a company's assets.
B. are liable for all of a company's debts.
C. will never share in a company's profits
D. receive the remaining cash flow after all other claims are paid 
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Your answer is correct.
The correct answer is: receive the remaining cash flow after all other claims are paid

Question 2
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In the one-period valuation model, the value of a share of stock today depends upon
Select one:
A.

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the present value of both the dividends and the expected sales price. 

B. only the present value of the future dividends

C. the actual value of the dividends and expected sales price received in one year.
D. the future value of dividends and the actual sales price
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Your answer is correct.
The correct answer is:
the present value of both the dividends and the expected sales price.

Question 3
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Periodic payments of net earnings to shareholders are known as
Select one:
A. capital gains
B. dividends. 
C. profits.
D. interest.
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Your answer is correct.
The correct answer is: dividends.

Question 4
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2
Using the one-period valuation model, assuming a year-end dividend of $0.11, an expected sales
price of $110, and a required rate of return of 10%, the current price of the stock would be
Select one:
A. $110.11.
B. $121.12.
C. $100.10 
D. $100.11
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Your answer is correct.
The correct answer is: $100.10

Question 5
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In the generalized dividend model, a future sales price far in the future does not affect the current
stock price because
Select one:
A. the present value cannot be computed
B. the present value is almost zero. 
C. the sales price does not affect the current price.
D. the stock may never be sold.
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Your answer is correct.
The correct answer is: the present value is almost zero.

Question 6
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 Flag question

Question text
Using the Gordon growth model, a stock's current price will increase if
Select one:
A. the dividend growth rate increases. 
B. the growth rate of dividends falls.
C. the required rate of return on equity rises.
D. the expected sales price rises.
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Your answer is correct.
The correct answer is: the dividend growth rate increases.

Question 7
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Using the Gordon growth formula, if D1 is $2.00, ke is 12% or 0.12, and g is 10% or 0.10, then
the current stock price is
Select one:
A. $20
B. $50
C. $100 
D. $150
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Your answer is correct.
The correct answer is: $100

4
Question 8
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In the Gordon Growth Model, the growth rate is assumed to be ________ the required return on
equity
Select one:
A. greater than
B. equal to
C. less than 
D. proportional to
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The correct answer is: less than

Question 9
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New information that might lead to a decrease in a stock's price might be
Select one:
A. an expected decrease in the level of future dividends. 
B. a decrease in the required rate of return.
C. an expected increase in the dividend growth rate.
D. an expected increase in the future sales price.
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Your answer is correct.

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The correct answer is: an expected decrease in the level of future dividends.

Question 10
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The global financial crisis lead to a decline in stock prices because
Select one:
A. of a lowered expected dividend growth rate. 
B. of a lowered required return on investment in equity.
C. higher expected future stock prices.
D. higher current dividends.
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Your answer is correct.
The correct answer is: of a lowered expected dividend growth rate.

Question 11
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Increased uncertainty resulting from the global financial crisis ________ the required return on
investment in equity.
Select one:
A. raised 
B. lowered
C. has no impact on
D. decreased
Feedback

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Your answer is correct.
The correct answer is: raised

Question 12
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According to the efficient markets hypothesis, the current price of a financial security
Select one:
A. is the discounted net present value of future interest payments.
B. is determined by the lowest successful bidder
C. fully reflects all available relevant information. 
D. is a result of none of the above.
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Your answer is correct.
The correct answer is: fully reflects all available relevant information.

Question 13
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If the optimal forecast of the return on a security exceeds the equilibrium return, then
Select one:
A. the market is inefficient. 
B. no unexploited profit opportunities exist.
C. the market is in equilibrium.
D. the market is myopic.

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Feedback
Your answer is correct.
The correct answer is: the market is inefficient.

Question 14
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Another way to state the efficient markets hypothesis is: in an efficient market
Select one:
A. unexploited profit opportunities will be quickly eliminated 
B. unexploited profit opportunities will never exist.
C. all prices can be accurately predicted.
D. every financial market participant must be well informed about securities.
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Your answer is correct.
The correct answer is: unexploited profit opportunities will be quickly eliminated

Question 15
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 ________ occurs when market participants observe returns on a security that are larger than
what is justified by the characteristics of that security and take action to quickly eliminate the
unexploited profit opportunity.
Select one:
A. Arbitrage 
B. Mediation

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C. Asset capitalization
D. Market intercession
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The correct answer is: Arbitrage

Question 16
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If future changes in stock prices are unpredictable, then we say that the stock prices follow a
Select one:
A. random walk. 
B. straight and narrow path.
C. meandering path.
D. generalized walk.
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The correct answer is: random walk.

Question 17
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In asset markets, an asset's price is
Select one:
A. set equal to the highest price a seller will accept.

