Question 1

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 2

Which of the following statements is CORRECT?

Accepted Answer

A) The corporate bylaws are a standard set of rules established by the state of incorporation.These rules are identical for all corporations in the state, and their purpose is to ensure that the firm's managers run the firm in accordance with state laws. 
B) The corporate charter is a standard document prescribed by the state of incorporation, and its purpose is to ensure that the firm's managers run the firm in accordance with state laws.Procedures for electing corporate directors are contained in bylaws, while the declaration of the activities that the firm will pursue and the number of directors are included in the corporate charter. 
C) Companies must establish a home office, or domicile, in a particular state, and that state must be the one in which most of their business (sales, manufacturing, and so forth) is conducted. 
D) Attorney fees are generally involved when a company develops its charter and bylaws, but since these documents are voluntary, a new corporation can avoid these costs by deciding not to have either a charter or bylaws. 
E) The corporate charter is concerned with things like what business the company will engage in, whereas the bylaws are concerned with things like procedures for electing the board of directors. 
A) The corporate bylaws are a standard set of rules established by the state of incorporation.These rules are identical for all corporations in the state, and their purpose is to ensure that the firm's managers run the firm in accordance with state laws. 
B) The corporate charter is a standard document prescribed by the state of incorporation, and its purpose is to ensure that the firm's managers run the firm in accordance with state laws.Procedures for electing corporate directors are contained in bylaws, while the declaration of the activities that the firm will pursue and the number of directors are included in the corporate charter. 
C) Companies must establish a home office, or domicile, in a particular state, and that state must be the one in which most of their business (sales, manufacturing, and so forth) is conducted. 
D) Attorney fees are generally involved when a company develops its charter and bylaws, but since these documents are voluntary, a new corporation can avoid these costs by deciding not to have either a charter or bylaws. 
E) The corporate charter is concerned with things like what business the company will engage in, whereas the bylaws are concerned with things like procedures for electing the board of directors.

Question 3

Which of the following statements is CORRECT?

Accepted Answer

A) A good goal for a firm's management is maximization of expected EPS. 
B) Most business in the U.S.is conducted by corporations, and corporations' popularity results primarily from their favorable tax treatment. 
C) Because most stock ownership is concentrated in the hands of a relatively small segment of society, firms' actions to maximize their stock prices have little benefit to society. 
D) Corporations and partnerships have an advantage over proprietorships because a sole proprietor is exposed to unlimited liability, but the liability of all investors in the other types of businesses is more limited. 
E) The potential exists for agency conflicts between stockholders and managers. 
A) A good goal for a firm's management is maximization of expected EPS. 
B) Most business in the U.S.is conducted by corporations, and corporations' popularity results primarily from their favorable tax treatment. 
C) Because most stock ownership is concentrated in the hands of a relatively small segment of society, firms' actions to maximize their stock prices have little benefit to society. 
D) Corporations and partnerships have an advantage over proprietorships because a sole proprietor is exposed to unlimited liability, but the liability of all investors in the other types of businesses is more limited. 
E) The potential exists for agency conflicts between stockholders and managers.

Question 4

Which of the following statements is CORRECT?

Accepted Answer

A) Hedge funds are legal in Europe and Asia, but they are not permitted to operate in the United States. 
B) Hedge funds have more in common with commercial banks than with any other type of financial institution. 
C) Hedge funds have more in common with investment banks than with any other type of financial institution. 
D) Hedge funds are legal in the United States, but they are not permitted to operate in Europe or Asia. 
E) The justification for the "light" regulation of hedge funds is that only "sophisticated" investors with high net worths and high incomes are permitted to invest in these funds, and such investors supposedly can do the necessary "due diligence" on their own rather than have it done by the SEC or some other regulator. 
A) Hedge funds are legal in Europe and Asia, but they are not permitted to operate in the United States. 
B) Hedge funds have more in common with commercial banks than with any other type of financial institution. 
C) Hedge funds have more in common with investment banks than with any other type of financial institution. 
D) Hedge funds are legal in the United States, but they are not permitted to operate in Europe or Asia. 
E) The justification for the "light" regulation of hedge funds is that only "sophisticated" investors with high net worths and high incomes are permitted to invest in these funds, and such investors supposedly can do the necessary "due diligence" on their own rather than have it done by the SEC or some other regulator.

Question 5

recently sold 100 shares of your new company, XYZ Corporation, to your brother at a family reunion.At the reunion your brother gave you a check for the stock and you gave your brother the stock certificates.Which of the following statements best describes this transaction?

Accepted Answer

A) This is an example of an exchange of physical assets. 
B) This is an example of a primary market transaction. 
C) This is an example of a direct transfer of capital. 
D) This is an example of a money market transaction. 
E) This is an example of a derivatives market transaction. 
A) This is an example of an exchange of physical assets. 
B) This is an example of a primary market transaction. 
C) This is an example of a direct transfer of capital. 
D) This is an example of a money market transaction. 
E) This is an example of a derivatives market transaction.

