Question 1

How is a stock's price-earnings ratio found?

Accepted Answer

A) by dividing the dividend by the closing price of the stock 
B) by dividing the dividend by the firm's earnings per share 
C) by dividing current market price of the stock by the firm's earnings per share 
D) by subtracting the firm's earnings per share from the closing price of the stock 
A) by dividing the dividend by the closing price of the stock 
B) by dividing the dividend by the firm's earnings per share 
C) by dividing current market price of the stock by the firm's earnings per share 
D) by subtracting the firm's earnings per share from the closing price of the stock

Question 2

In August 2011,Standard & Poor's (S&P)changed its rating on U.S.Treasury bonds from ________ based on the state of the federal government's budget deficit.

Accepted Answer

A) "A" to "D" 
B) "A" to "AAA" 
C) "A+" to "B+" 
D) "AAA" to "AA+" 
A) "A" to "D" 
B) "A" to "AAA" 
C) "A+" to "B+" 
D) "AAA" to "AA+"

Question 3

Why do corporations want to keep the price of their stock high?

Accepted Answer

A) A higher stock price increases the funds the firm can raise when it sells a given amount of stock. 
B) Corporations can pay their managers lower salaries and avoid principal-agent problems when stock prices are higher. 
C) Higher stock prices are correlated with lower expected profitability. 
D) All of the above provide incentive for corporations to keep the price of their stock high. 
A) A higher stock price increases the funds the firm can raise when it sells a given amount of stock. 
B) Corporations can pay their managers lower salaries and avoid principal-agent problems when stock prices are higher. 
C) Higher stock prices are correlated with lower expected profitability. 
D) All of the above provide incentive for corporations to keep the price of their stock high.

Question 4

Which of the following statements is false?

Accepted Answer

A) Corporations can issue stocks and bonds,while proprietorships cannot. 
B) Corporations have one owner,while proprietorships have many owners. 
C) Corporations face more taxes than do proprietorships. 
D) Proprietorships have unlimited liability while corporations have limited liability. 
A) Corporations can issue stocks and bonds,while proprietorships cannot. 
B) Corporations have one owner,while proprietorships have many owners. 
C) Corporations face more taxes than do proprietorships. 
D) Proprietorships have unlimited liability while corporations have limited liability.

Question 5

Which of the following must a firm in a market economy do today to succeed?

Accepted Answer

A) Produce the goods and services that consumers want at a lower cost than consumers themselves can produce. 
B) Organize the factors of production into a functioning,efficient unit. 
C) Have access to sufficient funds. 
D) Market firms today must do all of these things. 
A) Produce the goods and services that consumers want at a lower cost than consumers themselves can produce. 
B) Organize the factors of production into a functioning,efficient unit. 
C) Have access to sufficient funds. 
D) Market firms today must do all of these things.

Question 6

What is the present value of $888 in a one year if the current rate of interest is five percent?

Accepted Answer

A) $4,440 
B) $845.71 
C) $177.60 
D) none of these 
A) $4,440 
B) $845.71 
C) $177.60 
D) none of these

Question 7

Explain what potential conflict exists between shareholders in a corporation and the corporation's managers.

Accepted Answer

The "principal-agent problem" exists any

Question 8

Stockholders

Accepted Answer

A) are liable for the debts of a corporation. 
B) are the owners of a corporation. 
C) control a corporation's day-to-day activities. 
D) hire the managers of a corporation. 
A) are liable for the debts of a corporation. 
B) are the owners of a corporation. 
C) control a corporation's day-to-day activities. 
D) hire the managers of a corporation.

Question 9

A firm's net income is also its

Accepted Answer

A) economic profit. 
B) balance sheet. 
C) accounting profit. 
D) opportunity cost. 
A) economic profit. 
B) balance sheet. 
C) accounting profit. 
D) opportunity cost.

Question 10

How can a sole proprietorship raise funds needed for firm expansion?

Accepted Answer

By retaining earning

Question 11

Who owns a corporation?

Accepted Answer

A) the board of directors 
B) the stockholders 
C) the employees 
D) the CEO 
A) the board of directors 
B) the stockholders 
C) the employees 
D) the CEO

Question 12

Mortgages issued to borrowers whose credit histories include failures to make payments on bills are known as ________ mortgages.

Accepted Answer

A) catastrophic 
B) variable rate 
C) subprime 
D) Alt-A 
A) catastrophic 
B) variable rate 
C) subprime 
D) Alt-A

Question 13

The existence of ________ increases the risk of buying stock in a corporation.

Accepted Answer

A) the principal-agent problem 
B) corporate governance 
C) unlimited personal liability 
D) employee-owned corporations 
A) the principal-agent problem 
B) corporate governance 
C) unlimited personal liability 
D) employee-owned corporations

Question 14

Why is a dollar today more valuable than a dollar a year from now?

