Question 1

Most money market transactions are made in

Accepted Answer

A)  common stock. 
B)  marketable securities. 
C)  stocks and bonds. 
D)  preferred stock.

Question 2

Corporation X needs $1,000,000 and can raise this through debt at an annual rate of 10 percent, or preferred stock at an annual cost of 7 percent. If the corporation has a 40 percent tax rate, the after-tax cost of each is

Accepted Answer

A)  debt: $100,000; preferred stock: $70,000. 
B)  debt: $60,000; preferred stock: $42,000. 
C)  debt: $60,000; preferred stock: $70,000. 
D)  debt: $100,000; preferred stock: $42,000.

Question 3

Meese Paper Distributors, Inc. has before-tax earnings of $1,900,000. Calculate the amount of the total tax liability.

Accepted Answer

The answer of Meese Paper Distributors, Inc. has before-tax earnings...

Question 4

A crisis in the financial sector often spills over into other industries because when financial institutions ________ borrowing, activity in most other industries also ________.

Accepted Answer

A)  increase; slows down 
B)  contract; slows down 
C)  increase; increases 
D)  contract; increases

Question 5

Jennings, Inc. has a tax liability of $170,000 on pretax income of $500,000. What is the average tax rate for Jennings, Inc.?

Accepted Answer

A)  34 percent 
B)  46 percent 
C)  25 percent 
D)  40 percent

Question 6

During 2002, a firm has sold 5 assets described below. Calculate the tax liability on the assets. The firm pays a 40 percent tax rate on ordinary income.

Accepted Answer

The answer of During 2002, a firm has sold 5...

Question 7

Money markets involve the trading of securities with maturities of one year or less while capital market involve the buying and selling of securities with maturities of more than one year.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following provide savers with a secure place to invest funds and offer both individuals and companies loans to finance investments?

Accepted Answer

A)  Investment Banks 
B)  Securities Exchanges 
C)  Mutual Funds 
D)  Commercial Banks

Question 9

If a corporation sells certain capital equipment for more than their initial purchase price, the difference between the sale price and the purchase price is called a(n)

Accepted Answer

A)  ordinary gain. 
B)  capital loss. 
C)  capital gain. 
D)  ordinary loss.

Question 10

Government usually

Accepted Answer

A)  is a net supplier of funds. 
B)  is a net demander of funds. 
C)  borrows funds directly from financial institutions. 
D)  maintains permanent deposits with financial institutions.

Question 11

Eurocurrency deposits arise when a corporation or individual makes a deposit in a bank in a currency other than the local currency of the country where the bank is located.

Accepted Answer

A) True 
 B)False

Question 12

The two key financial markets are

Accepted Answer

A)  primary market and secondary market. 
B)  primary market and money market. 
C)  money market and capital market. 
D)  capital market and secondary market.

Question 13

The dividend exclusion for corporations receiving dividends from another corporation has resulted in

Accepted Answer

A)  a lower cost of equity for the corporation paying the dividend. 
B)  a higher relative cost of bond-financing for the corporation paying the dividend. 
C)  stock investments being relatively less attractive, relative to bond investments made by one corporation in another corporation. 
D)  stock investments being relatively more attractive relative to bond investments made by one corporation in another corporation.

Question 14

The sale of a new security directly to an investor or a group of investors is called

Accepted Answer

A)  the secondary market. 
B)  the primary mark.et 
C)  the capital market. 
D)  the private placement market.

Question 15

Loan transactions between commercial banks in which the federal government becomes involved are referred to as federal funds.

Accepted Answer

A) True 
 B)False

Question 16

Because of the dividend exclusion only 70 percent of intercorporate dividend dividend income is included as ordinary income.

Accepted Answer

A) True 
 B)False

Question 17

The ordinary income of a corporation is income earned through the sale of a firm's goods and services and is currently taxed subject to the individual income tax rates.

Accepted Answer

A) True 
 B)False

Question 18

The ________ market is where securities are initially issued and the ________ market is where pre-owned securities (not new issues) are traded.

Accepted Answer

A)  primary; secondary 
B)  money; capital 
C)  secondary; primary 
D)  primary; money

Question 19

Primary and secondary markets are markets for short-term and long-term securities, respectively.

Accepted Answer

A) True 
 B)False

Question 20

The process of pooling mortgages or other types of loans and selling the claims or securities against that pool in the secondary market is called

Accepted Answer

A)  refinancing. 
B)  securitization. 
C)  private placement. 
D)  pooling.

Exam 2: The Financial Market Environment

Most money market transactions are made in

Corporation X needs $1,000,000 and can raise this through debt at an annual rate of 10 percent, or preferred stock at an annual cost of 7 percent. If the corporation has a 40 percent tax rate, the after-tax cost of each is

Meese Paper Distributors, Inc. has before-tax earnings of $1,900,000. Calculate the amount of the total tax liability.

A crisis in the financial sector often spills over into other industries because when financial institutions borrowing, activity in most other industries also .

Jennings, Inc. has a tax liability of $170,000 on pretax income of $500,000. What is the average tax rate for Jennings, Inc.?

During 2002, a firm has sold 5 assets described below. Calculate the tax liability on the assets. The firm pays a 40 percent tax rate on ordinary income.

Money markets involve the trading of securities with maturities of one year or less while capital market involve the buying and selling of securities with maturities of more than one year.

Which of the following provide savers with a secure place to invest funds and offer both individuals and companies loans to finance investments?

If a corporation sells certain capital equipment for more than their initial purchase price, the difference between the sale price and the purchase price is called a(n)

Government usually

Eurocurrency deposits arise when a corporation or individual makes a deposit in a bank in a currency other than the local currency of the country where the bank is located.

The two key financial markets are

The dividend exclusion for corporations receiving dividends from another corporation has resulted in

The sale of a new security directly to an investor or a group of investors is called

Loan transactions between commercial banks in which the federal government becomes involved are referred to as federal funds.

Because of the dividend exclusion only 70 percent of intercorporate dividend dividend income is included as ordinary income.

The ordinary income of a corporation is income earned through the sale of a firm's goods and services and is currently taxed subject to the individual income tax rates.

The market is where securities are initially issued and the market is where pre-owned securities (not new issues) are traded.

Primary and secondary markets are markets for short-term and long-term securities, respectively.

The process of pooling mortgages or other types of loans and selling the claims or securities against that pool in the secondary market is called