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B. set equal to the highest price a buyer is willing to pay.
C. set equal to the lowest price a seller is willing to accept.
D. set by the buyer willing to pay the highest price. 
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Your answer is correct.
The correct answer is: set by the buyer willing to pay the highest price.

Question 18
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You believe that a corporation's dividends will grow 5% on average into the foreseeable future.
If the company's last dividend payment was $5 what should be the current price of the stock
assuming a 12% required return?
$75
Answer: 
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The correct answer is: $75

Question 19
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Using the Gordon growth model, if D1 is $.50, ke is 7%, and g is 5%, then the present value of
the stock is
$25
Answer: 
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The correct answer is: $25

10
Question 20
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Using the one-period valuation model, assuming a year-end dividend of $1.00, an expected sales
price of $100, and a required rate of return of 5%, the current price of the stock would be
$96.19
Answer: 
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The correct answer is: $96.19
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11
Quiz on Commercial Banks
Started on Sunday, 5 April 2020, 11:24 AM
State Finished
Completed on Sunday, 5 April 2020, 11:28 AM
Time taken 3 mins 35 secs
Grade 20 out of 20 (100%)
Question 1
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A bank failure occurs whenever

Select one:
a. a bank suffers a large deposit outflow.
b. a bank cannot satisfy its obligations to pay its depositors and other creditors. 
c. a bank has to call in a large volume of loans.

d. a bank refuses to make new loans.

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The correct answer is: a bank cannot satisfy its obligations to pay its depositors and other
creditors.

Question 2
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Credit risk management tools include

Select one:
a. deductibles.

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b. collateral. 
c. duration analysis.

d. interest rate swaps.

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The correct answer is: collateral.

Question 3
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Banks develop statistical models to calculate their maximum loss over a given time period.
This approach is known as the

Select one:
a. value-at-risk approach. 
b. trading-loss approach.
c. stress-testing approach.

d. doomsday approach.
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The correct answer is: value-at-risk approach.

Question 4
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If a bank has $50 million in rate-sensitive assets and $20 million in rate-sensitive liabilities
then

Select one:

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a. interest rate changes will not impact bank profits.
b. a decrease in interest rates will reduce bank profits. 
c. a decrease in interest rates will increase bank profits.

d. an increase in interest rates will reduce bank profits.

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The correct answer is: a decrease in interest rates will reduce bank profits.

Question 5
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If a bank has $10 million of checkable deposits, a required reserve ratio of 10 percent, and
it holds $2 million in reserves, then it will not have enough reserves to support a deposit
outflow of

Select one:
a. $1.2 million. 
b. $900,000.
c. $1.1 million.

d. $1 million.
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The correct answer is: $1.2 million.

Question 6
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When banks calculate the losses the institution would incur if an unusual combination of
bad events happened, the bank is using the ________ approach.

Select one:
a. maximum value
b. trading-loss
c. stress-test 

d. value-at-risk
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The correct answer is: stress-test

Question 7
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Which of the following statements most accurately describes the task of bank asset
management?

Select one:
a. Banks seek the highest returns possible subject to minimizing risk and making adequate
provisions for liquidity. 
b. Banks seek to acquire funds in the least costly way.
c. Banks seek to have the highest liquidity possible subject to earning a positive rate of
return on their operations.

d. Banks seek to prevent bank failure at all cost; since a failed bank earns no profit,
liquidity needs supersede the desire for profits.
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The correct answer is: Banks seek the highest returns possible subject to minimizing risk
and making adequate provisions for liquidity.

Question 8
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 Flag question

Question text
When $1 million is deposited at a bank, the required reserve ratio is 20 percent, and the
bank chooses not to hold any excess reserves but makes loans instead, then, in the bank's
final balance sheet

Select one:
a. the liabilities of the bank increase by $1,000,000. 
b. the assets at the bank increase by $800,000.
c. reserves increase by $160,000.

d. the liabilities of the bank increase by $800,000.

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The correct answer is: the liabilities of the bank increase by $1,000,000.

Question 9
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When $1 million is deposited at a bank, the required reserve ratio is 20 percent, and the
bank chooses not to make any loans but to hold excess reserves instead, then, in the
bank's final balance sheet

Select one:
a. the liabilities of the bank decrease by $1 million.
b. the assets at the bank increase by $1 million. 
c. liabilities increase by $200,000.

d. reserves increase by $200,000.

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The correct answer is: the assets at the bank increase by $1 million.

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Question 10
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A bank's commitment to provide a firm with loans up to pre-specified limit at an interest
rate that is tied to a market interest rate is called

Select one:
a. pre-credit loan line.
b. loan commitment. 
c. an adjustable gap loan.

d. an adjustable portfolio loan.

