Question 1

The random walk theory says that

Accepted Answer

A)  stock prices follow a trend for varying periods of time. 
B)  successive stock prices increase more than they decrease. 
C)  successive stock prices are dependent on the weighted average of the previous week's prices. 
D)  successive stock prices are independent of each other.

Question 2

The payment for current rather than future command over resources is

Accepted Answer

A)  an implicit cost. 
B)  an implicit benefit. 
C)  interest. 
D)  opportunity cost.

Question 3

The general form for discounting is

Accepted Answer

The answer of The general form for discounting is
...

Question 4

The idea that any public information you will be able to find will prove of little value to you when buying and selling stocks, because that information is so quickly incorporated into the trading prices of stocks, is known as the

Accepted Answer

A)  theory of efficient markets. 
B)  theory of fundamental analysis. 
C)  principle of context. 
D)  over-the-counter hypothesis.

Question 5

Interest rates perform the function of

Accepted Answer

A)  signaling information about the inflation rate. 
B)  allocating funds, but only in the consumer sector. 
C)  allocating funds, which determines the allocation of physical capital. 
D)  rewarding those who save but has no direct allocative role.

Question 6

Which form of business organization accounts for the largest proportion of sales in the United States?

Accepted Answer

A)  the corporation 
B)  the partnership 
C)  the proprietorship 
D)  the subchapter S partner-based proprietorship.

Question 7

Economists also refer to the normal rate of return on investment as

Accepted Answer

A)  a residual cost. 
B)  the opportunity cost of capital. 
C)  the equity kicker. 
D)  the fixed cost of entrepreneurship.

Question 8

The normal rate of return on capital is also known as the

Accepted Answer

A)  fixed cost of capital. 
B)  depreciation cost of capital. 
C)  opportunity cost of capital. 
D)  monopoly rent.

Question 9

Which of the following statements is FALSE?

Accepted Answer

A)  A correct measure of a firm's economic cost includes both accounting and opportunity cost. 
B)  The accounting profit earned by a firm will always be the same as its economic profit. 
C)  The major difference between accounting and economic profit is that accounting profit does not reflect the opportunity cost of using resources. 
D)  The accounting profit of a firm is its total revenue minus total explicit costs.

Question 10

The first economist to analyze economic rent was

Accepted Answer

A)  Henry George. 
B)  David Ricardo. 
C)  Karl Marx. 
D)  John Stuart Mill.

Question 11

In considering economic profit in a market economy, it is correct to say that

Accepted Answer

A)  there should never be any economic profit. 
B)  economic profit will only occur, even in the short run, as a result of imperfect competition. 
C)  economic profit performs an important function in allocating resources to their most highly valued uses. 
D)  economic profit tends to reduce the production efficiency of the economy, leading to wasted resources.

Question 12

Out-of-pocket expenses such as wages and raw materials are

Accepted Answer

A)  direct costs. 
B)  an owner-provided capital cost. 
C)  implicit costs. 
D)  explicit costs.

Question 13

Any business wanting to attract financial capital must expect to

Accepted Answer

A)  earn a positive economic profit. 
B)  keep implicit costs as close to zero as possible. 
C)  pay a normal rate of return. 
D)  pay a below normal rate of return in order to make a positive rate of return itself.

Question 14

Assuming a market rate of interest equal to 7 percent and anticipated inflation is 2 percent, what is the real (adjusted for inflation) present value of $200 to be received one year from today?

Accepted Answer

A)  $190 
B)  $214 
C)  $187 
D)  $210

Question 15

Which of the following is NOT an implicit cost?

Accepted Answer

A)  wages 
B)  opportunity cost of using an owner's savings 
C)  owner-provided capital 
D)  owner-provided labor

Question 16

Do people make decisions on the basis of the nominal interest rate or the real interest rate? What is the relationship between the two interest rates?

Accepted Answer

The answer of Do people make decisions on the basis...

Question 17

An example of an implicit cost is

Accepted Answer

A)  payment of a salary to a CEO of a company. 
B)  a business using a building owned by the business owner. 
C)  a payment to a resource owner. 
D)  the payment of interest on a bond.

Question 18

If you own 100 shares of preferred stock, how many regular votes would you get to cast at the next stockholders meeting?

Accepted Answer

A)  500 
B)  100 
C)  1 
D)  0

Question 19

Present value is

Accepted Answer

A)  unrelated to the rate of interest. 
B)  lower the longer the time horizon. 
C)  not expressed in today's dollars. 
D)  opposite the time value of money.

Question 20

Suppose that Oprah Winfrey was not a superstar, then she would have been a judge making $100,000 per year. If she makes $65 million dollars this year, her economic rent is

Accepted Answer

A)  $65.0 million. 
B)  $65.1 million. 
C)  $100,000. 
D)  $64.9 million.

Exam 21: Rents, Profits, and the Financial Environment of Business