Question 1

In a corporation,what are "inside directors" and "outside directors"?

Accepted Answer

Inside directors are members of manageme

Question 2

How much is a bond that pays $50 in coupon payments for 3 years and $1,000 at the end of the third year worth if the interest rate is 10%?

Accepted Answer

A)  $876 
B)  $952 
C)  $1,045 
D)  $1,150 
A)  $876 
B)  $952 
C)  $1,045 
D)  $1,150

Question 3

By tying the salaries of top corporate managers to the price of the corporation's stock,corporations hope to avoid

Accepted Answer

A)  corporate governance. 
B)  conflict between the CFO and the CEO. 
C)  the principal-agent problem. 
D)  paying high salaries to their managers. 
A)  corporate governance. 
B)  conflict between the CFO and the CEO. 
C)  the principal-agent problem. 
D)  paying high salaries to their managers.

Question 4

Stockholders

Accepted Answer

A)  select the board of directors of a corporation. 
B)  select the employees of a corporation. 
C)  select the managers of a corporation. 
D)  all of the above 
A)  select the board of directors of a corporation. 
B)  select the employees of a corporation. 
C)  select the managers of a corporation. 
D)  all of the above

Question 5

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 6

In addition to requiring that CEO's personally certify the accuracy of financial statements,the Sarbanes-Oxley Act of 2002 also requires that

Accepted Answer

A)  CEO's conduct audits of their corporations themselves. 
B)  firms raise funds for expansion through the sale of bonds only, not stocks. 
C)  auditors disclose any potential conflicts of interest. 
D)  corporations issue financial statements monthly rather than quarterly. 
A)  CEO's conduct audits of their corporations themselves. 
B)  firms raise funds for expansion through the sale of bonds only, not stocks. 
C)  auditors disclose any potential conflicts of interest. 
D)  corporations issue financial statements monthly rather than quarterly.

Question 7

An asset is

Accepted Answer

A)  anything of value owned by a person or a firm. 
B)  a payment by a corporation to its shareholders. 
C)  a nonmonetary opportunity cost. 
D)  anything owed by a person or a firm. 
A)  anything of value owned by a person or a firm. 
B)  a payment by a corporation to its shareholders. 
C)  a nonmonetary opportunity cost. 
D)  anything owed by a person or a firm.

Question 8

How is accounting profit found?

Accepted Answer

Accounting profit eq

Question 9

If you put $100 into a bank account that earns five percent interest per year,what is the formula you should use to determine the account's future value in one year?

Accepted Answer

A)  Future value equals the present value divided by the rate of interest. 
B)  Future value equals the present value multiplied by the rate of interest. 
C)  Future value equals the present value multiplied by one plus the rate of interest in decimals. 
D)  All of these yield the same answer. 
A)  Future value equals the present value divided by the rate of interest. 
B)  Future value equals the present value multiplied by the rate of interest. 
C)  Future value equals the present value multiplied by one plus the rate of interest in decimals. 
D)  All of these yield the same answer.

Question 10

When the coupon rate on newly issued bonds decreases relative to older,outstanding bonds,what happens?

Accepted Answer

A)  The market price of the older bond falls in the secondary market. 
B)  The market price of the older bond rises in the secondary market. 
C)  Older bonds can still be sold at their face value. 
D)  Older bonds will sell for more than their face value. 
A)  The market price of the older bond falls in the secondary market. 
B)  The market price of the older bond rises in the secondary market. 
C)  Older bonds can still be sold at their face value. 
D)  Older bonds will sell for more than their face value.

Question 11

Accounting profit is the difference between a firm's revenue and its opportunity costs.

Accepted Answer

A) True 
 B)False

Question 12

How can a proprietorship or partnership raise funds for expansion?

