Question 1

When the coupon rate on newly issued bonds ________ relative to older,outstanding bonds,the market price of the older bond ________.

Accepted Answer

A)  increases; falls in the secondary market 
B)  increases; rises in the secondary market 
C)  decreases; falls in the secondary market 
D)  decreases; falls in the primary market 
A)  increases; falls in the secondary market 
B)  increases; rises in the secondary market 
C)  decreases; falls in the secondary market 
D)  decreases; falls in the primary market

Question 2

When the coupon rate on newly issued bonds ________ relative to older,outstanding bonds,the market price of the older bond ________.

Accepted Answer

A)  decreases; rises in the secondary market 
B)  decreases; falls in the secondary market 
C)  increases; falls in the secondary market 
D)  increases; falls in the primary market 
A)  decreases; rises in the secondary market 
B)  decreases; falls in the secondary market 
C)  increases; falls in the secondary market 
D)  increases; falls in the primary market

Question 3

How does the principal-agent problem extend to managers and employees?

Accepted Answer

Just as corporate shareholders (owners)c

Question 4

Which of the following is part of the secondary market for stocks?

Accepted Answer

A)  New York Stock Exchange 
B)  the over-the-counter market 
C)  NASDAQ 
D)  all of these 
A)  New York Stock Exchange 
B)  the over-the-counter market 
C)  NASDAQ 
D)  all of these

Question 5

Kendrick wants to start a tax preparation company and is going to his bank to borrow $50,000.This is an example of

Accepted Answer

A)  direct finance. 
B)  indirect finance. 
C)  a primary market transaction. 
D)  a secondary market transaction. 
A)  direct finance. 
B)  indirect finance. 
C)  a primary market transaction. 
D)  a secondary market transaction.

Question 6

An investor is more likely to buy a firm's stock if the firm's income statement shows ________ and if its balance sheet shows ________.

Accepted Answer

A)  a large net worth; a large price-earnings ratio 
B)  a large after-tax profit; a large net worth 
C)  a large price-earnings ratio; a large dividend yield 
D)  low opportunity costs; large liabilities 
A)  a large net worth; a large price-earnings ratio 
B)  a large after-tax profit; a large net worth 
C)  a large price-earnings ratio; a large dividend yield 
D)  low opportunity costs; large liabilities

Question 7

In the United States,corporate profits are taxed at the corporate level but are not taxed as personal income in the form of dividend payments.

Accepted Answer

A) True 
 B)False

Question 8

Torrie is thinking of starting up a small business selling hand-painted wine glasses.She is considering setting up her business as a sole proprietorship.What is one advantage to Torrie of setting up her business as a sole proprietorship?

Accepted Answer

A)  As a sole proprietor, Torrie would face limited liability. 
B)  As a sole proprietor, Torrie would have the ability to share risk with shareholders. 
C)  As a sole proprietor, Torrie would have both ownership and control over the business. 
D)  All of the above would be advantages of setting up her business as a sole proprietorship. 
A)  As a sole proprietor, Torrie would face limited liability. 
B)  As a sole proprietor, Torrie would have the ability to share risk with shareholders. 
C)  As a sole proprietor, Torrie would have both ownership and control over the business. 
D)  All of the above would be advantages of setting up her business as a sole proprietorship.

Question 9

To reduce the principal-agent problem

Accepted Answer

A)  boards-of-directors can tie the salaries of top management to the profitability of the firm. 
B)  managers can take on more risk than they disclose to investors. 
C)  managers can inflate profits on financial statements. 
D)  managers can hide liabilities by not disclosing them on financial statements. 
A)  boards-of-directors can tie the salaries of top management to the profitability of the firm. 
B)  managers can take on more risk than they disclose to investors. 
C)  managers can inflate profits on financial statements. 
D)  managers can hide liabilities by not disclosing them on financial statements.

Question 10

In many corporations,there is "separation of ownership from control." What does this mean?

