Question 1

Economists refer to the conflict between the interests of shareholders and the interests of top management as

Accepted Answer

A)  a stock-equity problem. 
B)  a liability problem. 
C)  a principal-agent problem. 
D)  a financial intermediary problem. 
A)  a stock-equity problem. 
B)  a liability problem. 
C)  a principal-agent problem. 
D)  a financial intermediary problem. C

Question 2

Which type of business has the most government rules and regulations affecting it?

Accepted Answer

A)  sole proprietorship 
B)  partnership 
C)  corporation 
D)  They all have the same set of rules and regulations affecting them. 
A)  sole proprietorship 
B)  partnership 
C)  corporation 
D)  They all have the same set of rules and regulations affecting them. C

Question 3

The volatility of a stock's market price is indicated by

Accepted Answer

A)  the highest stock price and the lowest stock price over the previous year. 
B)  the price of newly issued shares compared to the price of previously issued shares. 
C)  the difference between the stock's selling price and its asking price. 
D)  the stock's price-earnings ratio. 
A)  the highest stock price and the lowest stock price over the previous year. 
B)  the price of newly issued shares compared to the price of previously issued shares. 
C)  the difference between the stock's selling price and its asking price. 
D)  the stock's price-earnings ratio. A

Question 4

Who hires the managers of a corporation?

Accepted Answer

A)  the board of directors 
B)  stockholders 
C)  managers 
D)  employees 
A)  the board of directors 
B)  stockholders 
C)  managers 
D)  employees

Question 5

When an investor buys a corporate bond,the ________ the bond is a loan to the corporation.

Accepted Answer

A)  interest on 
B)  face value of 
C)  coupon payment on 
D)  dividend payment on 
A)  interest on 
B)  face value of 
C)  coupon payment on 
D)  dividend payment on

Question 6

Some corporate governance experts believe that serving on a company's board of directors for an extended length of time diminishes that member's independence from the company's CEO. If this is true,it would tend to

Accepted Answer

A)  reduce the principal-agent problem. 
B)  increase the principal-agent problem. 
C)  be in the best interest of shareholders. 
D)  have no impact on the company's performance, since the CEO is only one member of top management. 
A)  reduce the principal-agent problem. 
B)  increase the principal-agent problem. 
C)  be in the best interest of shareholders. 
D)  have no impact on the company's performance, since the CEO is only one member of top management.

Question 7

Who owns a corporation?

Accepted Answer

A)  the board of directors 
B)  the stockholders 
C)  the employees 
D)  the CEO 
A)  the board of directors 
B)  the stockholders 
C)  the employees 
D)  the CEO

Question 8

When the coupon rate on newly issued bonds increases relative to older,outstanding bonds,what happens?

Accepted Answer

A)  The market price of the older bond falls in the secondary market. 
B)  The market price of the older bond rises in the secondary market. 
C)  Older bonds can still be sold at their face value. 
D)  Older bonds will sell for less than their face value. 
A)  The market price of the older bond falls in the secondary market. 
B)  The market price of the older bond rises in the secondary market. 
C)  Older bonds can still be sold at their face value. 
D)  Older bonds will sell for less than their face value.

Question 9

Which of the following would explain why economic profit might be less than accounting profit?

Accepted Answer

A)  A firm's net income is less than its accounting profit. 
B)  A firm has only explicit costs. 
C)  A firm's net income is greater than its accounting profit. 
D)  A firm has implicit costs as well as explicit costs. 
A)  A firm's net income is less than its accounting profit. 
B)  A firm has only explicit costs. 
C)  A firm's net income is greater than its accounting profit. 
D)  A firm has implicit costs as well as explicit costs.

Question 10

Why is a dollar today more valuable than a dollar a year from now?

Accepted Answer

A)  The dollar today can be immediately used to buy something. 
B)  A dollar a year from now will likely have less purchasing power because of inflation. 
C)  The unknown future is riskier than the known present. 
D)  all of these 
A)  The dollar today can be immediately used to buy something. 
B)  A dollar a year from now will likely have less purchasing power because of inflation. 
C)  The unknown future is riskier than the known present. 
D)  all of these

Question 11

What is the primary difference between a sole proprietorship and a partnership?

Accepted Answer

A)  Proprietorships have unlimited liability while partnerships have limited liability. 
B)  Partnerships can issue stocks and bonds while proprietorships cannot. 
C)  Partnerships have more owners than do proprietorships. 
D)  There is no real difference between the two types of firms. 
A)  Proprietorships have unlimited liability while partnerships have limited liability. 
B)  Partnerships can issue stocks and bonds while proprietorships cannot. 
C)  Partnerships have more owners than do proprietorships. 
D)  There is no real difference between the two types of firms.

Question 12

How can a sole proprietorship raise funds needed for firm expansion?

Accepted Answer

By retaining earning

Question 13

If the personal assets of the owners cannot be claimed if the business is bankrupt,the owners are said to have

Accepted Answer

A)  unlimited liability. 
B)  a proprietorship type of business. 
C)  limited liability. 
D)  a partnership type of business. 
A)  unlimited liability. 
B)  a proprietorship type of business. 
C)  limited liability. 
D)  a partnership type of business.

Question 14

What is a secondary market?