Accepted Answer

A)  borrow from someone or an institution willing to lend the funds 
B)  reinvest profit back into the business 
C)  take on a partner or more partners 
D)  Any of these would generate funds for expansion. 
A)  borrow from someone or an institution willing to lend the funds 
B)  reinvest profit back into the business 
C)  take on a partner or more partners 
D)  Any of these would generate funds for expansion.

Question 13

Which type of businesses earns the majority of profits in the United States?

Accepted Answer

A)  corporations 
B)  partnerships 
C)  sole proprietorships 
D)  none of these 
A)  corporations 
B)  partnerships 
C)  sole proprietorships 
D)  none of these

Question 14

What is a corporate bond and what does it specify?

Accepted Answer

A bond is a promise to repay a

Question 15

Which of the following is a characteristic of stock?

Accepted Answer

A)  Stock represents a promise to repay a fixed amount of funds. 
B)  The face value or principal plus interest is repaid at a specified period of time. 
C)  The length of coupon payments is fixed by the stated maturity period. 
D)  Stock represents ownership in a firm 
A)  Stock represents a promise to repay a fixed amount of funds. 
B)  The face value or principal plus interest is repaid at a specified period of time. 
C)  The length of coupon payments is fixed by the stated maturity period. 
D)  Stock represents ownership in a firm

Question 16

What is shown on a firm's income statement?

Accepted Answer

A)  costs 
B)  profits 
C)  revenues 
D)  All of these are shown on a firm's income statement. 
A)  costs 
B)  profits 
C)  revenues 
D)  All of these are shown on a firm's income statement.

Question 17

The profits a corporation keeps to finance future expansion are known as

Accepted Answer

A)  retained earnings. 
B)  preferred stock. 
C)  dividends. 
D)  capital gains. 
A)  retained earnings. 
B)  preferred stock. 
C)  dividends. 
D)  capital gains.

Question 18

What are liabilities?

Accepted Answer

A)  anything of value owned by a person or a business 
B)  anything a person or a business owes to entities outside the business 
C)  the total cost of labor for a firm 
D)  only those unpaid expenses for which a business or person is making interest payments 
A)  anything of value owned by a person or a business 
B)  anything a person or a business owes to entities outside the business 
C)  the total cost of labor for a firm 
D)  only those unpaid expenses for which a business or person is making interest payments

Question 19

Roderick received a $100 savings bond for his graduation.The bond pays $100 at maturity,which is in five years.If the interest rate is 6%,the bond has a present value of $90.09.

Accepted Answer

A) True 
 B)False

Question 20

What is the present value of $575 in a one year if the current rate of interest is 4 percent?

Accepted Answer

A)  $410.71 
B)  $552.88 
C)  $598 
D)  $805 
A)  $410.71 
B)  $552.88 
C)  $598 
D)  $805

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

In a corporation,what are "inside directors" and "outside directors"?

How much is a bond that pays $50 in coupon payments for 3 years and $1,000 at the end of the third year worth if the interest rate is 10%?

By tying the salaries of top corporate managers to the price of the corporation's stock,corporations hope to avoid

Stockholders

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

In addition to requiring that CEO's personally certify the accuracy of financial statements,the Sarbanes-Oxley Act of 2002 also requires that

An asset is

How is accounting profit found?

If you put $100 into a bank account that earns five percent interest per year,what is the formula you should use to determine the account's future value in one year?

When the coupon rate on newly issued bonds decreases relative to older,outstanding bonds,what happens?

Accounting profit is the difference between a firm's revenue and its opportunity costs.

How can a proprietorship or partnership raise funds for expansion?

Which type of businesses earns the majority of profits in the United States?

What is a corporate bond and what does it specify?

Which of the following is a characteristic of stock?

What is shown on a firm's income statement?

The profits a corporation keeps to finance future expansion are known as

What are liabilities?

Roderick received a $100 savings bond for his graduation.The bond pays $100 at maturity,which is in five years.If the interest rate is 6%,the bond has a present value of $90.09.

What is the present value of $575 in a one year if the current rate of interest is 4 percent?

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

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