Exam 2: The Financial Market Environment

All dividend income received by a corporation is exempted from taxation.

The Securities Act of 1933 focuses on regulating the sale of securities in the primary market, whereas the 1934 Act deals with the regulations governing the transactions in the secondary market.

Government can obtain funds ________.

Firms that require funds from external sources can obtain them ________.

Long-term debt instruments used by both government and business are known as ________.

Which of the following is true of mortgage-backed securities?

Prior to the 2008 financial crisis, most investors viewed mortgage-backed securities as relatively safe investments.

The Glass-Steagall Act was imposed to allow commercial and investment banks to combine and work together.

Money markets are markets for long-term funds such as bonds and equity.

Investment banks are institutions that ________.

The ________ is created by a number of institutions and arrangements that allow the suppliers and demanders of long-term funds to make transactions.

Mortgage-backed securities are securities that represent claims on the cash flows generated by a pool of mortgages.

Capital markets are for investors who want a safe temporary place to deposit funds where they can earn interest and for borrowers who have a short-term need for funds.

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

A public offering is the sale of a new security issue-typically debt or preferred stock-directly to an investor or group of investors.

Financial markets are intermediaries that channel the savings of individuals, businesses, and government into loans or investments.

Which of the following is a forum in which suppliers and demanders of funds can transact business directly?

A financial institution is an intermediary that channels the savings of individuals, businesses, and governments into loans or investments.

The tax liability of a corporation with ordinary income of $1,500,000 is ________. Range of taxable income Marginal rate $ 0 to $ 50,000 15% 50,000 to 75,000 25 75,000 to 100,000 34 100,000 to 335,000 39 335,000 to 10,000,000 34 10,000,000 to 15,000,000 35

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.