Question 1

Mutual funds are a good and relatively inexpensive way for individual investors to diversify.

Accepted Answer

A) True 
 B)False

Question 2

The Sarbanes-Oxley Act of 2002 was passed in response to what event?

Accepted Answer

A) a series of accounting scandals 
B) unexpected increases in dividend payments to stockholders at various corporations 
C) volatility in NASDAQ indexes 
D) historically low bond prices 
A) a series of accounting scandals 
B) unexpected increases in dividend payments to stockholders at various corporations 
C) volatility in NASDAQ indexes 
D) historically low bond prices

Question 3

When an investor buys a corporate bond,the ________ is a loan to the corporation.

Accepted Answer

A) interest on the bond 
B) principal of the bond 
C) bond's dividend payments 
D) coupon payment 
A) interest on the bond 
B) principal of the bond 
C) bond's dividend payments 
D) coupon payment

Question 4

Corporations are legally owned by their shareholders.

Accepted Answer

A) True 
 B)False

Question 5

Briefly describe the Sarbanes-Oxley Act and explain why it was passed.

Accepted Answer

The Sarbanes-Oxley Act of 2002 was enact

Question 6

Which type of business has the most 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 7

Which of the following is a characteristic of a bond?

Accepted Answer

A) A bond 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) All of these are characteristics of bonds. 
A) A bond 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) All of these are characteristics of bonds.

Question 8

If top managers make good decisions,the firm's profits will be ________,and the firms assets will be ________.

Accepted Answer

A) high;small relative to its liabilities. 
B) high;large relative to its liabilities. 
C) equal to its revenues;small relative to its liabilities. 
D) low;large relative to its liabilities 
A) high;small relative to its liabilities. 
B) high;large relative to its liabilities. 
C) equal to its revenues;small relative to its liabilities. 
D) low;large relative to its liabilities

Question 9

If a firm has implicit costs as well as explicit costs

Accepted Answer

A) net income will always be less than accounting profit. 
B) accounting profit will be zero. 
C) net income will always be greater than accounting profit. 
D) economic profit will be less than accounting profit. 
A) net income will always be less than accounting profit. 
B) accounting profit will be zero. 
C) net income will always be greater than accounting profit. 
D) economic profit will be less than accounting profit.

Question 10

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 11

Two of the firms involved in the accounting scandals of the early 2000s were

Accepted Answer

A) Arthur Anderson and NBC. 
B) Western Digital and General Motors. 
C) WorldCom and Enron. 
D) DuPont and Lehman Brothers. 
A) Arthur Anderson and NBC. 
B) Western Digital and General Motors. 
C) WorldCom and Enron. 
D) DuPont and Lehman Brothers.

Question 12

What can be done to deal with the principal-agent problem?

Accepted Answer

A) threaten to liquidate the firm 
B) link top manager salaries to the profits of the firm or the price of the firm's stock 
C) have the CEO be a rotating position 
D) forbid managers from owning any company stock 
A) threaten to liquidate the firm 
B) link top manager salaries to the profits of the firm or the price of the firm's stock 
C) have the CEO be a rotating position 
D) forbid managers from owning any company stock

Question 13

Who selects the board of directors of a corporation?

Accepted Answer

A) stockholders 
B) bondholders 
C) upper management 
D) all of the above 
A) stockholders 
B) bondholders 
C) upper management 
D) all of the above

Question 14

What is the present value of $777 in one year if the current rate of interest is 7 percent?

Accepted Answer

A) $831.39 
B) $726.17 
C) $457.06 
D) $111.00 
A) $831.39 
B) $726.17 
C) $457.06 
D) $111.00

Question 15

A sole proprietorship is the type of business that has ________ government rules and regulations affecting it.

Accepted Answer

A) no 
B) the fewest 
C) the most 
D) only federal 
A) no 
B) the fewest 
C) the most 
D) only federal

Question 16

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 17

Julie is the chief executive officer (CEO)of the Black Gold Corporation and is also on the company's board of directors.Julie is considered ________ of the corporation.

Accepted Answer

A) a stockholder 
B) an inside director 
C) an owner 
D) an outside director 
A) a stockholder 
B) an inside director 
C) an owner 
D) an outside director

Question 18

Which of the following takes place in the direct finance market?

Accepted Answer

A) Firms borrow funds from banks. 
B) Deposits from savers are accumulated and loans made to borrowers. 
C) Ownership in corporations is sold in the form of preferred stock. 
D) Banks offer savings accounts to customers. 
A) Firms borrow funds from banks. 
B) Deposits from savers are accumulated and loans made to borrowers. 
C) Ownership in corporations is sold in the form of preferred stock. 
D) Banks offer savings accounts to customers.

Question 19

Anything of value owned by a person or a firm is

Accepted Answer

A) an asset. 
B) a liability. 
C) an entitlement. 
D) a durable good. 
A) an asset. 
B) a liability. 
C) an entitlement. 
D) a durable good.

Question 20

Explicit costs are nonmonetary costs.

Accepted Answer

A) True 
 B)False

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

Mutual funds are a good and relatively inexpensive way for individual investors to diversify.

The Sarbanes-Oxley Act of 2002 was passed in response to what event?

When an investor buys a corporate bond,the ________ is a loan to the corporation.

Corporations are legally owned by their shareholders.

Briefly describe the Sarbanes-Oxley Act and explain why it was passed.

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

Which of the following is a characteristic of a bond?

If top managers make good decisions,the firm's profits will be ________,and the firms assets will be ________.

If a firm has implicit costs as well as explicit costs

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

Two of the firms involved in the accounting scandals of the early 2000s were

What can be done to deal with the principal-agent problem?

Who selects the board of directors of a corporation?

What is the present value of $777 in one year if the current rate of interest is 7 percent?

A sole proprietorship is the type of business that has ________ government rules and regulations affecting it.

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?

Julie is the chief executive officer (CEO)of the Black Gold Corporation and is also on the company's board of directors.Julie is considered ________ of the corporation.

Which of the following takes place in the direct finance market?

Anything of value owned by a person or a firm is

Explicit costs are nonmonetary costs.

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

If top managers make good decisions,the firm's profits will be ,and the firms assets will be .