Accepted Answer

A) The dollar today can be immediately used to buy something. 
B) A dollar a year from now will likely have less purchasing power because of inflation. 
C) The unknown future is riskier than the known present. 
D) all of these 
A) The dollar today can be immediately used to buy something. 
B) A dollar a year from now will likely have less purchasing power because of inflation. 
C) The unknown future is riskier than the known present. 
D) all of these

Question 15

The difference between a firm's assets and liabilities is its

Accepted Answer

A) accounting profit. 
B) economic profit. 
C) net worth. 
D) implicit costs. 
A) accounting profit. 
B) economic profit. 
C) net worth. 
D) implicit costs.

Question 16

Jeremy is thinking of starting up a small business selling NASCAR memorabilia.He asks his friend,Carmen,if she'd like to join him in setting up a partnership to start the business.What is one disadvantage in joining the partnership that Carmen should consider?

Accepted Answer

A) Carmen should realize that profits in the partnership will be reduced by dividend payments to shareholders. 
B) Carmen should realize that,as an owner of the business,she will be personally responsible for the debts of the business. 
C) Carmen should realize that the profits of the business will also be taxed as dividend income,so she faces the potential for double taxation of that business income. 
D) Carmen should realize that the Jeremy will have complete control over the business because it was his idea. 
A) Carmen should realize that profits in the partnership will be reduced by dividend payments to shareholders. 
B) Carmen should realize that,as an owner of the business,she will be personally responsible for the debts of the business. 
C) Carmen should realize that the profits of the business will also be taxed as dividend income,so she faces the potential for double taxation of that business income. 
D) Carmen should realize that the Jeremy will have complete control over the business because it was his idea.

Question 17

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 18

If you own a bond with a seven percent coupon rate and new bonds are paying five percent,what will happen to your bond's market price?

Accepted Answer

The answer of If you own a bond with a...

Question 19

What is economic profit?

Accepted Answer

A) gross revenue minus explicit costs 
B) gross revenue minus implicit costs 
C) gross revenue minus explicit and implicit costs 
D) the same as accounting profit 
A) gross revenue minus explicit costs 
B) gross revenue minus implicit costs 
C) gross revenue minus explicit and implicit costs 
D) the same as accounting profit

Question 20

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

Accepted Answer

Just as corporate shareholders (owners)c

How is a stock's price-earnings ratio found?

In August 2011,Standard & Poor's (S&P)changed its rating on U.S.Treasury bonds from ________ based on the state of the federal government's budget deficit.

Why do corporations want to keep the price of their stock high?

Which of the following statements is false?

Which of the following must a firm in a market economy do today to succeed?

What is the present value of $888 in a one year if the current rate of interest is five percent?

Explain what potential conflict exists between shareholders in a corporation and the corporation's managers.

Stockholders

A firm's net income is also its

How can a sole proprietorship raise funds needed for firm expansion?

Who owns a corporation?

Mortgages issued to borrowers whose credit histories include failures to make payments on bills are known as ________ mortgages.

The existence of ________ increases the risk of buying stock in a corporation.

Why is a dollar today more valuable than a dollar a year from now?

The difference between a firm's assets and liabilities is its

Jeremy is thinking of starting up a small business selling NASCAR memorabilia.He asks his friend,Carmen,if she'd like to join him in setting up a partnership to start the business.What is one disadvantage in joining the partnership that Carmen should consider?

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

If you own a bond with a seven percent coupon rate and new bonds are paying five percent,what will happen to your bond's market price?

What is economic profit?

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

Economics: Foundations and Models

Trade-Offs,comparative Advantage,and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, government Price Setting, and Taxes

The Economics of Health Care

Comparative Advantage and the Gains From International Trade

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

Filters

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

How is a stock's price-earnings ratio found?

In August 2011,Standard & Poor's (S&P)changed its rating on U.S.Treasury bonds from ________ based on the state of the federal government's budget deficit.

Why do corporations want to keep the price of their stock high?

Which of the following statements is false?

Which of the following must a firm in a market economy do today to succeed?

What is the present value of $888 in a one year if the current rate of interest is five percent?

Explain what potential conflict exists between shareholders in a corporation and the corporation's managers.

Stockholders

A firm's net income is also its

How can a sole proprietorship raise funds needed for firm expansion?

Who owns a corporation?

Mortgages issued to borrowers whose credit histories include failures to make payments on bills are known as ________ mortgages.

The existence of ________ increases the risk of buying stock in a corporation.

Why is a dollar today more valuable than a dollar a year from now?

The difference between a firm's assets and liabilities is its

Jeremy is thinking of starting up a small business selling NASCAR memorabilia.He asks his friend,Carmen,if she'd like to join him in setting up a partnership to start the business.What is one disadvantage in joining the partnership that Carmen should consider?

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

If you own a bond with a seven percent coupon rate and new bonds are paying five percent,what will happen to your bond's market price?

What is economic profit?

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

Economics: Foundations and Models

Trade-Offs,comparative Advantage,and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, government Price Setting, and Taxes

The Economics of Health Care

Comparative Advantage and the Gains From International Trade

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

Filters