Question 1

What happens in the secondary market?

Accepted Answer

A)  secondary inputs like electricity are sold 
B)  a corporate financial manager will raise funds for expansion of the firm 
C)  newly issued claims are sold by the borrowing firm to the initial buyer 
D)  already issued claims are sold from one investor to another 
A)  secondary inputs like electricity are sold 
B)  a corporate financial manager will raise funds for expansion of the firm 
C)  newly issued claims are sold by the borrowing firm to the initial buyer 
D)  already issued claims are sold from one investor to another

Question 2

If a dollar a year from now will likely have less purchasing power because of inflation,then a dollar today ________ a dollar a year from now.

Accepted Answer

A)  is more valuable than 
B)  is less valuable than 
C)  has the same value as 
D)  may be more valuable or less valuable than 
A)  is more valuable than 
B)  is less valuable than 
C)  has the same value as 
D)  may be more valuable or less valuable than

Question 3

If you want to know the present value of $10,000 received in one year,and the interest rate is 4 percent,what formula can you use?

Accepted Answer

A)  Present value equals $10,000 times 0.04. 
B)  Present value equals $10,000 divided by 1.04 
C)  Present value equals 1.04 divided by $10,000. 
D)  Present value equals $10,000 times 1.04. 
A)  Present value equals $10,000 times 0.04. 
B)  Present value equals $10,000 divided by 1.04 
C)  Present value equals 1.04 divided by $10,000. 
D)  Present value equals $10,000 times 1.04.

Question 4

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 5

Unlike firms that sell stock in financial markets,which are known as ________ firms,companies like Facebook which do not sell stock in financial markets are known as ________ firms.

Accepted Answer

A)  public; private 
B)  open; closed 
C)  corporate; proprietary 
D)  stock market; bond market 
A)  public; private 
B)  open; closed 
C)  corporate; proprietary 
D)  stock market; bond market

Question 6

If a corporation goes bankrupt,which of the following has first claim on the firm's assets?

Accepted Answer

A)  stockholders 
B)  the state where chartered 
C)  employees 
D)  bondholders 
A)  stockholders 
B)  the state where chartered 
C)  employees 
D)  bondholders

Question 7

Scott is a manager at a pool cleaning business.He has hired 10 workers to clean pools for him and is considering what type of payment scheme he should set up for his workers.He can pay each of his workers $10 per hour to clean pools,or he can pay his workers $20 for each pool a worker cleans.(It takes 2 hours,on average,for an employee to clean a pool thoroughly.) If Scott wants to maximize the number of pools his workers clean in one day,which payment scheme should he use? Explain.

Accepted Answer

If Scott wants to maximize the number of

Question 8

The present value of $300 received 5 years in the future would be calculated as which of the following when the interest rate is 5%?

Accepted Answer

A)  300/(1.5)5 
B)  300/(1.05)5 
C)  300 × 1.5 × 5 
D)  5.05/300 
A)  300/(1.5)5 
B)  300/(1.05)5 
C)  300 × 1.5 × 5 
D)  5.05/300

Question 9

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 10

How can a partnership raise funds needed for firm expansion?

Accepted Answer

By retaining earning

Question 11

Net worth and stockholders' equity are both equal to the difference between assets and liabilities.

Accepted Answer

A) True 
 B)False

Question 12

Which type of business has the least government rules and regulations affecting it?

Accepted Answer

A)  sole proprietorship 
B)  partnership 
C)  corporation 
D)  They all have the same set of rules and regulations affecting them. 
A)  sole proprietorship 
B)  partnership 
C)  corporation 
D)  They all have the same set of rules and regulations affecting them.

Question 13

What takes place in the indirect finance market?

Accepted Answer

A)  Part ownership of corporations is sold in the form of stocks. 
B)  Corporate and government bonds are sold to savers. 
C)  Deposits of savers are accepted and loans made to borrowers. 
D)  Government purchases of buildings and equipment are sold to the highest bidder. 
A)  Part ownership of corporations is sold in the form of stocks. 
B)  Corporate and government bonds are sold to savers. 
C)  Deposits of savers are accepted and loans made to borrowers. 
D)  Government purchases of buildings and equipment are sold to the highest bidder.