Accepted Answer

A)  The shareholders control the corporation, although the board of directors owns the corporation. 
B)  The managers of the corporation run the corporation, although the shareholders own the corporation. 
C)  The board of directors controls corporate operations, although the managers of the corporation own the corporation. 
D)  Top corporate managers only make decisions that have been approved unanimously by shareholders. 
A)  The shareholders control the corporation, although the board of directors owns the corporation. 
B)  The managers of the corporation run the corporation, although the shareholders own the corporation. 
C)  The board of directors controls corporate operations, although the managers of the corporation own the corporation. 
D)  Top corporate managers only make decisions that have been approved unanimously by shareholders.

Question 11

It is the role of ________ to transfer funds from savers to borrowers.

Accepted Answer

A)  the Federal Reserve 
B)  the federal government 
C)  an economy's financial system 
D)  corporate governance 
A)  the Federal Reserve 
B)  the federal government 
C)  an economy's financial system 
D)  corporate governance

Question 12

A corporation is limited to how many owners?

Accepted Answer

A)  1 
B)  2 
C)  less than 10 
D)  There is no limit to the number of owners. 
A)  1 
B)  2 
C)  less than 10 
D)  There is no limit to the number of owners.

Question 13

Donnie's Donuts incurs $450,000 per year in explicit costs and $200,000 in implicit costs.The bakery earns $800,000 in revenues and has $2 million in net worth.Based on this information,what is the economic profit for Donnie's Donuts?

Accepted Answer

A)  $150,000 
B)  $350,000 
C)  $600,000 
D)  $1.2 million 
A)  $150,000 
B)  $350,000 
C)  $600,000 
D)  $1.2 million

Question 14

The Dodd-Frank Act requires that each member of the board of directors personally certify the accuracy of financial reports.

Accepted Answer

A) True 
 B)False

Question 15

If the personal assets of the owners can be claimed if the business is bankrupt,the owners are said to have

Accepted Answer

A)  unlimited liability. 
B)  a corporation type of business. 
C)  limited liability. 
D)  separation of ownership from control. 
A)  unlimited liability. 
B)  a corporation type of business. 
C)  limited liability. 
D)  separation of ownership from control.

Question 16

Corporations are legally owned by their board of directors.

Accepted Answer

A) True 
 B)False

Question 17

The legislation passed in 2010 that was intended to reform regulation of the financial system was the

Accepted Answer

A)  Wall Street Reform and Consumer Protection Act. 
B)  Sarbanes-Oxley Act. 
C)  Glass-Steagall Act. 
D)  Federal National Mortgage Act. 
A)  Wall Street Reform and Consumer Protection Act. 
B)  Sarbanes-Oxley Act. 
C)  Glass-Steagall Act. 
D)  Federal National Mortgage Act.

Question 18

How does the owner of a sole proprietorship relate to the business?

Accepted Answer

A)  The owner and the business are separate legal entities. 
B)  The owner and the business are not separate legal entities. 
C)  The assets of the owner are considered separate from the assets of the business. 
D)  None of these describe the legal relationship of the owner to the business. 
A)  The owner and the business are separate legal entities. 
B)  The owner and the business are not separate legal entities. 
C)  The assets of the owner are considered separate from the assets of the business. 
D)  None of these describe the legal relationship of the owner to the business.

Question 19

The only type of business that faces limited liability is a corporation.

Accepted Answer

A) True 
 B)False

Question 20

Explain the relationship between the interest rate on a bond and the default risk on a bond.

Accepted Answer

With bonds,the higher the defa

When the coupon rate on newly issued bonds relative to older,outstanding bonds,the market price of the older bond .

When the coupon rate on newly issued bonds relative to older,outstanding bonds,the market price of the older bond .

How does the principal-agent problem extend to managers and employees?

Which of the following is part of the secondary market for stocks?

Kendrick wants to start a tax preparation company and is going to his bank to borrow $50,000.This is an example of

An investor is more likely to buy a firm's stock if the firm's income statement shows and if its balance sheet shows .

