Question 1

Explain what information that changes in the value of a firm's stocks provide for a firm's managers and for investors.

Accepted Answer

Changes in the value of a firm's stocks

Question 2

If you own a $1,000 face value bond with one year remaining to maturity and a 3 percent coupon rate and new bonds are paying 14 percent,what is the most you can get for your old bond?

Accepted Answer

A) $903.51 
B) $997.19 
C) $1,000 
D) $1,140 
A) $903.51 
B) $997.19 
C) $1,000 
D) $1,140

Question 3

What is corporate governance?

Accepted Answer

Corporate governance refers to

Question 4

The Sarbanes-Oxley Act of 2002 requires that CEOs personally certify the accuracy of financial reports.

Accepted Answer

A) True 
 B)False

Question 5

How does the principal-agent problem extend to managers and employees?

Accepted Answer

Just as corporate shareholders (owners)c

Question 6

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 7

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

Accepted Answer

A) The owner has complete control over the business. 
B) A proprietorship has few government rules and regulations to comply with. 
C) Business profits are only taxed once,not twice. 
D) A proprietorship can easily attain additional funding. 
A) The owner has complete control over the business. 
B) A proprietorship has few government rules and regulations to comply with. 
C) Business profits are only taxed once,not twice. 
D) A proprietorship can easily attain additional funding.

Question 8

Which type of businesses earns the majority of revenues 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 9

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

Accepted Answer

A) the wages paid to employees 
B) the payment for medical insurance coverage 
C) the opportunity cost to investors of the funds invested in the firm 
D) utility payments 
A) the wages paid to employees 
B) the payment for medical insurance coverage 
C) the opportunity cost to investors of the funds invested in the firm 
D) utility payments

Question 10

Arturo wants to start a business where he is the chief executive officer and the company does issue stock.The type of business Arturo wants 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 11

Unlimited personal liability is a disadvantage for

Accepted Answer

A) sole proprietorships and partnerships. 
B) partnerships and corporations. 
C) sole proprietorships and corporations 
D) corporations. 
A) sole proprietorships and partnerships. 
B) partnerships and corporations. 
C) sole proprietorships and corporations 
D) corporations.

Question 12

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 13

A bond is a financial security that represents

Accepted Answer

A) ownership in a corporation. 
B) the portion of profits paid to shareholders. 
C) the interest rate paid on a share of stock. 
D) a promise to repay a fixed amount of funds. 
A) ownership in a corporation. 
B) the portion of profits paid to shareholders. 
C) the interest rate paid on a share of stock. 
D) a promise to repay a fixed amount of funds.

Question 14

Explain what potential conflict exists between shareholders in a corporation and the corporation's managers.

Accepted Answer

The "principal-agent problem" exists any

Question 15

In the United States,________ percent of all firms are partnerships.

Accepted Answer

A) 4 
B) 10 
C) 14 
D) 26 
A) 4 
B) 10 
C) 14 
D) 26

Question 16

Stock prices are

Accepted Answer

A) based more on the current profitability of firms than on their expected future profitability. 
B) based less on the current profitability of firms than on their expected future profitability. 
C) based equally on the current profitability of firms and on their expected future profitability. 
D) not based on the current profitability of firms or on their expected future profitability. 
A) based more on the current profitability of firms than on their expected future profitability. 
B) based less on the current profitability of firms than on their expected future profitability. 
C) based equally on the current profitability of firms and on their expected future profitability. 
D) not based on the current profitability of firms or on their expected future profitability.

Question 17

A firm's net worth is calculated as

Accepted Answer

A) the difference between a firm's revenues and explicit costs. 
B) the difference between a firm's revenues and implicit costs. 
C) the difference between a firm's assets and liabilities. 
D) the difference between a firm's liabilities and outstanding equities. 
A) the difference between a firm's revenues and explicit costs. 
B) the difference between a firm's revenues and implicit costs. 
C) the difference between a firm's assets and liabilities. 
D) the difference between a firm's liabilities and outstanding equities.

Question 18

If the face value of a bond is $5,000 and the coupon is $200,what is the interest rate?

Accepted Answer

The interest rate,or coupon ra

Question 19

Some corporate governance experts believe that serving on a company's board of directors for an extended length of time diminishes that member's independence from the company's CEO.If this is true,it would tend to

Accepted Answer

A) reduce the principal-agent problem. 
B) increase the principal-agent problem. 
C) be in the best interest of shareholders. 
D) have no impact on the company's performance,since the CEO is only one member of top management. 
A) reduce the principal-agent problem. 
B) increase the principal-agent problem. 
C) be in the best interest of shareholders. 
D) have no impact on the company's performance,since the CEO is only one member of top management.

Question 20

The Sarbanes-Oxley Act was passed in response to the 2007-2009 financial crisis.

Accepted Answer

A) True 
 B)False

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

Explain what information that changes in the value of a firm's stocks provide for a firm's managers and for investors.

If you own a $1,000 face value bond with one year remaining to maturity and a 3 percent coupon rate and new bonds are paying 14 percent,what is the most you can get for your old bond?

What is corporate governance?

The Sarbanes-Oxley Act of 2002 requires that CEOs personally certify the accuracy of financial reports.

How does the principal-agent problem extend to managers and employees?

What happens in the secondary market?

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

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

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

Arturo wants to start a business where he is the chief executive officer and the company does issue stock.The type of business Arturo wants to start is a

Unlimited personal liability is a disadvantage for

A bond is a financial security that represents

Explain what potential conflict exists between shareholders in a corporation and the corporation's managers.

In the United States,________ percent of all firms are partnerships.

Stock prices are

A firm's net worth is calculated as

If the face value of a bond is $5,000 and the coupon is $200,what is the interest rate?

Some corporate governance experts believe that serving on a company's board of directors for an extended length of time diminishes that member's independence from the company's CEO.If this is true,it would tend to

The Sarbanes-Oxley Act was passed in response to the 2007-2009 financial crisis.

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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