Accepted Answer

A)  a market where factory seconds and damaged merchandise are sold 
B)  a market where newly issued bonds are sold to initial buyers by the borrowing firm 
C)  a market where a newly issued stocks are sold to initial buyers by the borrowing firm 
D)  a market where you can sell any stocks you own as a private investor 
A)  a market where factory seconds and damaged merchandise are sold 
B)  a market where newly issued bonds are sold to initial buyers by the borrowing firm 
C)  a market where a newly issued stocks are sold to initial buyers by the borrowing firm 
D)  a market where you can sell any stocks you own as a private investor

Question 15

If a corporation goes bankrupt,bondholders have ________ on the firm's assets.

Accepted Answer

A)  no claim 
B)  third claim, after the IRS and stockholders, 
C)  second claim, after stockholders, 
D)  first claim 
A)  no claim 
B)  third claim, after the IRS and stockholders, 
C)  second claim, after stockholders, 
D)  first claim

Question 16

Generally with bond ratings,the lower the rating,the ________ the interest rate an investor will receive and the ________ the the risk that the issuer of the bond will default.

Accepted Answer

A)  higher; higher 
B)  higher; lower 
C)  lower; higher 
D)  lower; lower 
A)  higher; higher 
B)  higher; lower 
C)  lower; higher 
D)  lower; lower

Question 17

________ is called an implicit cost,while ________ is called an explicit cost.

Accepted Answer

A)  An accounting cost; an economic cost 
B)  A nonmonetary opportunity cost; a cost that involves spending money 
C)  A production cost; a sales cost 
D)  An actual cost; a hypothetical cost 
A)  An accounting cost; an economic cost 
B)  A nonmonetary opportunity cost; a cost that involves spending money 
C)  A production cost; a sales cost 
D)  An actual cost; a hypothetical cost

Question 18

The minimum amount that investors must earn on the funds they invest in a firm,expressed as a percentage of the amount invested,is referred to as

Accepted Answer

A)  the explicit costs of production. 
B)  net worth. 
C)  net income. 
D)  a normal rate of return. 
A)  the explicit costs of production. 
B)  net worth. 
C)  net income. 
D)  a normal rate of return.

Question 19

What is corporate governance?

Accepted Answer

Corporate governance refers to

Question 20

Who decides who controls a corporation?

Accepted Answer

Stockholders elect a

Economists refer to the conflict between the interests of shareholders and the interests of top management as

Which type of business has the most government rules and regulations affecting it?

The volatility of a stock's market price is indicated by

Who hires the managers of a corporation?

When an investor buys a corporate bond,the ________ the bond is a loan to the corporation.

Some corporate governance experts believe that serving on a company's board of directors for an extended length of time diminishes that member's independence from the company's CEO. If this is true,it would tend to

Who owns a corporation?

When the coupon rate on newly issued bonds increases relative to older,outstanding bonds,what happens?

Which of the following would explain why economic profit might be less than accounting profit?

Why is a dollar today more valuable than a dollar a year from now?

What is the primary difference between a sole proprietorship and a partnership?

How can a sole proprietorship raise funds needed for firm expansion?

If the personal assets of the owners cannot be claimed if the business is bankrupt,the owners are said to have

What is a secondary market?

If a corporation goes bankrupt,bondholders have ________ on the firm's assets.

Generally with bond ratings,the lower the rating,the the interest rate an investor will receive and the the the risk that the issuer of the bond will default.

is called an implicit cost,while is called an explicit cost.

The minimum amount that investors must earn on the funds they invest in a firm,expressed as a percentage of the amount invested,is referred to as

What is corporate governance?

Who decides who controls a corporation?

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, government Price Setting, and Taxes

The Economics of Health Care

Comparative Advantage and the Gains From International Trade

Gdp: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

Filters

Exam 6: Firms, the Stock Market, and Corporate Governance

Economists refer to the conflict between the interests of shareholders and the interests of top management as

Which type of business has the most government rules and regulations affecting it?

The volatility of a stock's market price is indicated by

Who hires the managers of a corporation?

When an investor buys a corporate bond,the ________ the bond is a loan to the corporation.

Some corporate governance experts believe that serving on a company's board of directors for an extended length of time diminishes that member's independence from the company's CEO. If this is true,it would tend to

Who owns a corporation?

When the coupon rate on newly issued bonds increases relative to older,outstanding bonds,what happens?

Which of the following would explain why economic profit might be less than accounting profit?

Why is a dollar today more valuable than a dollar a year from now?

What is the primary difference between a sole proprietorship and a partnership?

How can a sole proprietorship raise funds needed for firm expansion?

If the personal assets of the owners cannot be claimed if the business is bankrupt,the owners are said to have

What is a secondary market?

If a corporation goes bankrupt,bondholders have ________ on the firm's assets.

Generally with bond ratings,the lower the rating,the ________ the interest rate an investor will receive and the ________ the the risk that the issuer of the bond will default.

________ is called an implicit cost,while ________ is called an explicit cost.

The minimum amount that investors must earn on the funds they invest in a firm,expressed as a percentage of the amount invested,is referred to as

What is corporate governance?

Who decides who controls a corporation?

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, government Price Setting, and Taxes

The Economics of Health Care

Comparative Advantage and the Gains From International Trade

Gdp: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

Filters

Generally with bond ratings,the lower the rating,the the interest rate an investor will receive and the the the risk that the issuer of the bond will default.

is called an implicit cost,while is called an explicit cost.