Question 1

Using present value to calculate stock prices is ________ than using present value to calculate bond prices because ________.

Accepted Answer

A) less accurate;dividend payments for stocks are known with certainty but coupon payments for bonds are not 
B) less accurate;coupon payments for bonds are known with certainty but dividend payments for stocks are not 
C) more accurate;dividend payments for stocks are known with certainty but coupon payments for bonds are not 
D) more accurate;coupon payments for bonds are known with certainty but dividend payments for stocks are not 
A) less accurate;dividend payments for stocks are known with certainty but coupon payments for bonds are not 
B) less accurate;coupon payments for bonds are known with certainty but dividend payments for stocks are not 
C) more accurate;dividend payments for stocks are known with certainty but coupon payments for bonds are not 
D) more accurate;coupon payments for bonds are known with certainty but dividend payments for stocks are not

Question 2

In the United States,corporate profits are taxed

Accepted Answer

A) only at the corporate level. 
B) only when investors receive dividends. 
C) at both the corporate level and when investors receive dividends. 
D) neither at the corporate level nor when investors receive dividends. 
A) only at the corporate level. 
B) only when investors receive dividends. 
C) at both the corporate level and when investors receive dividends. 
D) neither at the corporate level nor when investors receive dividends.

Question 3

An increase in liabilities will reduce a firm's net worth.

Accepted Answer

A) True 
 B)False

Question 4

Juliana,Gabrielle,and Marcela want to start a business they are the only owners and the company does not issue stock.The type of business they want to start is a

Accepted Answer

A) sole proprietorship. 
B) partnership. 
C) corporation. 
D) Any of the above could be correct. 
A) sole proprietorship. 
B) partnership. 
C) corporation. 
D) Any of the above could be correct.

Question 5

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 6

Dividends are

Accepted Answer

A) financial securities which represent ownership in a corporation. 
B) the yearly payments associated with bonds. 
C) the interest rate paid on shares of stock. 
D) payments by a corporation to its shareholders. 
A) financial securities which represent ownership in a corporation. 
B) the yearly payments associated with bonds. 
C) the interest rate paid on shares of stock. 
D) payments by a corporation to its shareholders.

Question 7

An investor is more likely to buy a firm's stock if the firm's income statement shows ________ and if its balance sheet shows ________.

Accepted Answer

A) a large net worth;a large price-earnings ratio 
B) a large after-tax profit;a large net worth 
C) a large price-earnings ratio;a large dividend yield 
D) low opportunity costs;large liabilities 
A) a large net worth;a large price-earnings ratio 
B) a large after-tax profit;a large net worth 
C) a large price-earnings ratio;a large dividend yield 
D) low opportunity costs;large liabilities

Question 8

An income statement shows a firm's revenue,costs,and profit

Accepted Answer

A) for the firm's fiscal year. 
B) since the firm has been in operation. 
C) for a particular day. 
D) only if the firm is earning an accounting profit. 
A) for the firm's fiscal year. 
B) since the firm has been in operation. 
C) for a particular day. 
D) only if the firm is earning an accounting profit.

Question 9

When groups of mortgages are bundled together by financial institutions and sold to investors,these institutions are said to be ________ mortgage loans.

Accepted Answer

A) securitizing 
B) underwriting 
C) liquidating 
D) harvesting 
A) securitizing 
B) underwriting 
C) liquidating 
D) harvesting

Question 10

In a typical year,new small firms create ________ jobs.

Accepted Answer

A) 250,000 
B) 1.1 million 
C) 1.8 million 
D) 3.3 million 
A) 250,000 
B) 1.1 million 
C) 1.8 million 
D) 3.3 million

Question 11

Why is a bond considered to be a loan but a share of stock is not?

Accepted Answer

A bond is a loan because the firm promis

Question 12

Why is money you receive at some future date worth less to you than money you receive today?

Accepted Answer

Money received at some future date is wo

Question 13

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

Accepted Answer

A) Firms borrow funds from their retained earnings. 
B) Borrowers take out loans from banks. 
C) Loans to corporations are made from the sale of corporate bonds. 
D) Savers make funds available to borrowers by making deposits to savings accounts. 
A) Firms borrow funds from their retained earnings. 
B) Borrowers take out loans from banks. 
C) Loans to corporations are made from the sale of corporate bonds. 
D) Savers make funds available to borrowers by making deposits to savings accounts.

Question 14

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 15

When the coupon rate on newly issued bonds ________ relative to older,outstanding bonds,the market price of the older bond ________.

Accepted Answer

A) increases;falls in the secondary market 
B) increases;rises in the secondary market 
C) decreases;falls in the secondary market 
D) decreases;falls in the primary market 
A) increases;falls in the secondary market 
B) increases;rises in the secondary market 
C) decreases;falls in the secondary market 
D) decreases;falls in the primary market

Question 16

What does limited liability mean?

Accepted Answer

A) The owners of the business are personally responsible for paying expenses incurred by the business. 
B) Only employees can have a claim on the assets of the business. 
C) The personal assets of the owners cannot be claimed if the business is bankrupt. 
D) Anybody with a liability against a firm can claim only what their liability refers to. 
A) The owners of the business are personally responsible for paying expenses incurred by the business. 
B) Only employees can have a claim on the assets of the business. 
C) The personal assets of the owners cannot be claimed if the business is bankrupt. 
D) Anybody with a liability against a firm can claim only what their liability refers to.

Question 17

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 18

Aimee sells hand-embroidered dog apparel over the Internet.Her annual revenue is $128,000 per year,the explicit costs of her business are $42,000,and the opportunity costs of her business are $30,000.What are the implicit costs of her business?

Accepted Answer

A) $12,000 
B) $30,000 
C) $72,000 
D) $86,000 
A) $12,000 
B) $30,000 
C) $72,000 
D) $86,000

Question 19

In a given year,________ of smartphone or tablet owners will pay for any apps.

Accepted Answer

A) less than 15 percent 
B) only about one-third 
C) about 75 percent 
D) almost 90 percent 
A) less than 15 percent 
B) only about one-third 
C) about 75 percent 
D) almost 90 percent

Question 20

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

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

Using present value to calculate stock prices is ________ than using present value to calculate bond prices because ________.

In the United States,corporate profits are taxed

An increase in liabilities will reduce a firm's net worth.

Juliana,Gabrielle,and Marcela want to start a business they are the only owners and the company does not issue stock.The type of business they want to start is a

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

Dividends are

An investor is more likely to buy a firm's stock if the firm's income statement shows ________ and if its balance sheet shows ________.

An income statement shows a firm's revenue,costs,and profit

When groups of mortgages are bundled together by financial institutions and sold to investors,these institutions are said to be ________ mortgage loans.

In a typical year,new small firms create ________ jobs.

Why is a bond considered to be a loan but a share of stock is not?

Why is money you receive at some future date worth less to you than money you receive today?

Which of the following takes place in the direct finance 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.

When the coupon rate on newly issued bonds ________ relative to older,outstanding bonds,the market price of the older bond ________.

What does limited liability mean?

A firm's net income is also its

Aimee sells hand-embroidered dog apparel over the Internet.Her annual revenue is $128,000 per year,the explicit costs of her business are $42,000,and the opportunity costs of her business are $30,000.What are the implicit costs of her business?

In a given year,________ of smartphone or tablet owners will pay for any apps.

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.

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

Using present value to calculate stock prices is than using present value to calculate bond prices because .

An investor is more likely to buy a firm's stock if the firm's income statement shows and if its balance sheet shows .

When the coupon rate on newly issued bonds relative to older,outstanding bonds,the market price of the older bond .

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.