Question 1

Which of the following statements is CORRECT?

Accepted Answer

A)  One disadvantage of operating as a corporation rather than as a partnership is that corporate shareholders are exposed to more personal liability than partners. 
B)  There is no good reason to expect a firm's bondholders and stockholders to react differently to the types of new asset investments a firm makes. 
C)  Bondholders are generally more willing than stockholders to have managers invest in risky projects with high potential returns as opposed to safer projects with lower expected returns. 
D)  Stockholders are generally more willing than bondholders to have managers invest in risky projects with high potential returns as opposed to safer projects with lower expected returns. 
E)  Relative to sole proprietorships, corporations generally face fewer regulations, which makes raising capital easier for corporations. 
A)  One disadvantage of operating as a corporation rather than as a partnership is that corporate shareholders are exposed to more personal liability than partners. 
B)  There is no good reason to expect a firm's bondholders and stockholders to react differently to the types of new asset investments a firm makes. 
C)  Bondholders are generally more willing than stockholders to have managers invest in risky projects with high potential returns as opposed to safer projects with lower expected returns. 
D)  Stockholders are generally more willing than bondholders to have managers invest in risky projects with high potential returns as opposed to safer projects with lower expected returns. 
E)  Relative to sole proprietorships, corporations generally face fewer regulations, which makes raising capital easier for corporations. D

Question 2

Which of the following statements is CORRECT?

Accepted Answer

A)  While the distinctions are blurring, investment banks generally specialize in lending money, whereas commercial banks generally help companies raise capital from other parties. 
B)  A security whose value is derived from the price of some other "underlying" asset is called a liquid security. 
C)  Money market mutual funds usually invest most of their money in a well-diversified portfolio of liquid common stocks. 
D)  Money markets are markets for common stocks and long-term debt. 
E)  The NYSE operates as an auction market, whereas the Nasdaq is a dealer market. 
A)  While the distinctions are blurring, investment banks generally specialize in lending money, whereas commercial banks generally help companies raise capital from other parties. 
B)  A security whose value is derived from the price of some other "underlying" asset is called a liquid security. 
C)  Money market mutual funds usually invest most of their money in a well-diversified portfolio of liquid common stocks. 
D)  Money markets are markets for common stocks and long-term debt. 
E)  The NYSE operates as an auction market, whereas the Nasdaq is a dealer market. E

Question 3

The major advantage of a regular partnership or a corporation as a form of business organization is the fact that both offer their owners limited liability, whereas proprietorships do not.

Accepted Answer

A) True 
 B)False  False

Question 4

Which of the following factors would be most likely to lead to an increase in interest rates in the economy?

Accepted Answer

A)  Households reduce their consumption and increase their savings. 
B)  The Federal Reserve decides to try to stimulate the economy. 
C)  There is a decrease in expected inflation. 
D)  The economy falls into a recession. 
E)  Most businesses decide to modernize and expand their manufacturing capacity, and to install new equipment to reduce labor costs. 
A)  Households reduce their consumption and increase their savings. 
B)  The Federal Reserve decides to try to stimulate the economy. 
C)  There is a decrease in expected inflation. 
D)  The economy falls into a recession. 
E)  Most businesses decide to modernize and expand their manufacturing capacity, and to install new equipment to reduce labor costs.

Question 5

The facts that a proprietorship, as a business, pays no corporate income tax, and that it is easily and inexpensively formed, are two key advantages to that form of business.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following statements is CORRECT?

Accepted Answer

A)  If Apple issues additional shares of common stock through an investment banker, this would be a secondary market transaction. 
B)  If you purchased 100 shares of Apple stock from your sister-in-law, this would be an example of a primary market transaction. 
C)  The IPO market is a subset of the secondary market. 
D)  Only institutions, and not individuals, can participate in derivatives market transactions. 
E)  As they are generally defined, money market transactions involve debt securities with maturities of less than one year. 
A)  If Apple issues additional shares of common stock through an investment banker, this would be a secondary market transaction. 
B)  If you purchased 100 shares of Apple stock from your sister-in-law, this would be an example of a primary market transaction. 
C)  The IPO market is a subset of the secondary market. 
D)  Only institutions, and not individuals, can participate in derivatives market transactions. 
E)  As they are generally defined, money market transactions involve debt securities with maturities of less than one year.

Question 7

One of the functions of NYSE specialists is to facilitate trading by keeping an inventory of shares of the stocks in which they specialize, buying when investors want to sell and selling when they want to buy.They change the bid and ask prices of the securities so as to keep supply and demand in balance.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following statements is CORRECT?

