Exam 6: Firms, the Stock Market, and Corporate Governance

Why did the principal-agent problem for investment banks become more severe following the repeal of the Glass-Steagall Act in 1999?

Corporate governance refers to the way in which a corporation is structured and the effect that structure has on the corporation's behavior.

If the present value equation used to calculate the price of a stock you are considering buying is "[$12 / (0.05 - 0.02)],which of the following is correct,assuming that dividends will grow at a constant rate?

In response to accounting scandals in 2002,the federal government passed legislation requiring among other things that auditors disclose any potential conflicts of interest.What is the name of this legislation?

As a result of the financial crisis of 2007-2009,Freddie Mac and Fannie Mae were brought under the direct control of the government.

Richard Causey,former chief accounting officer for Enron,pleaded guilty to falsely reported costs for Enron that were ________ than they actually were,resulting in reported accounting profits for Enron that were ________ than their actual level.The financial statements were falsified to mislead investors about the profitability of the firm.

The ________ a corporation keeps to finance future expansion are known as retained earnings.

The Glass-Steagall Act

Why might a small investor be interested in buying a mutual fund as opposed to stock in an individual company?

In August 2011,Standard & Poor's (S&P)changed its rating on U.S.Treasury bonds from "AAA" to "AA+" based on the state of the federal government's budget deficit.This was the ________ a rating agency had given Treasury bonds less than a rating of "AAA".

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?

Which of the following is the most important of the over-the-counter markets?

Anita is the retired president of Claddagh College and currently serves on the board of directors of the Patrician Pharmaceutical Company.Anita is considered ________ of the company.

The Sarbanes-Oxley Act of 2002

Veruca sells therapeutic bath salts on the Internet.Her annual revenue is $52,000 per year,the explicit costs of her business are $14,000,and the opportunity costs of her business are $17,000 per year.What is her accounting profit?

If you borrow $5,000 from your bank to purchase shares of Twitter from your cousin Vinny,this is an example of obtaining ________ financing and purchasing the stock in a ________ market.

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 the United States,sole proprietorship profits are taxed at the business level and then are taxed again as personal income in the form of dividend payments.

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

Pietro is a manager at a carwash.He has hired 10 workers to wash and detail cars for him and is considering what type of payment scheme he should set up for his workers.He can pay each of his workers $9 per hour to wash and detail cars,or he can pay his workers $12 for each car a worker washes and details.(It takes 75 minutes,on average,for an employee to wash and detail a car. )If Pietro wants to maximize the number of cars his workers wash and detail in one day,which payment scheme should he use? Explain.