Question 6

Money markets are markets for

Accepted Answer

A) Foreign stocks. 
B) Consumer automobile loans. 
C) U.S.stocks. 
D) Short-term debt securities. 
E) Long-term bonds. 
A) Foreign stocks. 
B) Consumer automobile loans. 
C) U.S.stocks. 
D) Short-term debt securities. 
E) Long-term bonds.

Question 7

Suppose the U.S.Treasury announces plans to issue $50 billion of new bonds.Assuming the announcement was not expected, what effect, other things held constant, would that have on bond prices and interest rates?

Accepted Answer

A) Prices and interest rates would both rise. 
B) Prices would rise and interest rates would decline. 
C) Prices and interest rates would both decline. 
D) There would be no changes in either prices or interest rates. 
E) Prices would decline and interest rates would rise. 
A) Prices and interest rates would both rise. 
B) Prices would rise and interest rates would decline. 
C) Prices and interest rates would both decline. 
D) There would be no changes in either prices or interest rates. 
E) Prices would decline and interest rates would rise.

Question 8

Which of the following statements is CORRECT?

Accepted Answer

A) If General Electric were to issue new stock this year it would be considered a secondary market transaction since the company already has stock outstanding. 
B) Capital market transactions only include preferred stock and common stock transactions. 
C) The distinguishing feature between spot markets versus futures markets transactions is the maturity of the investments.That is, spot market transactions involve securities that have maturities of less than one year, whereas futures markets transactions involve securities with maturities greater than one year. 
D) Both Nasdaq "dealers" and NYSE "specialists" hold inventories of stocks. 
E) An electronic communications network (ECN) is a physical location exchange. 
A) If General Electric were to issue new stock this year it would be considered a secondary market transaction since the company already has stock outstanding. 
B) Capital market transactions only include preferred stock and common stock transactions. 
C) The distinguishing feature between spot markets versus futures markets transactions is the maturity of the investments.That is, spot market transactions involve securities that have maturities of less than one year, whereas futures markets transactions involve securities with maturities greater than one year. 
D) Both Nasdaq "dealers" and NYSE "specialists" hold inventories of stocks. 
E) An electronic communications network (ECN) is a physical location exchange.

Question 9

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

Question 10

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

disadvantages associated with a proprietorship are similar to those under a partnership.One exception relates to the more formal nature of the partnership agreement and the commitment of all partners' personal assets.As a result, partnerships do not have difficulty raising large amounts of capital.

Accepted Answer

A) True 
 B)False

Question 12

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 13

drawback of switching from a partnership to the corporate form of organization is the following:

Accepted Answer

A) It subjects the firm to additional regulations. 
B) It cannot affect the amount of the firm's operating income that goes to taxes. 
C) It makes it more difficult for the firm to raise additional capital. 
D) It makes the firm's investors subject to greater potential personal liabilities. 
E) It makes it more difficult for the firm's investors to transfer their ownership interests. 
A) It subjects the firm to additional regulations. 
B) It cannot affect the amount of the firm's operating income that goes to taxes. 
C) It makes it more difficult for the firm to raise additional capital. 
D) It makes the firm's investors subject to greater potential personal liabilities. 
E) It makes it more difficult for the firm's investors to transfer their ownership interests.

Question 14

Which of the following statements is CORRECT?

Accepted Answer

A) If Disney issues additional shares of common stock through an investment banker, this would be a secondary market transaction. 
B) If you purchased 100 shares of Disney stock from your brother-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 Disney issues additional shares of common stock through an investment banker, this would be a secondary market transaction. 
B) If you purchased 100 shares of Disney stock from your brother-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 15

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 16

Which of the following statements is CORRECT?

Accepted Answer

A) The proper goal of the financial manager should be to attempt to maximize the firm's expected cash flows, because this will add the most to the wealth of the individual shareholders. 
B) The financial manager should seek that combination of assets, liabilities, and capital that will generate the largest expected projected after-tax income over the relevant time horizon, generally the coming year. 
C) The riskiness inherent in a firm's earnings per share (EPS) depends on the characteristics of the projects the firm selects, and thus on the firm's assets.However, EPS is not affected by the manner in which those assets are financed. 
D) Potential agency problems can arise between stockholders and managers, because managers hired as agents to act on behalf of the owners may instead make decisions favorable to themselves rather than the stockholders. 
E) Large, publicly-owned firms like AT&T and GM are controlled by their management teams.Ownership is generally widely dispersed, hence managers have great freedom in how they manage the firm.Managers may operate in stockholders' best interests, but they may also operate in their own personal best interests.As long as managers stay within the law, there is no way to either force or motivate them to act in the stockholders' best interests. 
A) The proper goal of the financial manager should be to attempt to maximize the firm's expected cash flows, because this will add the most to the wealth of the individual shareholders. 
B) The financial manager should seek that combination of assets, liabilities, and capital that will generate the largest expected projected after-tax income over the relevant time horizon, generally the coming year. 
C) The riskiness inherent in a firm's earnings per share (EPS) depends on the characteristics of the projects the firm selects, and thus on the firm's assets.However, EPS is not affected by the manner in which those assets are financed. 
D) Potential agency problems can arise between stockholders and managers, because managers hired as agents to act on behalf of the owners may instead make decisions favorable to themselves rather than the stockholders. 
E) Large, publicly-owned firms like AT&T and GM are controlled by their management teams.Ownership is generally widely dispersed, hence managers have great freedom in how they manage the firm.Managers may operate in stockholders' best interests, but they may also operate in their own personal best interests.As long as managers stay within the law, there is no way to either force or motivate them to act in the stockholders' best interests.

