Question 1

If the discount rate increases

Accepted Answer

A) NPV does not change. 
B) NPV rises. 
C) NPV falls. 
D) investment also increases. 
A) NPV does not change. 
B) NPV rises. 
C) NPV falls. 
D) investment also increases.

Question 2

Stock is

Accepted Answer

A) bought in a secondary market and sold in a primary market. 
B) bought in a secondary market and sold back to the firm. 
C) initially purchased in a primary market and sold in a secondary market. 
D) none of these choices. 
A) bought in a secondary market and sold in a primary market. 
B) bought in a secondary market and sold back to the firm. 
C) initially purchased in a primary market and sold in a secondary market. 
D) none of these choices.

Question 3

Beta measure overall risk in the stock market.

Accepted Answer

A) True 
 B)False

Question 4

The supply of stock

Accepted Answer

A) comes from new issues. 
B) comes from current shareholders. 
C) comes from new shares and current stockholders. 
D) comes from new shares, current stockholders, and the Federal Reserve. 
A) comes from new issues. 
B) comes from current shareholders. 
C) comes from new shares and current stockholders. 
D) comes from new shares, current stockholders, and the Federal Reserve.

Question 5

For diversification to be a successful management strategy, it must

Accepted Answer

A) generate accounting profits. 
B) earn normal profits. 
C) protect market share. 
D) add value. 
A) generate accounting profits. 
B) earn normal profits. 
C) protect market share. 
D) add value.

Question 6

The cost of capital is determined by

Accepted Answer

A) bankers. 
B) the capital market. 
C) the federal budget deficit. 
D) the foreign exchange market. 
A) bankers. 
B) the capital market. 
C) the federal budget deficit. 
D) the foreign exchange market.

Question 7

A risk-free rate can be measured by

Accepted Answer

A) the rate of inflation. 
B) the rate on corporate bonds. 
C) the Federal Reserve's discount rate. 
D) a rate of a Treasury security. 
A) the rate of inflation. 
B) the rate on corporate bonds. 
C) the Federal Reserve's discount rate. 
D) a rate of a Treasury security.

Question 8

A device used to measure the movement of stock prices is called a(n)

Accepted Answer

A) exchange 
B) index. 
C) network. 
D) bureaucracy. 
A) exchange 
B) index. 
C) network. 
D) bureaucracy.

Question 9

Capital markets

Accepted Answer

A) create the price of capital. 
B) determine the value of capital. 
C) direct capital resources to their highest valued use. 
D) all of these choices. 
A) create the price of capital. 
B) determine the value of capital. 
C) direct capital resources to their highest valued use. 
D) all of these choices.

Question 10

Bond prices and interest rates are inversely related.

Accepted Answer

A) True 
 B)False

Question 11

Beta measures the relative risk of a company's stock relative to overall risk in the stock market.

Accepted Answer

A) True 
 B)False

Question 12

The optimum capital structure

Accepted Answer

A) minimizes the cost of capital only. 
B) minimizes the stock price only. 
C) minimizes stock price will maximizing the cost of capital. 
D) minimizes the costs of capital while maximizing the stock price. 
A) minimizes the cost of capital only. 
B) minimizes the stock price only. 
C) minimizes stock price will maximizing the cost of capital. 
D) minimizes the costs of capital while maximizing the stock price.

Question 13

Which index is made up of mainly tech and internet stocks?

Accepted Answer

A) NYSE. 
B) Nasdaq. 
C) S&P 500. 
D) The Dow Jones. 
A) NYSE. 
B) Nasdaq. 
C) S&P 500. 
D) The Dow Jones.

Question 14

Stockholders manage risk by

Accepted Answer

A) electing the board of directors. 
B) appointing day-to-day managers. 
C) diversifying their portfolios. 
D) having lots of bonds in their portfolios. 
A) electing the board of directors. 
B) appointing day-to-day managers. 
C) diversifying their portfolios. 
D) having lots of bonds in their portfolios.

Question 15

The Capital Asset Pricing Model.

Accepted Answer

A) is a way to formulate the cost of capital. 
B) is a way to calculate the weighted cost of capital. 
C) is a usual model for stock market investing. 
D) none of these choices 
A) is a way to formulate the cost of capital. 
B) is a way to calculate the weighted cost of capital. 
C) is a usual model for stock market investing. 
D) none of these choices

Question 16

The price of a bond and the interest rate

Accepted Answer

A) are positively related. 
B) are inversely related 
C) are directly related. 
D) are linked by the capital asset pricing model. 
A) are positively related. 
B) are inversely related 
C) are directly related. 
D) are linked by the capital asset pricing model.

Question 17

The NPV of a project rises as the discount rate rises.

Accepted Answer

A) True 
 B)False

Question 18

Bondholders are not indifferent when a company sells more bonds.

Accepted Answer

A) True 
 B)False

Question 19

The cost of capital to a firm is equal to

Accepted Answer

A) a risk-free rate plus an equity premium. 
B) a risk-free interest rate. 
C) an equity premium charged by lenders. 
D) the Treasury bill rate minus an equity premium. 
A) a risk-free rate plus an equity premium. 
B) a risk-free interest rate. 
C) an equity premium charged by lenders. 
D) the Treasury bill rate minus an equity premium.

Question 20

Market prices contain

Accepted Answer

A) some information. 
B) all information. 
C) only past information. 
D) a bias for old stocks. 
A) some information. 
B) all information. 
C) only past information. 
D) a bias for old stocks.

Exam 17: The Corporate Form and the Cost of Capital

If the discount rate increases

Stock is

Beta measure overall risk in the stock market.

The supply of stock

For diversification to be a successful management strategy, it must

The cost of capital is determined by

A risk-free rate can be measured by

A device used to measure the movement of stock prices is called a(n)

Capital markets

Bond prices and interest rates are inversely related.

Beta measures the relative risk of a company's stock relative to overall risk in the stock market.

The optimum capital structure

Which index is made up of mainly tech and internet stocks?

Stockholders manage risk by

The Capital Asset Pricing Model.

The price of a bond and the interest rate

The NPV of a project rises as the discount rate rises.

Bondholders are not indifferent when a company sells more bonds.

The cost of capital to a firm is equal to

Market prices contain

Economics and Management

The Power of Markets and the Wealth of Nations

Spontaneous Order, Markets, and Market Failure

Spontaneous Order and the Firm

Organization of the Firm

Market Failures and Incentive Issues Inside the Firm

When Other Firms Dont Respond

When Other Firms React

The Entrepreneur and the Market Process

Strategies With Respect to Government

What Should the Firm Do

Demand and Revenue Management

Costs

The Mechanics of Profit Maximization

Pricing

The Knowledge Economy

Internal Markets

Measuring Economic Profit

The Firm in a National and a Global Setting

Strategy Myths

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