Question 1

How can a proprietorship or partnership raise funds for expansion?

Accepted Answer

A)  borrow from someone or an institution willing to lend the funds 
B)  reinvest profit back into the business 
C)  take on a partner or more partners 
D)  Any of these would generate funds for expansion. 
A)  borrow from someone or an institution willing to lend the funds 
B)  reinvest profit back into the business 
C)  take on a partner or more partners 
D)  Any of these would generate funds for expansion. D

Question 2

In 2002, the Enron corporation was accused of falsifying information regarding liabilities on Enron's balance sheets, thereby

Accepted Answer

A)  increasing Enron's assets on the balance sheet. 
B)  reducing Enron's profit on the balance sheet. 
C)  increasing Enron's net worth on the balance sheet. 
D)  reducing Enron's net income on the income statement. 
A)  increasing Enron's assets on the balance sheet. 
B)  reducing Enron's profit on the balance sheet. 
C)  increasing Enron's net worth on the balance sheet. 
D)  reducing Enron's net income on the income statement. C

Question 3

If Southwest Airlines borrows $20 million from a bank to finance the renovation of their corporate offices, this is an example of

Accepted Answer

A)  a bond market transaction. 
B)  indirect finance. 
C)  a stock market transaction. 
D)  direct finance. 
A)  a bond market transaction. 
B)  indirect finance. 
C)  a stock market transaction. 
D)  direct finance. B

Question 4

In a corporation, what are "inside directors" and "outside directors"?

Accepted Answer

Inside directors are members of manageme

Question 5

One of the most widely followed stock indexes in the United States is the Dow Jones Industrial Average. This index represents

Accepted Answer

A)  the stock prices of 500 large U.S. firms. 
B)  an over-the-counter market. 
C)  the stock prices of more than 4,000 U.S. firms. 
D)  the stock prices of 30 large U.S. corporations. 
A)  the stock prices of 500 large U.S. firms. 
B)  an over-the-counter market. 
C)  the stock prices of more than 4,000 U.S. firms. 
D)  the stock prices of 30 large U.S. corporations.

Question 6

What role do well functioning financial markets play in a market economy?

Accepted Answer

They allocate saved

Question 7

Corporate managers and shareholders always have the same goals.

Accepted Answer

A) True 
 B)False

Question 8

When an investor buys a corporate bond,

Accepted Answer

A)  the investor becomes part owner of the corporation. 
B)  the principal of the bond is a loan to the corporation. 
C)  the interest made on the bond represents the bondholder's limited liability in the company. 
D)  the face value of the bond is equal to what the investor paid for the bond. 
A)  the investor becomes part owner of the corporation. 
B)  the principal of the bond is a loan to the corporation. 
C)  the interest made on the bond represents the bondholder's limited liability in the company. 
D)  the face value of the bond is equal to what the investor paid for the bond.

Question 9

As a business type, corporations ________ in the United States.

Accepted Answer

A)  earn the majority of revenues 
B)  are the most common 
C)  are the least common 
D)  are subject to the fewest taxes 
A)  earn the majority of revenues 
B)  are the most common 
C)  are the least common 
D)  are subject to the fewest taxes

Question 10

The value you give today to money you will receive in the future is called the future payment's

Accepted Answer

A)  time-sensitive value. 
B)  future value. 
C)  present value. 
D)  historical value. 
A)  time-sensitive value. 
B)  future value. 
C)  present value. 
D)  historical value.

Question 11

Define a corporation.

Accepted Answer

A corporation is a legal form

Question 12

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 13

An increase in liabilities will reduce a firm's net worth.

Accepted Answer

A) True 
 B)False

Question 14

Corporations are legally owned by their shareholders.

Accepted Answer

A) True 
 B)False

Question 15

What is shown on a firm's income statement?

Accepted Answer

A)  costs 
B)  profits 
C)  revenues 
D)  All of these are shown on a firm's income statement. 
A)  costs 
B)  profits 
C)  revenues 
D)  All of these are shown on a firm's income statement.

Question 16

Mortgages issued to borrowers who fail to document that their incomes are high enough to afford their mortgage payments are known as ________ mortgages.

Accepted Answer

A)  subprime 
B)  Alt-A 
C)  gray market 
D)  reciprocal 
A)  subprime 
B)  Alt-A 
C)  gray market 
D)  reciprocal

Question 17

A partnership is ________ type of business.

Accepted Answer

A)  the most common. 
B)  the least common 
C)  the least risky 
D)  the most profitable 
A)  the most common. 
B)  the least common 
C)  the least risky 
D)  the most profitable

Question 18

The present value of $300 received 5 years in the future would be calculated as which of the following when the interest rate is 5%?

Accepted Answer

A)  300/(1.5)5 
B)  300/(1.05)5 
C)  300 × 1.5 × 5 
D)  5.05/300 
A)  300/(1.5)5 
B)  300/(1.05)5 
C)  300 × 1.5 × 5 
D)  5.05/300

Question 19

Why do corporations want to keep the price of their stock high?

Accepted Answer

A)  A higher stock price increases the funds the firm can raise when it sells a given amount of stock. 
B)  Corporations can pay their managers lower salaries and avoid principal-agent problems when stock prices are higher. 
C)  Higher stock prices are correlated with lower expected profitability. 
D)  All of the above provide incentive for corporations to keep the price of their stock high. 
A)  A higher stock price increases the funds the firm can raise when it sells a given amount of stock. 
B)  Corporations can pay their managers lower salaries and avoid principal-agent problems when stock prices are higher. 
C)  Higher stock prices are correlated with lower expected profitability. 
D)  All of the above provide incentive for corporations to keep the price of their stock high.

Question 20

What is the most common type of business?

Accepted Answer

A)  corporation 
B)  partnership 
C)  sole proprietorship 
D)  They are equally represented because of federal laws. 
A)  corporation 
B)  partnership 
C)  sole proprietorship 
D)  They are equally represented because of federal laws.

Exam 8: Firms, the Stock Market, and Corporate Governance

How can a proprietorship or partnership raise funds for expansion?

In 2002, the Enron corporation was accused of falsifying information regarding liabilities on Enron's balance sheets, thereby

If Southwest Airlines borrows $20 million from a bank to finance the renovation of their corporate offices, this is an example of

In a corporation, what are "inside directors" and "outside directors"?

One of the most widely followed stock indexes in the United States is the Dow Jones Industrial Average. This index represents

What role do well functioning financial markets play in a market economy?

Corporate managers and shareholders always have the same goals.

When an investor buys a corporate bond,

As a business type, corporations ________ in the United States.

The value you give today to money you will receive in the future is called the future payment's

Define a corporation.

What is a secondary market?

An increase in liabilities will reduce a firm's net worth.

Corporations are legally owned by their shareholders.

What is shown on a firm's income statement?

Mortgages issued to borrowers who fail to document that their incomes are high enough to afford their mortgage payments are known as ________ mortgages.

A partnership is ________ type of business.

The present value of $300 received 5 years in the future would be calculated as which of the following when the interest rate is 5%?

Why do corporations want to keep the price of their stock high?

What is the most common type of business?

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

Externalities, Environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

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