Answers Fall 2014 Midterm
Suppose we are analyzing the market for hot chocolate. Graphically illustrate the impact
each of the following would have on demand or supply. Also show how equilibrium
price and equilibrium quantity would change.
a. Winter st
EFT Video Summaries- Assignment 2a
The first video named 4 EFT (Tapping Intro) by EFT Founder Gary Craig were results of
real people. It represented the possibilities if EFT is skillfully applied. EFT stands for emotional
ECON211 HW 1
All questions are to be completed!
Define economics. Explain briefly how the economic way of thinkingin terms of rational,
self-interested people responding to incentivesrelates to each of the following situations. (5
a. A studen
Econ Chapter 3 Fall 2014
Indicate whether the statement is true or false.
1. In a market economy, government officials make most production decisions in a centralized manner.
2. Consumer sovereignty means that consum
14th October, 2014
A developed country is used to describe countries that have a high level of development
according to some criteria. Some of the economic criteria that define a develo
FUTURES AND SWAPS
F 1. If a speculator enters a futures contract to sell
(make delivery), that individual anticipates selling the
F 2. Entering a futures contracts is not speculative
because commodity prices are stable.
OPTIONS: PUTS AND CALLS
F 1. A call is an option to sell stock at a specified price
within a specified time period.
T 2. A put option is the right to sell stock at a specified
price within a specified time period.
T 3. An option's pr
F 1. A decrease in interest rates decreases the net present
value of an investment.
T 2. A decrease in investors' required rate of return will
increase an investment's net present value.
T 3. A decrease in the cost
F 1. Long-term debt spontaneously changes with the level of
T 2. Accounts payable are illustrative of liabilities that
spontaneously vary with the level of sales.
F 3. The percent of sales method of forecasting ass
BREAK-EVEN ANALYSIS AND THE PAYBACK PERIOD
F 1. Break-even analysis is used to determine the best level of
2. If a firm has no sales, it has no costs.
T 3. The straight-line total revenue function suggests the firm
MANAGEMENT OF SHORT-TERM LIABILITIES
F 1. Since commercial bank loans are cheaper than trade credit,
few firms use trade credit.
F 2. The smaller the trade discount, the more expensive is the
F 3. A change in the trade
INTERMEDIATE-TERM DEBT AND LEASING
T 1. Intermediate term loans acquired by insurance companies
usually are secured by collateral.
F 2. Intermediate term notes sold to the general public are
usually secured by collateral.
3. All te
T 1. A cash budget enumerates receipts and disbursements.
F 2. A cash budget seeks to determine estimated costs and
revenues in order to forecast earnings.
T 3. The bottom line of a cash budget shows the firm's
MANAGEMENT OF CURRENT ASSETS
T 1. Short-term financing is an inappropriate source of
finance to acquire long-term assets.
T 2. The use of short-term instead of long-term debt
financing tends to increase both earnings and risk.
F 3. A
COST OF CAPITAL
F 1. A firm will prefer to issue preferred stock rather than debt
because the dividend is tax-deductible.
T 2. The lower the firm's tax rate, the larger is the incentive
to use preferred stock instead of bonds.
BOND PRICING AND YIELDS
F 1. If interest rates fall, the prices of existing bonds
F 2. Bonds only sell for a discount when the firm is having
F 3. The current yield considers not only the interest pai
T 1. Preferred stock dividends are paid after interest but
before dividends to common stock.
T 2. Preferred stock dividends are not a tax deductible
expense for the firm.
T 3. Arrearage means that a cumulative preferr
1. A mutual fund has a fixed number of shares.
2. Mutual funds do not pay income taxes.
T 3. The shares of closed-end investment companies are
bought and sold in secondary markets like the NYSE.
F 4. The shar
THE FEATURES OF LONG-TERM DEBT - BONDS
T 1. The document stating the terms of a bond is the
2. The highest credit rating is triple A.
T 3. Equipment trust certificates issued by a firm should
be safer than its debentures
F 1. A convertible bond may be converted at the firm's
option into common stock.
2. Generally, convertible bonds lack a call provision.
T 3. A convertible bond's value fluctuates with the price
of the stock in
THE FEATURES OF STOCK
T 1. The owners of a corporation elect the board of
F 2. Cumulative voting concentrates voting power in the
hands of a majority of corporate voters.
T 3. Pre-emptive rights mean that current stockhold
T 1. The value of stock depends in part on future dividends
and investors' required return.
T 2. The return on an investment in stock depends on both
dividends and capital gains.
F 3. The dividend-growth model may be
ANALYSIS OF FINANCIAL STATEMENTS
T 1. Retained earnings are part of the stockholders' equity
in a corporation.
F 2. If a firm sells inventory at cost for cash, its total
3. Additional paid-in capital is a current asset.
RISK AND ITS MEASUREMENT
1. There is no risk in a world of certainty.
2. Realized returns frequently differ from expected returns.
3. The standard deviation measures an asset's expected return.
T 4. The larger the standard devia
THE TIME VALUE OF MONEY
T 1. Even if the interest rate is only 1%, a lump sum of
$1,000 today is preferred to $100 a year for 10 years.
T 2. Compounding refers to the earning of interest on
T 3. Discounting refers to the pro
THE FEDERAL RESERVE
F 1. The power to create money is given by the Constitution to
the Federal Reserve.
F 1. When commercial banks grant loans to the public, their
total reserves are reduced.
T 2. When corporations retire (pay off) lo