Question 1

When mortgage loans are securitized,they are

Accepted Answer

A) bundled together by financial institutions and sold to investors. 
B) issued to borrowers with flawed credit histories. 
C) issued to borrowers who fail to document their income. 
D) guaranteed by the federal government. 
A) bundled together by financial institutions and sold to investors. 
B) issued to borrowers with flawed credit histories. 
C) issued to borrowers who fail to document their income. 
D) guaranteed by the federal government.

Question 2

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

Accepted Answer

A) Coupon payments on newly-issued bonds fall to $40 per year. 
B) The likelihood that the firm issuing your bond will default on debt decreases. 
C) The price of a share of stock in the company rises. 
D) Coupon payments on newly-issued bonds rise to $75 per year. 
A) Coupon payments on newly-issued bonds fall to $40 per year. 
B) The likelihood that the firm issuing your bond will default on debt decreases. 
C) The price of a share of stock in the company rises. 
D) Coupon payments on newly-issued bonds rise to $75 per year.

Question 3

The rules of accounting generally require that ________ be included in a firm's financial records.

Accepted Answer

A) only implicit costs 
B) only explicit costs 
C) both explicit costs and implicit costs 
D) neither explicit costs nor implicit costs 
A) only implicit costs 
B) only explicit costs 
C) both explicit costs and implicit costs 
D) neither explicit costs nor implicit costs

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 legislation passed in 2010 that was intended to reform regulation of the financial system was the

Accepted Answer

A) Wall Street Reform and Consumer Protection Act. 
B) Sarbanes-Oxley Act. 
C) Glass-Steagall Act. 
D) Federal National Mortgage Act. 
A) Wall Street Reform and Consumer Protection Act. 
B) Sarbanes-Oxley Act. 
C) Glass-Steagall Act. 
D) Federal National Mortgage Act.

Question 6

When an investor buys a corporate bond,the face value of the bond is

Accepted Answer

A) a measure of ownership in the corporation. 
B) a loan to the corporation. 
C) the coupon rate of the bond. 
D) a dividend payment on the bond. 
A) a measure of ownership in the corporation. 
B) a loan to the corporation. 
C) the coupon rate of the bond. 
D) a dividend payment on the bond.

Question 7

What is a firm's balance sheet?

Accepted Answer

A firm's balance sheet is a fi

Question 8

The only type of business that faces limited liability is a partnership.

Accepted Answer

A) True 
 B)False

Question 9

As a business type,corporations ________ in the United States.

Accepted Answer

A) earn the majority of profits 
B) are the most common 
C) are the least common 
D) are subject to the least amount of taxes 
A) earn the majority of profits 
B) are the most common 
C) are the least common 
D) are subject to the least amount of taxes

Question 10

All of the following are examples of explicit cost a firm might incur except

Accepted Answer

A) the out-of-pocket expense to hire employees. 
B) taxes owed to the state government. 
C) the rental value of the warehouse space the company owns and uses for itself. 
D) the revenue a firm generates in using its resources. 
A) the out-of-pocket expense to hire employees. 
B) taxes owed to the state government. 
C) the rental value of the warehouse space the company owns and uses for itself. 
D) the revenue a firm generates in using its resources.

Question 11

On a balance sheet,stockholder's equity is equal to

Accepted Answer

A) assets minus liabilities. 
B) the total value of outstanding shares of stock. 
C) long-term liabilities minus current liabilities. 
D) total assets minus goodwill. 
A) assets minus liabilities. 
B) the total value of outstanding shares of stock. 
C) long-term liabilities minus current liabilities. 
D) total assets minus goodwill.

Question 12

One result of the financial meltdown of the late 2000s was that mortgage institutions ________ and ________ were brought under direct control of the government.

Accepted Answer

A) Fannie Mae;Freddie Mac 
B) Glass Steagall;Sarbanes Oxley 
C) Goldman Sachs;Morgan Stanley 
D) Lehman Brothers;FDIC 
A) Fannie Mae;Freddie Mac 
B) Glass Steagall;Sarbanes Oxley 
C) Goldman Sachs;Morgan Stanley 
D) Lehman Brothers;FDIC

Question 13

What is the most common type of business?

