Finance 3010 Test 1 2006

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Dr. Michello Finance 3010 Test 1 Version B. Part I: All questions in this section are worth 2 points 1. If the Federal Reserve sells $50 billion of short-term U.S. Treasury securities to the public, other things held constant, what will this tend to do to short-term security prices and interest rates? a. Prices and interest rates will both rise. b. Prices will rise and interest rates will decline. c. Prices and interest rates will both decline. d. Prices will decline and interest rates will rise. e. There will be no changes in either prices or interest rates. 2. Which of the following is likely to lead to an increase in the cost of funds? a. Companies’ production opportunities decline, leading to a decline in the demand for funds. b. Households save a larger portion of their income. c. Households increase the amount of money they borrow from their local banks. d. Statements a and b are correct. e. Statements a and c are correct 3. The New York Stock Exchange is primarily a. A secondary market. b. A physical location auction market. c. An over-the-counter market. d. Statements a and b are correct. e. Statements b and c are correct. 4. All else equal, which of the following actions will increase the amount of cash on a company’s balance sheet? a. The company issues new common stock. b. The company repurchases common stock. c. The company pays a dividend. d. The company purchases a new piece of equipment. e. All of the statements above are correct. 5. Which of the following is an example of a capital market instrument? a. Commercial paper. b. Preferred stock. c. U.S. Treasury bills. d. Banker’s acceptances. e. Money market mutual funds27. Money markets are markets for

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