Question 17

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 18

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 liquid security is a security whose value is derived from the price of some other "underlying" asset. 
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 long-term debt and common stocks. 
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 liquid security is a security whose value is derived from the price of some other "underlying" asset. 
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 long-term debt and common stocks. 
E) The NYSE operates as an auction market, whereas the Nasdaq is a dealer market.

Question 19

Which of the following statements is CORRECT?

Accepted Answer

A) Most businesses (by number and total dollar sales) are organized as proprietorships or partnerships because it is easier to set up and operate in one of these forms rather than as a corporation.However, if the business gets very large, it becomes advantageous to convert to a corporation, primarily because corporations have important tax advantages over proprietorships and partnerships. 
B) Due to limited liability, unlimited lives, and ease of ownership transfer, the vast majority of U.S.businesses (in terms of number of businesses) are organized as corporations. 
C) Due to legal considerations related to ownership transfers and limited liability, most business (measured by dollar sales) is conducted by corporations in spite of large corporations' often less favorable tax treatment. 
D) Large corporations are taxed more favorably than sole proprietorships. 
E) Corporate stockholders are exposed to unlimited liability. 
A) Most businesses (by number and total dollar sales) are organized as proprietorships or partnerships because it is easier to set up and operate in one of these forms rather than as a corporation.However, if the business gets very large, it becomes advantageous to convert to a corporation, primarily because corporations have important tax advantages over proprietorships and partnerships. 
B) Due to limited liability, unlimited lives, and ease of ownership transfer, the vast majority of U.S.businesses (in terms of number of businesses) are organized as corporations. 
C) Due to legal considerations related to ownership transfers and limited liability, most business (measured by dollar sales) is conducted by corporations in spite of large corporations' often less favorable tax treatment. 
D) Large corporations are taxed more favorably than sole proprietorships. 
E) Corporate stockholders are exposed to unlimited liability.

Question 20

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 insures 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. 
E) It is possible for a firm to go public and yet not raise any additional new capital at the time. 
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 insures 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. 
E) It is possible for a firm to go public and yet not raise any additional new capital at the time.

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

recently sold 100 shares of your new company, XYZ Corporation, to your brother at a family reunion.At the reunion your brother gave you a check for the stock and you gave your brother the stock certificates.Which of the following statements best describes this transaction?

Money markets are markets for

Suppose the U.S.Treasury announces plans to issue $50 billion of new bonds.Assuming the announcement was not expected, what effect, other things held constant, would that have on bond prices and interest rates?

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.

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

disadvantages associated with a proprietorship are similar to those under a partnership.One exception relates to the more formal nature of the partnership agreement and the commitment of all partners' personal assets.As a result, partnerships do not have difficulty raising large amounts of capital.

Which of the following statements is CORRECT?

drawback of switching from a partnership to the corporate form of organization is the following:

Which of the following statements is CORRECT?

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

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Which of the following statements is NOT CORRECT?

Statements, CF, Taxes

Financial Analysis

Time Value of Money

Bonds

Risk and Return

Stocks

Financial Options

Cost of Capital

Capital Budgeting

Cash Flow and Risk

Forecasting

Valuation, Governanc

Dividends

CAP Structure

Working Capital

Multinational

Filters

Exam 1: Overview

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

recently sold 100 shares of your new company, XYZ Corporation, to your brother at a family reunion.At the reunion your brother gave you a check for the stock and you gave your brother the stock certificates.Which of the following statements best describes this transaction?

Money markets are markets for

Suppose the U.S.Treasury announces plans to issue $50 billion of new bonds.Assuming the announcement was not expected, what effect, other things held constant, would that have on bond prices and interest rates?

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.

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

disadvantages associated with a proprietorship are similar to those under a partnership.One exception relates to the more formal nature of the partnership agreement and the commitment of all partners' personal assets.As a result, partnerships do not have difficulty raising large amounts of capital.

Which of the following statements is CORRECT?

drawback of switching from a partnership to the corporate form of organization is the following:

Which of the following statements is CORRECT?

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

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Which of the following statements is NOT CORRECT?

Statements, CF, Taxes

Financial Analysis

Time Value of Money

Bonds

Risk and Return

Stocks

Financial Options

Cost of Capital

Capital Budgeting

Cash Flow and Risk

Forecasting

Valuation, Governanc

Dividends

CAP Structure

Working Capital

Multinational

Filters