Accepted Answer

A) corporation 
B) partnership 
C) sole proprietorship 
D) They are equally represented because of federal laws. 
A) corporation 
B) partnership 
C) sole proprietorship 
D) They are equally represented because of federal laws.

Question 14

If a stock's dividend is expected to grow at a constant rate of 6 percent in the future and it has just paid a dividend of $2.50 a share,and you have an alternative investment of equal risk that will earn a 8 percent rate of return,what would you be willing to pay per share for this stock?

Accepted Answer

A) $2.86 
B) $33.13 
C) $132.50 
D) $200.00 
A) $2.86 
B) $33.13 
C) $132.50 
D) $200.00

Question 15

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 is her economic profit?

Accepted Answer

A) $12,000 
B) $56,000 
C) $86,000 
D) $98,000 
A) $12,000 
B) $56,000 
C) $86,000 
D) $98,000

Question 16

If Abercrombie & Fitch borrows $8 million from a bank to finance the construction of a new store,this is an example of

Accepted Answer

A) a stock market transaction. 
B) direct finance. 
C) a bond market transaction. 
D) indirect finance. 
A) a stock market transaction. 
B) direct finance. 
C) a bond market transaction. 
D) indirect finance.

Question 17

Direct finance includes the sale by a corporation of stocks or bonds,but does not include borrowing money from a bank.

Accepted Answer

A) True 
 B)False

Question 18

The Glass-Steagall Act

Accepted Answer

A) requires that CEO's personally certify the accuracy of financial statements. 
B) prevented financial firms from being both commercial banks and investment banks. 
C) was passed in response to the financial crisis of 2007-2009. 
D) all of the above 
A) requires that CEO's personally certify the accuracy of financial statements. 
B) prevented financial firms from being both commercial banks and investment banks. 
C) was passed in response to the financial crisis of 2007-2009. 
D) all of the above

Question 19

One of the most widely followed stock indexes in the United States is the S&P 500.This index represents

Accepted Answer

A) the stock prices of 500 large U.S.firms. 
B) the stock prices of the 500 most valuable firms worldwide. 
C) the stock prices of more than 4,000 U.S.firms. 
D) the stock prices of 30 large U.S.corporations. 
A) the stock prices of 500 large U.S.firms. 
B) the stock prices of the 500 most valuable firms worldwide. 
C) the stock prices of more than 4,000 U.S.firms. 
D) the stock prices of 30 large U.S.corporations.

Question 20

Raising funds through ________ is called indirect finance.

Accepted Answer

A) issuing stock 
B) issuing bonds 
C) financial intermediaries 
D) retaining earnings 
A) issuing stock 
B) issuing bonds 
C) financial intermediaries 
D) retaining earnings

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

When mortgage loans are securitized,they are

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

The rules of accounting generally require that ________ be included in a firm's financial records.

Stockholders

The legislation passed in 2010 that was intended to reform regulation of the financial system was the

When an investor buys a corporate bond,the face value of the bond is

What is a firm's balance sheet?

The only type of business that faces limited liability is a partnership.

As a business type,corporations ________ in the United States.

All of the following are examples of explicit cost a firm might incur except

On a balance sheet,stockholder's equity is equal to

One result of the financial meltdown of the late 2000s was that mortgage institutions ________ and ________ were brought under direct control of the government.

What is the most common type of business?

If a stock's dividend is expected to grow at a constant rate of 6 percent in the future and it has just paid a dividend of $2.50 a share,and you have an alternative investment of equal risk that will earn a 8 percent rate of return,what would you be willing to pay per share for this stock?

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 is her economic profit?

If Abercrombie & Fitch borrows $8 million from a bank to finance the construction of a new store,this is an example of

Direct finance includes the sale by a corporation of stocks or bonds,but does not include borrowing money from a bank.

The Glass-Steagall Act

One of the most widely followed stock indexes in the United States is the S&P 500.This index represents

Raising funds through ________ is called indirect finance.

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

One result of the financial meltdown of the late 2000s was that mortgage institutions and were brought under direct control of the government.