When the Federal Reserve lowers the federal funds rate, the quantity of money ____ and the supply of loanable funds ____.

• A.decreases; increases
• B.increases; increases
• C.increases; decreases

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On May 1, 1997 Bluefish Co. bought 100 bonds (face value $1,000 and stated interest 10%) of
Hawkeye Inc., interest payable semiannually on July 1, and January 1. The bond price was 920 excluding accrued interest. Due to short-term nature of the investment Bluefish put this in marketable debt securities section of its current assets. At the end of 1997 the interest revenue from this investment on income statement should be:

• A.No interest revenue, since marketable securities are short-term in nature and only the difference between acquisition price and disposition price is calculated as gain or loss.
• B.$10,000 since it received $5,000 on July as bond interest and another $5,000 would be due tomorrow
  (Jan. 1, 1998).
• C.$6,667.

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A risk-averse investor is most accurately described by which of the following statements? A risk-averse investor will:

• A.choose the lowest risk alternative
• B.choose the lowest risk alternative as long as it has a modest expected return
• C.consider higher risk alternatives only if they offer high enough expected return to compensate for the additional risk

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A firm should cease to do business when:

• A.Price average variable cost
• B.Price marginal cost
• C.Price average total cost

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Which of the following statements is (are) true with respect to the impact that the capitalization of interest will have on certain financial ratios?
I). Interest coverage ratios will increase.
II). Accounting income will increase relative to cash flow.
III). Current ratio will increase.
IV). Asset turnover ratios will increase.

• A.I and II.
• B.II and III only.
• C.I, III and IV.

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