Accepted Answer

A)  The New York Stock Exchange is an auction market with a physical location. 
B)  Capital market transactions involve only the purchase and sale of equity securities, i.e., common stocks. 
C)  If an investor sells shares of stock through a broker, then this would be a primary market transaction. 
D)  Consumer automobile loans are evidenced by legal documents called "promissory notes, " and these individual notes are traded in the money market. 
E)  While the distinctions are blurring as investment banks are today buying commercial banks, and vice versa, investment banks generally specialize in lending money, whereas commercial banks generally help companies raise capital from other parties. 
A)  The New York Stock Exchange is an auction market with a physical location. 
B)  Capital market transactions involve only the purchase and sale of equity securities, i.e., common stocks. 
C)  If an investor sells shares of stock through a broker, then this would be a primary market transaction. 
D)  Consumer automobile loans are evidenced by legal documents called "promissory notes, " and these individual notes are traded in the money market. 
E)  While the distinctions are blurring as investment banks are today buying commercial banks, and vice versa, investment banks generally specialize in lending money, whereas commercial banks generally help companies raise capital from other parties.

Question 9

There are three primary disadvantages of a regular partnership: (1)unlimited liability, (2)limited life of the organization, and (3)difficulty of transferring ownership.These combine to make it difficult for partnerships to attract large amounts of capital and thus to grow to a very large size.

Accepted Answer

A) True 
 B)False

Question 10

If an individual investor buys or sells a currently outstanding stock through a broker, this is a primary market transaction.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following is a primary market transaction?

Accepted Answer

A)  You sell 200 shares of Johnson & Johnson stock on the NYSE through your broker. 
B)  Johnson & Johnson issues 2, 000, 000 shares of new stock and sells them to the public through an investment banker. 
C)  You buy 200 shares of Johnson & Johnson stock from your younger brother.You just give him cash and he gives you the stock¾the trade is not made through a broker. 
D)  One financial institution buys 200, 000 shares of Johnson & Johnson stock from another institution.An investment banker arranges the transaction. 
E)  You invest $10, 000 in a mutual fund, which then uses the money to buy $10, 000 of Johnson & Johnson shares on the NYSE. 
A)  You sell 200 shares of Johnson & Johnson stock on the NYSE through your broker. 
B)  Johnson & Johnson issues 2, 000, 000 shares of new stock and sells them to the public through an investment banker. 
C)  You buy 200 shares of Johnson & Johnson stock from your younger brother.You just give him cash and he gives you the stock¾the trade is not made through a broker. 
D)  One financial institution buys 200, 000 shares of Johnson & Johnson stock from another institution.An investment banker arranges the transaction. 
E)  You invest $10, 000 in a mutual fund, which then uses the money to buy $10, 000 of Johnson & Johnson shares on the NYSE.

Question 12

Which of the following statements is CORRECT?

Accepted Answer

A)  If expected inflation increases, interest rates are likely to increase. 
B)  If individuals in general increase the percentage of their income that they save, interest rates are likely to increase. 
C)  If companies have fewer good investment opportunities, interest rates are likely to increase. 
D)  Interest rates on all debt securities tend to rise during recessions because recessions increase the possibility of bankruptcy, hence the riskiness of all debt securities. 
E)  Interest rates on long-term bonds are more volatile than rates on short-term debt securities like T-bills. 
A)  If expected inflation increases, interest rates are likely to increase. 
B)  If individuals in general increase the percentage of their income that they save, interest rates are likely to increase. 
C)  If companies have fewer good investment opportunities, interest rates are likely to increase. 
D)  Interest rates on all debt securities tend to rise during recessions because recessions increase the possibility of bankruptcy, hence the riskiness of all debt securities. 
E)  Interest rates on long-term bonds are more volatile than rates on short-term debt securities like T-bills.

Question 13

Which of the following statements is CORRECT?

