Question 1

Which of the following is an example of an implicit cost a firm might incur?

Accepted Answer

A)  the out-of-pocket expense to hire resources 
B)  taxes owed to the state and Federal governments 
C)  the rental value of the office space the company owns and uses for itself 
D)  the revenue a firm generates in using its resources 
A)  the out-of-pocket expense to hire resources 
B)  taxes owed to the state and Federal governments 
C)  the rental value of the office space the company owns and uses for itself 
D)  the revenue a firm generates in using its resources

Question 2

During 2007,many "subprime" and "Alt-A" borrowers began to default on their mortgages.Describe "subprime" and "Alt-A" borrowers.

Accepted Answer

"Subprime" borrowers are borrowers whose

Question 3

Compared to buying stock in a publicly-held firm,investing in a private firm

Accepted Answer

A)  is often considered safer because private firms are subject to stricter SEC regulations. 
B)  is often considered riskier because public firms are subject to stricter SEC regulations. 
C)  is often considered riskier because private firms are subject to stricter SEC regulations. 
D)  is often considered safer because public firms are subject to stricter SEC regulations. 
A)  is often considered safer because private firms are subject to stricter SEC regulations. 
B)  is often considered riskier because public firms are subject to stricter SEC regulations. 
C)  is often considered riskier because private firms are subject to stricter SEC regulations. 
D)  is often considered safer because public firms are subject to stricter SEC regulations.

Question 4

What is a primary market?

Accepted Answer

A)  a market where primary inputs like steel are sold 
B)  a market where you can sell any bonds you own as a private investor 
C)  a market where a newly issued claims are sold to initial buyers by the borrowing firm 
D)  a market where you can sell any stocks you own as a private investor 
A)  a market where primary inputs like steel are sold 
B)  a market where you can sell any bonds you own as a private investor 
C)  a market where a newly issued claims are sold to initial buyers by the borrowing firm 
D)  a market where you can sell any stocks you own as a private investor

Question 5

On a balance sheet,short-term debts such as accounts payable are listed as

Accepted Answer

A)  current assets. 
B)  current liabilities. 
C)  stockholder's equity. 
D)  goodwill. 
A)  current assets. 
B)  current liabilities. 
C)  stockholder's equity. 
D)  goodwill.

Question 6

If you own a $1,000 face value bond with one year remaining to maturity and a five percent coupon rate and new bonds are paying 12 percent,what is the most you can get for your old bond?

Accepted Answer

A)  $1,120 
B)  $1,000 
C)  $937.50 
D)  impossible to determine without additional information 
A)  $1,120 
B)  $1,000 
C)  $937.50 
D)  impossible to determine without additional information

Question 7

Which of the following is part of the secondary market?

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 8

Sole proprietorships are ________ type of business.

Accepted Answer

A)  the most profitable 
B)  the least common 
C)  the most common 
D)  the least risky 
A)  the most profitable 
B)  the least common 
C)  the most common 
D)  the least risky

Question 9

When an investor buys a corporate bond,

Accepted Answer

A)  the investor becomes part owner of the corporation. 
B)  the principal of the bond is a loan to the corporation. 
C)  the interest made on the bond represents the bondholder's limited liability in the company. 
D)  the face value of the bond is equal to what the investor paid for the bond. 
A)  the investor becomes part owner of the corporation. 
B)  the principal of the bond is a loan to the corporation. 
C)  the interest made on the bond represents the bondholder's limited liability in the company. 
D)  the face value of the bond is equal to what the investor paid for the bond.

Question 10

Which of the following is not an advantage of starting a new business as a corporation?

Accepted Answer

A)  separation of ownership and business liability 
B)  enhanced ability to raise funds 
C)  ability to share risks 
D)  possibility of double taxation 
A)  separation of ownership and business liability 
B)  enhanced ability to raise funds 
C)  ability to share risks 
D)  possibility of double taxation

Question 11

The person hired by a corporation's board of directors to run the day-to-day operations of the corporation is known as the

Accepted Answer

A)  chairman of the board. 
B)  chief executive officer. 
C)  owner-manager. 
D)  corporate governor. 
A)  chairman of the board. 
B)  chief executive officer. 
C)  owner-manager. 
D)  corporate governor.

Question 12

If you purchase a share of stock from your friend who initially purchased the stock three years ago,your purchase of the stock represents a transaction in the secondary financial market

Accepted Answer

A) True 
 B)False

Question 13

Jeremy is thinking of starting up a small business selling NASCAR memorabilia.He is considering setting up his business as a sole proprietorship.What is one disadvantage to Jeremy of setting up his business as a sole proprietorship?

