Question 1

Which of the following statements is true regarding hedge funds and private equity funds?

Accepted Answer

A)  Both operate primarily by buying stock (equity) to gain controlling interest in companies. 
B)  Both have a limited number of investors 
C)  Hedge funds are highly regulated, while there are few controls over the activities of private equity funds. 
D)  The risks involved in investing in private equity funds are significantly less than the risks involved in investing in hedge funds. 
A)  Both operate primarily by buying stock (equity) to gain controlling interest in companies. 
B)  Both have a limited number of investors 
C)  Hedge funds are highly regulated, while there are few controls over the activities of private equity funds. 
D)  The risks involved in investing in private equity funds are significantly less than the risks involved in investing in hedge funds. B

Question 2

Which of the following statements best describes firm organization?

Accepted Answer

A)  One of the disadvantages of incorporating a business is that the owners have personal liabilities when firm goes bankrupt. 
B)  Sole proprietorships are subject to more regulations than corporations. 
C)  In any type of partnership, every partner has the same rights, privileges, and liability exposure as every other partner. 
D)  Sole proprietorships and partnerships generally have a tax advantage over corporations, especially large ones. 
A)  One of the disadvantages of incorporating a business is that the owners have personal liabilities when firm goes bankrupt. 
B)  Sole proprietorships are subject to more regulations than corporations. 
C)  In any type of partnership, every partner has the same rights, privileges, and liability exposure as every other partner. 
D)  Sole proprietorships and partnerships generally have a tax advantage over corporations, especially large ones. D

Question 3

Prior to changes in 2011, what was the main perceived attraction of income trusts?

Accepted Answer

A)  reducing double taxation 
B)  unregulated business environment 
C)  fewer layers in the organizational structure 
D)  maintenance-free business assets 
A)  reducing double taxation 
B)  unregulated business environment 
C)  fewer layers in the organizational structure 
D)  maintenance-free business assets A

Question 4

Fighting recession with low interest rates is technically impossible when we have large trade deficits and huge national debt.

Accepted Answer

A) True 
 B)False

Question 5

With the more formal nature of the partnership agreement and the commitment of all partners' personal assets, partnerships have no difficulty raising large amounts of capital as do proprietorships.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following statements best describes hedge funds?

Accepted Answer

A)  Hedge funds are risky, although they may be market-neutral. 
B)  Hedge funds are open to everyone. 
C)  Hedge funds have low risk because they hedge their investments. 
D)  Hedge funds are legal only in Canada, and they are not permitted to operate in Europe or Asia. 
A)  Hedge funds are risky, although they may be market-neutral. 
B)  Hedge funds are open to everyone. 
C)  Hedge funds have low risk because they hedge their investments. 
D)  Hedge funds are legal only in Canada, and they are not permitted to operate in Europe or Asia.

Question 7

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, which in turn sold it to individual and institutional investors. This is a primary market transaction.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following statements is NOT correct?

Accepted Answer

A)  When a corporation's shares are owned by a few individuals and are not traded on public markets, we say that the firm is "closely, or privately, held." 
B)  "Going public" establishes a firm's true intrinsic value, and it also ensures that a highly liquid market will always exist for the firm's shares. 
C)  When stock in a closely held corporation is offered to the public for the first time, the transaction is called "going public," and the market for such stock is called the new issue market. 
D)  Publicly owned companies have shares owned by investors who are not associated with management, and public companies must register with and report to a regulatory agency such as the SEC. 
A)  When a corporation's shares are owned by a few individuals and are not traded on public markets, we say that the firm is "closely, or privately, held." 
B)  "Going public" establishes a firm's true intrinsic value, and it also ensures that a highly liquid market will always exist for the firm's shares. 
C)  When stock in a closely held corporation is offered to the public for the first time, the transaction is called "going public," and the market for such stock is called the new issue market. 
D)  Publicly owned companies have shares owned by investors who are not associated with management, and public companies must register with and report to a regulatory agency such as the SEC.

Question 9

Which of the following statements best describes financial markets?