Accepted Answer

A)  The main method of transferring ownership interest in a corporation is by means of a hostile takeover. 
B)  Two key advantages of the corporate form over other forms of business organization are unlimited liability and limited life. 
C)  A corporation is a legal entity that is generally created by a state; its life and existence is separate from the lives of its individual owners and managers. 
D)  Limited liability of its stockholders is an advantage of the corporate form of organization, but corporations have more trouble raising money in financial markets because of the complexity of this form of organization. 
E)  Although its stockholders are insulated by limited legal liability, the corporation's legal status does not protect the firm's managers in the same way; i.e., bondholders can sue its managers if the firm defaults on its debt, even if the default is the result of poor economic conditions. 
A)  The main method of transferring ownership interest in a corporation is by means of a hostile takeover. 
B)  Two key advantages of the corporate form over other forms of business organization are unlimited liability and limited life. 
C)  A corporation is a legal entity that is generally created by a state; its life and existence is separate from the lives of its individual owners and managers. 
D)  Limited liability of its stockholders is an advantage of the corporate form of organization, but corporations have more trouble raising money in financial markets because of the complexity of this form of organization. 
E)  Although its stockholders are insulated by limited legal liability, the corporation's legal status does not protect the firm's managers in the same way; i.e., bondholders can sue its managers if the firm defaults on its debt, even if the default is the result of poor economic conditions.

Question 14

One key value of limited liability is that it lowers owners' risks and thereby enhances a firm's value.

Accepted Answer

A) True 
 B)False

Question 15

If Firm A's business is to obtain savings from individuals and then invest them in financial assets issued by other firms or individuals, Firm A is a financial intermediary.

Accepted Answer

A) True 
 B)False

Question 16

Jane Doe, who has substantial personal wealth and income, is considering the possibility of starting a new business in the chemical waste management field.She will be the sole owner, and she has enough funds to finance the operation.The business will have a relatively high degree of risk, and it is expected that the firm will incur losses for the first few years.However, the prospects for growth and positive future income look good, and Jane plans to have the firm pay out all of its income as dividends to her once it is well established.Which of the legal forms of business organization would probably best suit her needs?

Accepted Answer

A)  Proprietorship, because of ease of entry. 
B)  S corporation, to gain some tax advantages and also to obtain limited liability. 
C)  Partnership, but only if she needs additional capital. 
D)  Regular corporation, because of the limited liability. 
E)  In this situation, the various forms of organization seem equally desirable. 
A)  Proprietorship, because of ease of entry. 
B)  S corporation, to gain some tax advantages and also to obtain limited liability. 
C)  Partnership, but only if she needs additional capital. 
D)  Regular corporation, because of the limited liability. 
E)  In this situation, the various forms of organization seem equally desirable.

Question 17

If a firm's goal is to maximize its earnings per share, this is the best way to maximize the price of the common stock and thus shareholders' wealth.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following statements is CORRECT?

Accepted Answer

A)  Corporations are at a disadvantage relative to partnerships because they have to file more reports to state and federal agencies, including the Securities and Exchange Administration, even if they are not publicly owned. 
B)  In a regular partnership, liability for the firm's debts is limited to the amount a particular partner has invested in the business. 
C)  A fast-growth company would be more likely to set up as a partnership for its business organization than would a slow-growth company. 
D)  Partnerships have difficulty attracting capital in part because of their unlimited liability, the lack of impermanence of the organization, and difficulty in transferring ownership. 
E)  A major disadvantage of a partnership relative to a corporation as a form of business organization is the high cost and practical difficulty of its formation. 
A)  Corporations are at a disadvantage relative to partnerships because they have to file more reports to state and federal agencies, including the Securities and Exchange Administration, even if they are not publicly owned. 
B)  In a regular partnership, liability for the firm's debts is limited to the amount a particular partner has invested in the business. 
C)  A fast-growth company would be more likely to set up as a partnership for its business organization than would a slow-growth company. 
D)  Partnerships have difficulty attracting capital in part because of their unlimited liability, the lack of impermanence of the organization, and difficulty in transferring ownership. 
E)  A major disadvantage of a partnership relative to a corporation as a form of business organization is the high cost and practical difficulty of its formation.

Question 19

Which of the following statements is CORRECT?

Accepted Answer

A)  In a regular partnership, liability for other partners' misdeeds is limited to the amount of a particular partner's investment in the business. 
B)  Attracting large amounts of capital is more difficult for partnerships than for corporations because of such factors as unlimited liability, the need to reorganize when a partner dies, and the illiquidity (difficulty buying and selling)of partnership interests. 
C)  A slow-growth company, with little need for new capital, would be more likely to organize as a corporation than would a faster growing company. 
D)  The limited partners in a limited partnership have voting control, while the general partner has operating control over the business.Also, the limited partners are individually responsible, on a pro rata basis, for the firm's debts in the event of bankruptcy. 
E)  A major disadvantage of all partnerships compared to all corporations is the fact that federal income taxes must be paid by the partners rather than by the firm itself. 
A)  In a regular partnership, liability for other partners' misdeeds is limited to the amount of a particular partner's investment in the business. 
B)  Attracting large amounts of capital is more difficult for partnerships than for corporations because of such factors as unlimited liability, the need to reorganize when a partner dies, and the illiquidity (difficulty buying and selling)of partnership interests. 
C)  A slow-growth company, with little need for new capital, would be more likely to organize as a corporation than would a faster growing company. 
D)  The limited partners in a limited partnership have voting control, while the general partner has operating control over the business.Also, the limited partners are individually responsible, on a pro rata basis, for the firm's debts in the event of bankruptcy. 
E)  A major disadvantage of all partnerships compared to all corporations is the fact that federal income taxes must be paid by the partners rather than by the firm itself.