In the United States,corporate profits are taxed at the corporate level but are not taxed as personal income in the form of dividend payments.

Torrie is thinking of starting up a small business selling hand-painted wine glasses.She is considering setting up her business as a sole proprietorship.What is one advantage to Torrie of setting up her business as a sole proprietorship?

To reduce the principal-agent problem

In many corporations,there is "separation of ownership from control." What does this mean?

It is the role of ________ to transfer funds from savers to borrowers.

A corporation is limited to how many owners?

Donnie's Donuts incurs $450,000 per year in explicit costs and $200,000 in implicit costs.The bakery earns $800,000 in revenues and has $2 million in net worth.Based on this information,what is the economic profit for Donnie's Donuts?

The Dodd-Frank Act requires that each member of the board of directors personally certify the accuracy of financial reports.

If the personal assets of the owners can be claimed if the business is bankrupt,the owners are said to have

Corporations are legally owned by their board of directors.

The legislation passed in 2010 that was intended to reform regulation of the financial system was the

How does the owner of a sole proprietorship relate to the business?

The only type of business that faces limited liability is a corporation.

Explain the relationship between the interest rate on a bond and the default risk on a bond.

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: The Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Health Care

Consumer Choice and Elasticity

Technology,Production,and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust Policy

Monopolistic Competition and Oligopoly

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, The Financial System, and Business Cycles

Aggregate Demand and Aggregate Supply Analysis

Money,Banks,and the Federal Reserve System

Monetary Policy

Fiscal Policy

Comparative Advantage, International Trade, and Exchange Rates

Filters

Exam 6: Firms, The Stock Market, and Corporate Governance

When the coupon rate on newly issued bonds ________ relative to older,outstanding bonds,the market price of the older bond ________.

When the coupon rate on newly issued bonds ________ relative to older,outstanding bonds,the market price of the older bond ________.

How does the principal-agent problem extend to managers and employees?

Which of the following is part of the secondary market for stocks?

Kendrick wants to start a tax preparation company and is going to his bank to borrow $50,000.This is an example of

An investor is more likely to buy a firm's stock if the firm's income statement shows ________ and if its balance sheet shows ________.

In the United States,corporate profits are taxed at the corporate level but are not taxed as personal income in the form of dividend payments.

Torrie is thinking of starting up a small business selling hand-painted wine glasses.She is considering setting up her business as a sole proprietorship.What is one advantage to Torrie of setting up her business as a sole proprietorship?

To reduce the principal-agent problem

In many corporations,there is "separation of ownership from control." What does this mean?

It is the role of ________ to transfer funds from savers to borrowers.

A corporation is limited to how many owners?

Donnie's Donuts incurs $450,000 per year in explicit costs and $200,000 in implicit costs.The bakery earns $800,000 in revenues and has $2 million in net worth.Based on this information,what is the economic profit for Donnie's Donuts?

The Dodd-Frank Act requires that each member of the board of directors personally certify the accuracy of financial reports.

If the personal assets of the owners can be claimed if the business is bankrupt,the owners are said to have

Corporations are legally owned by their board of directors.

The legislation passed in 2010 that was intended to reform regulation of the financial system was the

How does the owner of a sole proprietorship relate to the business?

The only type of business that faces limited liability is a corporation.

Explain the relationship between the interest rate on a bond and the default risk on a bond.

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: The Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Health Care

Consumer Choice and Elasticity

Technology,Production,and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust Policy

Monopolistic Competition and Oligopoly

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, The Financial System, and Business Cycles

Aggregate Demand and Aggregate Supply Analysis

Money,Banks,and the Federal Reserve System

Monetary Policy

Fiscal Policy

Comparative Advantage, International Trade, and Exchange Rates

Filters

When the coupon rate on newly issued bonds relative to older,outstanding bonds,the market price of the older bond .

When the coupon rate on newly issued bonds relative to older,outstanding bonds,the market price of the older bond .

An investor is more likely to buy a firm's stock if the firm's income statement shows and if its balance sheet shows .