Accepted Answer

A)  Rates of return on T-bill are the highest among all major financial securities. 
B)  Money market mutual funds are illiquid. 
C)  Money markets are markets for long-term debt and common stocks. 
D)  Euro-Canadian market time deposits are instruments issued by banks outside Canada. 
A)  Rates of return on T-bill are the highest among all major financial securities. 
B)  Money market mutual funds are illiquid. 
C)  Money markets are markets for long-term debt and common stocks. 
D)  Euro-Canadian market time deposits are instruments issued by banks outside Canada.

Question 10

You recently sold to your brother 200 shares of Disney stock; the transfer was made through a broker, and the trade occurred on the TSX. Which type of transaction is this is an example of?

Accepted Answer

A)  a futures market transaction 
B)  a primary market transaction 
C)  a secondary market transaction 
D)  a money market transaction 
A)  a futures market transaction 
B)  a primary market transaction 
C)  a secondary market transaction 
D)  a money market transaction

Question 11

Which of the following statements best describes financial markets?

Accepted Answer

A)  If Disney issues additional shares of common stock through an investment banker, this would be a secondary market transaction. 
B)  The IPO market is a major part of the secondary market. 
C)  Only institutions, not individuals, can participate in derivatives market transactions. 
D)  Money market transactions involve debt securities with maturities of less than one year. 
A)  If Disney issues additional shares of common stock through an investment banker, this would be a secondary market transaction. 
B)  The IPO market is a major part of the secondary market. 
C)  Only institutions, not individuals, can participate in derivatives market transactions. 
D)  Money market transactions involve debt securities with maturities of less than one year.

Question 12

In 2011, the Canadian government made significant changes to its treatment of income trusts. What was the principal reason for this action?

Accepted Answer

A)  Trusts were becoming too large compared to corporations. 
B)  Trusts offered unfair tax advantages compared to corporations. 
C)  The government did not have adequate legislative power to manage the activities of income trusts. 
D)  Corporations were able to successfully influence government policymakers to bring about these changes. 
A)  Trusts were becoming too large compared to corporations. 
B)  Trusts offered unfair tax advantages compared to corporations. 
C)  The government did not have adequate legislative power to manage the activities of income trusts. 
D)  Corporations were able to successfully influence government policymakers to bring about these changes.

Question 13

Which of the following statements best describes partnerships?

Accepted Answer

A)  Corporations are at a disadvantage relative to partnerships because they have to file more reports to regulatory agencies, 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)  There must be at least one person acting as a general partner in a limited partnership. 
A)  Corporations are at a disadvantage relative to partnerships because they have to file more reports to regulatory agencies, 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)  There must be at least one person acting as a general partner in a limited partnership.

Question 14

Which of the following financial intermediaries is NOT a depository institution?

Accepted Answer

A)  commercial bank 
B)  investment bank 
C)  trust company 
D)  credit union 
A)  commercial bank 
B)  investment bank 
C)  trust company 
D)  credit union

Question 15

Which circumstance 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 government decides to try to stimulate the economy. 
C)  There is an increase in expected inflation. 
D)  The economy falls into a recession. 
A)  Households reduce their consumption and increase their savings. 
B)  The federal government decides to try to stimulate the economy. 
C)  There is an increase in expected inflation. 
D)  The economy falls into a recession.

Question 16

In Canada, the Canadian Deposit Insurance Corporation (CDIC) insures personal bank account balances up to $100,000. What is the primary reason for this provision?

Accepted Answer

A)  This can prevent a "bank run" in times of economic uncertainty. 
B)  This can provide additional support to the shareholders of banking institutions. 
C)  This provides an opportunity for the government to increase its influence over the banking system. 
D)  This mirrors practices followed in all other developed economies. 
A)  This can prevent a "bank run" in times of economic uncertainty. 
B)  This can provide additional support to the shareholders of banking institutions. 
C)  This provides an opportunity for the government to increase its influence over the banking system. 
D)  This mirrors practices followed in all other developed economies.