Question 20

Recently, Hale Corporation announced the sale of 2.5 million newly issued shares of its stock at a price of $21 per share.Hale sold the stock to an investment banker, who in turn sold it to individual and institutional investors.This is a primary market transaction.

Accepted Answer

A) True 
 B)False

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

The major advantage of a regular partnership or a corporation as a form of business organization is the fact that both offer their owners limited liability, whereas proprietorships do not.

Which of the following factors would be most likely to lead to an increase in interest rates in the economy?

The facts that a proprietorship, as a business, pays no corporate income tax, and that it is easily and inexpensively formed, are two key advantages to that form of business.

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

There are three primary disadvantages of a regular partnership: (1)unlimited liability, (2)limited life of the organization, and (3)difficulty of transferring ownership.These combine to make it difficult for partnerships to attract large amounts of capital and thus to grow to a very large size.

If an individual investor buys or sells a currently outstanding stock through a broker, this is a primary market transaction.

Which of the following is a primary market transaction?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

One key value of limited liability is that it lowers owners' risks and thereby enhances a firm's value.

If Firm A's business is to obtain savings from individuals and then invest them in financial assets issued by other firms or individuals, Firm A is a financial intermediary.

If a firm's goal is to maximize its earnings per share, this is the best way to maximize the price of the common stock and thus shareholders' wealth.

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Recently, Hale Corporation announced the sale of 2.5 million newly issued shares of its stock at a price of $21 per share.Hale sold the stock to an investment banker, who in turn sold it to individual and institutional investors.This is a primary market transaction.

Financial statements, cash flow, and taxes

Analysis of financial statements

Time value of money

Bonds, bond valuation, and interest rates

Risk and return

Valuation of stocks and corporations

Financial options and applications in corporate finance

The cost of capital

The basics of capital budgeting: evaluating cash flows

Cash flow estimation and risk analysis

Corporate valuation and financial planning

Agency conflicts and corporate governance

Distributions to shareholders: dividends and repurchases

Capital structure decisions

Supply chains and working capital management

Multinational financial management

Filters

Exam 1: An overview of financial management and the financial environment

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

The major advantage of a regular partnership or a corporation as a form of business organization is the fact that both offer their owners limited liability, whereas proprietorships do not.

Which of the following factors would be most likely to lead to an increase in interest rates in the economy?

The facts that a proprietorship, as a business, pays no corporate income tax, and that it is easily and inexpensively formed, are two key advantages to that form of business.

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

There are three primary disadvantages of a regular partnership: (1)unlimited liability, (2)limited life of the organization, and (3)difficulty of transferring ownership.These combine to make it difficult for partnerships to attract large amounts of capital and thus to grow to a very large size.

If an individual investor buys or sells a currently outstanding stock through a broker, this is a primary market transaction.

Which of the following is a primary market transaction?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

One key value of limited liability is that it lowers owners' risks and thereby enhances a firm's value.

If Firm A's business is to obtain savings from individuals and then invest them in financial assets issued by other firms or individuals, Firm A is a financial intermediary.

If a firm's goal is to maximize its earnings per share, this is the best way to maximize the price of the common stock and thus shareholders' wealth.

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Recently, Hale Corporation announced the sale of 2.5 million newly issued shares of its stock at a price of $21 per share.Hale sold the stock to an investment banker, who in turn sold it to individual and institutional investors.This is a primary market transaction.

Financial statements, cash flow, and taxes

Analysis of financial statements

Time value of money

Bonds, bond valuation, and interest rates

Risk and return

Valuation of stocks and corporations

Financial options and applications in corporate finance

The cost of capital

The basics of capital budgeting: evaluating cash flows

Cash flow estimation and risk analysis

Corporate valuation and financial planning

Agency conflicts and corporate governance

Distributions to shareholders: dividends and repurchases

Capital structure decisions

Supply chains and working capital management

Multinational financial management

Filters