Accepted Answer

A)  As a sole proprietor, Jeremy would be taxed twice. 
B)  As a sole proprietor, Jeremy would not have control of the business. 
C)  As a sole proprietor, Jeremy would face unlimited liability. 
D)  As a sole proprietor, Jeremy would be subject to significant rules and regulations. 
A)  As a sole proprietor, Jeremy would be taxed twice. 
B)  As a sole proprietor, Jeremy would not have control of the business. 
C)  As a sole proprietor, Jeremy would face unlimited liability. 
D)  As a sole proprietor, Jeremy would be subject to significant rules and regulations.

Question 14

Who operates and controls a corporation in its day-to-day activities?

Accepted Answer

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

Question 15

What is the difference between explicit and implicit costs?

Accepted Answer

Explicit costs are out-of-pock

Question 16

Laura's Pizza Place incurs $800,000 per year in explicit costs and $100,000 in implicit costs.The restaurant earns $1.3 million in revenues.Based on this information,what is accounting profit for Laura's Pizza Place?

Accepted Answer

A)  $200,000 
B)  $400,000 
C)  $500,000 
D)  $900,000 
A)  $200,000 
B)  $400,000 
C)  $500,000 
D)  $900,000

Question 17

Suppose you hit a progressive jackpot on a slot machine in a casino in Atlantic City and are given the choice of the following prizes:
Prize 1: $150,000 to be received right away,with three additional payments of $150,000 to be received each year for the next three years.
Prize 2: $500,000 to be received right away.
If the interest rate is 5 percent,what is the present value of each prize?

Accepted Answer

Prize 1:Present value = $150,0

Question 18

Traditionally,Wall Street investment banks had been organized as partnerships,but by 2000 they had converted to being publicly traded companies.As partnerships,the principal-agent problem is ________ because there is ________ separation of ownership from control.

Accepted Answer

A)  reduced; much 
B)  reduced; little 
C)  increased; much 
D)  increased; little 
A)  reduced; much 
B)  reduced; little 
C)  increased; much 
D)  increased; little

Question 19

How do firms raise external funds through indirect finance?

Accepted Answer

With indirect finance,funds fl

Question 20

The principal-agent problem that exists between shareholders and managers also exists between managers and workers.

Accepted Answer

A) True 
 B)False

Exam 8: Firms, the Stock Market, and Corporate Governance

Which of the following is an example of an implicit cost a firm might incur?

During 2007,many "subprime" and "Alt-A" borrowers began to default on their mortgages.Describe "subprime" and "Alt-A" borrowers.

Compared to buying stock in a publicly-held firm,investing in a private firm

What is a primary market?

On a balance sheet,short-term debts such as accounts payable are listed as

If you own a $1,000 face value bond with one year remaining to maturity and a five percent coupon rate and new bonds are paying 12 percent,what is the most you can get for your old bond?

Which of the following is part of the secondary market?

Sole proprietorships are ________ type of business.

When an investor buys a corporate bond,

Which of the following is not an advantage of starting a new business as a corporation?

The person hired by a corporation's board of directors to run the day-to-day operations of the corporation is known as the

If you purchase a share of stock from your friend who initially purchased the stock three years ago,your purchase of the stock represents a transaction in the secondary financial market

Jeremy is thinking of starting up a small business selling NASCAR memorabilia.He is considering setting up his business as a sole proprietorship.What is one disadvantage to Jeremy of setting up his business as a sole proprietorship?

Who operates and controls a corporation in its day-to-day activities?

What is the difference between explicit and implicit costs?

Laura's Pizza Place incurs $800,000 per year in explicit costs and $100,000 in implicit costs.The restaurant earns $1.3 million in revenues.Based on this information,what is accounting profit for Laura's Pizza Place?

Traditionally,Wall Street investment banks had been organized as partnerships,but by 2000 they had converted to being publicly traded companies.As partnerships,the principal-agent problem is ________ because there is ________ separation of ownership from control.

How do firms raise external funds through indirect finance?

The principal-agent problem that exists between shareholders and managers also exists between managers and workers.

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

Externalities, environmental Policy, and Public Goods

Elasticity: The Responsiveness of Demand and Supply

The Economics of Health Care

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: The Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, taxes, and the Distribution of Income

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

Traditionally,Wall Street investment banks had been organized as partnerships,but by 2000 they had converted to being publicly traded companies.As partnerships,the principal-agent problem is because there is separation of ownership from control.