Question 17

While skillful workers and adequate capital support good businesses, outside connection and networking play no role.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following statements is correct?

Accepted Answer

A)  A good goal for a firm's management is maximization of expected EPS. 
B)  Like corporations, the board of directors for an income trust supervises the operating entity on behalf of unitholders. 
C)  There is a legal obligation to pay cash distributions for income trusts. 
D)  Agency conflicts easily arise between shareholders and managers. 
A)  A good goal for a firm's management is maximization of expected EPS. 
B)  Like corporations, the board of directors for an income trust supervises the operating entity on behalf of unitholders. 
C)  There is a legal obligation to pay cash distributions for income trusts. 
D)  Agency conflicts easily arise between shareholders and managers.

Question 19

Which of the following statements best describes firm organization?

Accepted Answer

A)  One of the disadvantages of a sole proprietorship is that the proprietor is exposed to unlimited liability. 
B)  It is generally easier to transfer one's ownership interest in a partnership than in a corporation. 
C)  One of the advantages of the corporate form of organization is that it avoids double taxation. 
D)  One of the advantages of a corporation from a social standpoint is that every shareholder has equal voting rights, i.e., "one person, one vote." 
A)  One of the disadvantages of a sole proprietorship is that the proprietor is exposed to unlimited liability. 
B)  It is generally easier to transfer one's ownership interest in a partnership than in a corporation. 
C)  One of the advantages of the corporate form of organization is that it avoids double taxation. 
D)  One of the advantages of a corporation from a social standpoint is that every shareholder has equal voting rights, i.e., "one person, one vote."

Question 20

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

Exam 1: An Overview of Financial Management and the Financial Environment

Which of the following statements is true regarding hedge funds and private equity funds?

Which of the following statements best describes firm organization?

Prior to changes in 2011, what was the main perceived attraction of income trusts?

Fighting recession with low interest rates is technically impossible when we have large trade deficits and huge national debt.

With the more formal nature of the partnership agreement and the commitment of all partners' personal assets, partnerships have no difficulty raising large amounts of capital as do proprietorships.

Which of the following statements best describes hedge funds?

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, which in turn sold it to individual and institutional investors. This is a primary market transaction.

Which of the following statements is NOT correct?

Which of the following statements best describes financial markets?

You recently sold to your brother 200 shares of Disney stock; the transfer was made through a broker, and the trade occurred on the TSX. Which type of transaction is this is an example of?

Which of the following statements best describes financial markets?

In 2011, the Canadian government made significant changes to its treatment of income trusts. What was the principal reason for this action?

Which of the following statements best describes partnerships?

Which of the following financial intermediaries is NOT a depository institution?

Which circumstance would be most likely to lead to an increase in interest rates in the economy?

In Canada, the Canadian Deposit Insurance Corporation (CDIC) insures personal bank account balances up to $100,000. What is the primary reason for this provision?

While skillful workers and adequate capital support good businesses, outside connection and networking play no role.

Which of the following statements is correct?

Which of the following statements best describes firm organization?

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.

Financial Statements, Cash Flow, and Taxes

Analysis of Financial Statements

Time Value of Money

Financial Planning and Forecasting Financial Statements

Bonds, Bond Valuation, and Interest Rates

Risk, Return, and the Capital Asset Pricing Model

Stocks, Stock Valuation, and Stock Market Equilibrium

The Cost of Capital

The Basics of Capital Budgeting: Evaluating Cash Flows

Cash Flow Estimation and Risk Analysis

Capital Structure Decisions

Distributions to Shareholders: Dividends and Repurchases

Initial Public Offerings, Investment Banking, and Financial Restructuring

Lease Financing

Capital Market Financing: Hybrid and Other Securities

Working Capital Management and Short-Term Financing

Current Asset Management

Financial Options and Applications in Corporate Finance

Decision Trees, Real Options, and Other Capital Budgeting Topics

Derivatives and Risk Management

International Financial Management

Corporate Valuation, Value-Based Management, and Corporate Governance

Mergers, Acquisitions, and Restructuring

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