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The correct answer is: loan commitment.

Question 11
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If a bank has excess reserves greater than the amount of a deposit outflow, the outflow will
result in equal reductions in

Select one:
a. capital and reserves.
b. deposits and loans.
c. deposits and reserves. 

d. capital and loans.

Feedback

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The correct answer is: deposits and reserves.

Question 12
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Bank capital has both benefits and costs for the bank owners. Higher bank capital ________
the likelihood of bankruptcy, but higher bank capital ________ the return on equity for a
given return on assets.

Select one:
a. increases; reduces
b. reduces; increases
c. reduces; reduces 

d. increases; increases
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The correct answer is: reduces; reduces

Question 13
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Banks face the problem of ________ in loan markets because bad credit risks are the ones
most likely to seek bank loans.

Select one:
a. intentional fraud
b. moral hazard
c. moral suasion

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d. adverse selection 
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The correct answer is: adverse selection

Question 14
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Assuming that the average duration of its assets is four years, while the average duration
of its liabilities is three years, then a 5 percentage point increase in interest rates will cause
the net worth of the banks to ________ by ________ of the total original asset value.

Select one:
a. increase; 20 percent
b. decline; 5 percent 
c. decline; 15 percent

d. decline; 10 percent
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The correct answer is: decline; 5 percent

Question 15
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All of the following are examples of off-balance sheet activities that generate fee income
for banks EXCEPT

Select one:
a. foreign exchange trades.

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b. guaranteeing debt securities.
c. selling negotiable CDs. 

d. back-up lines of credit.

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The correct answer is: selling negotiable CDs.

Question 16
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A bank is insolvent when

Select one:
a. its liabilities exceed its assets. 
b. its assets increase in value.
c. its capital exceeds its liabilities.

d. its assets exceed its liabilities.

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The correct answer is: its liabilities exceed its assets.

Question 17
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All else the same, if a bank's liabilities are more sensitive to interest rate fluctuations than
are its assets, then ________ in interest rates will ________ bank profits.

Select one:

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a. a decline; reduce
b. a decline; not affect
c. an increase; increase

d. an increase; reduce 

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The correct answer is: an increase; reduce

Question 18
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Risk that is related to the uncertainty about interest rate movements is called

Select one:
a. security risk.
b. interest-rate risk. 
c. default risk.

d. the problem of moral hazard.

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The correct answer is: interest-rate risk.

Question 19
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Because borrowers, once they have a loan, are more likely to invest in high-risk investment
projects, banks face the

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Select one:
a. moral hazard problem. 
b. lemon problem.
c. adverse credit risk problem.

d. adverse selection problem.

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The correct answer is: moral hazard problem.

Question 20
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Collateral requirements lessen the consequences of ________ because the collateral reduces
the lender's losses in the case of a loan default and it reduces ________ because the
borrower has more to lose from a default.

Select one:
a. adverse selection; diversification
b. adverse selection; moral hazard 
c. diversification; moral hazard

d. moral hazard; adverse selection

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The correct answer is: adverse selection; moral hazard

Finish review

22
Quiz on Central Bank & Money Supply Process
Started on Tuesday, 14 April 2020, 2:31 PM
State Finished
Completed on Tuesday, 14 April 2020, 3:42 PM
Time taken 1 hour 10 mins
Grade 20.00 out of 20.00 (100%)
Question 1
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Which of the followings is a duty of the Board of Governors of the Federal Reserve System?

Select one:
a. setting margin requirements, the fraction of the purchase price of the securities that has
to be paid for with cash 
b. All governors advise the president of the United States on economic policy.
c. regulating credit with the approval of the president under the Credit Control Act of 1969

d. setting the maximum interest rates payable on certain types of time deposits under
Regulation Q
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The correct answer is: setting margin requirements, the fraction of the purchase price of
the securities that has to be paid for with cash

Question 2
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The monetary base declines when

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Select one:
a. the Fed sells securities. 
b. Treasury deposits at the Fed decrease.
c. float increases.

d. the Fed extends discount loans.

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The correct answer is: the Fed sells securities.

Question 3
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Goal independence is the ability of ________ to set monetary policy ________.

Select one:
a. Congress; instruments
b. the central bank; goals 
c. the central bank; instruments

d. Congress; goals
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The correct answer is: the central bank; goals

Question 4
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Both ________ and ________ are Federal Reserve assets.

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Select one:
a. currency in circulation; reserves 
b. currency in circulation; securities
c. securities; loans to financial institutions

d. securities; reserves
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The correct answer is: securities; loans to financial institutions

Question 5
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Instrument independence is the ability of ________ to set monetary policy ________.

