Chapter Questions
What is the purpose of financial markets?
What does it mean if the Dow Jones Industrial Average rises by, say, 100 points in a day?
What does it mean to buy the market?
What does it mean if someone invests in a mutual fund? In a stock market fund?
If the share price of each of 500 stocks rises on Monday, does everyone in the stock market believe that stocks are headed even higher? (No one will buy a stock if he or she thinks share prices are headed lower.)
Which of the two stocks has a bigger gap between its closing price and net earnings per share: Stock A with a $P / E$ ratio of 15 or Stock B with a $\mathrm{P} / \mathrm{E}$ ratio of 44 ? Explain your answer.
"An issuer of a bond is a borrower." Do you agree or disagree? Explain your answer.
If the face value of a bond is $$\$ 10,900$$ and the annual coupon payment is $$\$ 600$$, what is the coupon rate?
Why might a person purchase an inflation-indexed Treasury bond?
"If you can predict interest rates, then you can earn a fortune buying and selling bonds." Do you agree or disagree? Explain your answer.
Why might a person buy a futures contract?
Why might a person buy a call option?
"The currency speculator who sells futures contracts assumes the risk that someone else doesn't want to assume." Do you agree or disagree? Explain your answer.
If you thought the share price of a stock was going to fall, would you buy a call option or a put option?