FIN 353 Quiz 3, Version A
1. Assuming a person cannot identify the quality of the used cars offered for sale. They know the low quality car
should cost $10,000 and the high quality should cost $16,000. What is the price they will offer and the end result?
A. $16,000, only good quality cars are sold.
B. $10,000, only bad quality cars are sold.
C. $13,000, only good quality cars are sold.
D. $13,000 only bad quality cars are sold.
2. An investment bank buys a 2 year Treasury bond for $1,000. They strip out the coupon payments and principal
and sell it to investors. Assuming a coupon rate of 10% and a discount rate of 8%, what is the market value of the
3. The principal-agent problem is
A. when agents have more information about their activities than do the principals.
B. an adverse selection problem.
C. a moral hazard problem.
D. A and B.
E. A and C.
4. Which problem does venture capital firms help prevent.
A. adverse selection.
B. principal-agent problem.
C. moral hazard.
D. B and C.
E. All of the above.
5. Most financial crises in the United States have ended with
A. a steep stock market decline.
C. government fiscal imbalances.
D. A and B.
6. When $1 million is deposited at a bank, the required reserve ratio is 10 percent, and the bank chooses not to
hold any excess reserves but makes loans instead, then, in the bank's final balance sheet?
A. the liabilities of the bank increase by $900,000.
B. the loans of the bank increase by $900,000
C. reserves increase by $200,000
D. All of the above.