Select one:
a. the central bank; goals
b. Congress; instruments
c. the central bank; instruments 

d. Congress; goals
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The correct answer is: the central bank; instruments

Question 6
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The three players in the money supply process include

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Select one:
a. banks, borrowers, and the central bank.
b. banks, depositors, and the U.S. Treasury.
c. banks, depositors, and the central bank. 

d. banks, depositors, and borrowers.

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The correct answer is: banks, depositors, and the central bank.

Question 7
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Recent research indicates that inflation performance (low inflation) has been found to be
best in countries with

Select one:
a. political control of monetary policy.
b. money financing of budget deficits.
c. the most independent central banks. 

d. a policy of always keeping interest rates low.

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The correct answer is: the most independent central banks.

Question 8
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26
The ratio that relates the change in the money supply to a given change in the monetary
base is called the

Select one:
a. discount rate.
b. deposit ratio.
c. required reserve ratio.

d. money multiplier. 
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The correct answer is: money multiplier.

Question 9
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When the Federal Reserve purchases a government bond from a primary dealer, reserves
in the banking system ________ and the monetary base ________, everything else held
constant.

Select one:
a. increase; increases 
b. increase; decreases
c. decrease; increases

d. decrease; decreases
Feedback
The correct answer is: increase; increases

Question 10
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 Flag question

Question text
The monetary liabilities of the Federal Reserve include

Select one:
a. securities and loans to financial institutions.
b. currency in circulation and loans to financial institutions.
c. securities and reserves.

d. currency in circulation and reserves. 

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The correct answer is: currency in circulation and reserves.

Question 11
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In the simple deposit expansion model, if the Fed extends a $100 discount loan to a bank
that previously had no excess reserves, deposits in the banking system can potentially
increase by

Select one:
a. $100.
b. $100 times the required reserve ratio.
c. $10.

d. $100 times the reciprocal of the required reserve ratio. 

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The correct answer is: $100 times the reciprocal of the required reserve ratio.

Question 12

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Correct
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Suppose your payroll check is directly deposited to your checking account. Everything else
held constant, total reserves in the banking system ________ and the monetary base
________.

Select one:
a. decrease; increases
b. decrease; decreases
c. remain unchanged; increases

d. remain unchanged; remains unchanged 

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The correct answer is: remain unchanged; remains unchanged

Question 13
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Suppose that from a new checkable deposit, First National Bank holds two million dollars in
vault cash, eight million dollars on deposit with the Federal Reserve, and one million dollars
in required reserves. Given this information, we can say First National Bank has ________
million dollars in excess reserves.

Select one:
a. three
b. ten
c. eleven

d. nine 

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Feedback
The correct answer is: nine

Question 14
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The monetary base consists of

Select one:
a. currency in circulation and reserves. 
b. currency in circulation and the U.S. Treasury's monetary liabilities.
c. currency in circulation and Federal Reserve notes.

d. reserves and Federal Reserve Notes.

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The correct answer is: currency in circulation and reserves.

Question 15
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If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable
deposits are $800 billion, and excess reserves total $0.8 billion, then the money supply is
________ billion.

Select one:
a. $1200.8
b. $8000
c. $8400

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d. $1200 
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The correct answer is: $1200

Question 16
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A bank has excess reserves of $1,000 and demand deposit liabilities of $80,000 when the
reserve requirement is 25 percent. If the reserve requirement is lowered to 20 percent, the
bank's excess reserves will be

Select one:
a. $9,000.
b. $8,000.
c. $5,000. 

d. $1,000.
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The correct answer is: $5,000.

Question 17
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Each governor on the Board of Governors can serve

Select one:
a. one full nonrenewable fourteen-year term plus part of another term. 
b. only one nonrenewable eight-year term.

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c. only one nonrenewable fourteen-year term.

d. one full nonrenewable eight-year term plus part of another term.

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The correct answer is: one full nonrenewable fourteen-year term plus part of another term.

Question 18
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Suppose that from a new checkable deposit, First National Bank holds eight million dollars
on deposit with the Federal Reserve, nine million dollars in excess reserves, and faces a
required reserve ratio of ten percent. Given this information, we can say First National
Bank has ________ million dollars in required reserves.

Select one:
a. one 
b. ten
c. nine

d. two
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The correct answer is: one

Question 19
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During the 2007-2009 financial crisis the excess reserve ratio

Select one:

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a. increased sharply. 
b. decreased sharply.
c. decreased slightly.

d. increased slightly.
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The correct answer is: increased sharply.

Question 20
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If a bank has $10 million of checkable deposits, a required reserve ratio of 10 percent, and
it holds $2 million in reserves, then it will not have enough reserves to support a deposit
outflow of

Select one:
a. $1.2 million. 
b. $1 million.
c. $900,000.

d. $1.1 million.
Feedback
The correct answer is: $1.2 million.

Finish review

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