Question 14

You have a bond that pays $60 per year in coupon payments.Which of the following would result in an increase in the price of your bond?

Accepted Answer

A)  Coupon payments on newly-issued bonds rise to $80 per year. 
B)  The likelihood that the firm issuing your bond will default on debt increases. 
C)  The price of a share of stock in the company falls. 
D)  Coupon payments on newly-issued bonds fall to $50 per year. 
A)  Coupon payments on newly-issued bonds rise to $80 per year. 
B)  The likelihood that the firm issuing your bond will default on debt increases. 
C)  The price of a share of stock in the company falls. 
D)  Coupon payments on newly-issued bonds fall to $50 per year.

Question 15

If a corporate bond with a face value of $5,000 pays yearly coupon payments of $100,what is the coupon rate?

Accepted Answer

A)  2% 
B)  5% 
C)  10% 
D)  20% 
A)  2% 
B)  5% 
C)  10% 
D)  20%

Question 16

Organizing a successful firm in a market economy has become ________ over the last century.

Accepted Answer

A)  legally impossible 
B)  politically impossible 
C)  less difficult 
D)  more difficult 
A)  legally impossible 
B)  politically impossible 
C)  less difficult 
D)  more difficult

Question 17

The interest payment on a bond is called

Accepted Answer

A)  the coupon payment. 
B)  principal. 
C)  the interest rate. 
D)  the face value. 
A)  the coupon payment. 
B)  principal. 
C)  the interest rate. 
D)  the face value.

Question 18

In November 2011,General Motors (GM)posted a price-earnings ratio of 4.73.If the price of the stock at that time was $23 per share,which of the following must have been true?

Accepted Answer

A)  GM's revenues that month were $250.2 million. 
B)  GM's earnings per share was $4.86. 
C)  GM's coupon payment was $23 per year. 
D)  GM's dividend yield for the year was 20.6%. 
A)  GM's revenues that month were $250.2 million. 
B)  GM's earnings per share was $4.86. 
C)  GM's coupon payment was $23 per year. 
D)  GM's dividend yield for the year was 20.6%.

Question 19

A decrease in liabilities will reduce a firm's net worth.

Accepted Answer

A) True 
 B)False

Question 20

A corporation is owned by its

Accepted Answer

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

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

What happens in the secondary market?

If a dollar a year from now will likely have less purchasing power because of inflation,then a dollar today ________ a dollar a year from now.

If you want to know the present value of $10,000 received in one year,and the interest rate is 4 percent,what formula can you use?

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

Unlike firms that sell stock in financial markets,which are known as ________ firms,companies like Facebook which do not sell stock in financial markets are known as ________ firms.

If a corporation goes bankrupt,which of the following has first claim on the firm's assets?

The present value of $300 received 5 years in the future would be calculated as which of the following when the interest rate is 5%?

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

How can a partnership raise funds needed for firm expansion?

Net worth and stockholders' equity are both equal to the difference between assets and liabilities.

Which type of business has the least government rules and regulations affecting it?

What takes place in the indirect finance market?

You have a bond that pays $60 per year in coupon payments.Which of the following would result in an increase in the price of your bond?

If a corporate bond with a face value of $5,000 pays yearly coupon payments of $100,what is the coupon rate?

Organizing a successful firm in a market economy has become ________ over the last century.

The interest payment on a bond is called

In November 2011,General Motors (GM)posted a price-earnings ratio of 4.73.If the price of the stock at that time was $23 per share,which of the following must have been true?

A decrease in liabilities will reduce a firm's net worth.

A corporation is owned by its

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

Unlike firms that sell stock in financial markets,which are known as firms,companies like Facebook which do not sell stock in financial markets are known as firms.