Question 1

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 anotherE) None of the above
F) C) and D)

Question 2

What are the advantages of setting up a corporation as opposed to a proprietorship or partnership?

Accepted Answer

Corporations have li...

Question 3

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)  harvestingE) B) and D)
F) B) and C)

Question 4

Dividing the dividend payment by the stock's closing market price determines the

Accepted Answer

A)  coupon payment.
B)  dividend yield.
C)  price-earnings ratio.
D)  selling price of the stock.E) B) and C)
F) C) and D)

Question 5

Assume you set up a sole proprietorship and your lawyer tells you that as the owner,you could stand to lose your personal wealth if the business goes bankrupt.This means a sole proprietorship

Accepted Answer

A)  faces limited liability.
B)  faces unlimited liability.
C)  has little chance of succeeding.
D)  is not a good type of business to set up.E) B) and C)
F) A) and B)

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

Corporate governance involves the way in which

Accepted Answer

A)  the government nationalizes corporations.
B)  the government licenses corporations.
C)  a corporation is subject to government regulations.
D)  a corporation is structured.E) B) and C)
F) All of the above

Question 8

Who operates and controls a corporation in its day-to-day activities?

Accepted Answer

A)  the board of directors
B)  stockholders
C)  employees
D)  managementE) B) and D)
F) B) and C)

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

One of the most widely followed stock indexes in the United States is the Dow Jones Industrial Average.This index represents

Accepted Answer

A)  the stock prices of 500 large U.S.firms.
B)  an over-the-counter market.
C)  the stock prices of more than 4,000 U.S.firms.
D)  the stock prices of 30 large U.S.corporations.E) A) and C)
F) All of the above

Question 11

Briefly describe the Sarbanes-Oxley Act and explain why it was passed.

Accepted Answer

The Sarbanes-Oxley Act of 2002 was enact...

Question 12

The profits a corporation keeps to finance future expansion are known as

Accepted Answer

A)  retained earnings.
B)  preferred stock.
C)  dividends.
D)  capital gains.E) All of the above
F) B) and C)

Question 13

Which of the following would explain why accounting profit might be greater than economic profit?

Accepted Answer

A)  A firm has implicit costs as well as explicit costs.
B)  A firm has only explicit costs.
C)  A firm's net income is greater than its accounting profit.
D)  A firm's net income is less than its accounting profit.E) None of the above
F) A) and C)

Question 14

What are liabilities?

Accepted Answer

A)  anything of value owned by a person or a business
B)  anything a person or a business owes to entities outside the business
C)  the total cost of labor for a firm
D)  only those unpaid expenses for which a business or person is making interest paymentsE) A) and B)
F) A) and C)

Question 15

In August 2011,Standard & Poor's (S&P) changed its rating on U.S.Treasury bonds from ________ based on the state of the federal government's budget deficit.

Accepted Answer

A)  "A" to "D"
B)  "A" to "AAA"
C)  "A+" to "B+"
D)  "AAA" to "AA+"E) A) and B)
F) A) and C)

Question 16

Jeremy is thinking of starting up a small business selling NASCAR memorabilia.He is considering setting up his business as a sole proprietorship.What is one advantage to Jeremy of setting up his business as a sole proprietorship?

Accepted Answer

A)  As a sole proprietor,Jeremy would face limited liability.
B)  As a sole proprietor,Jeremy would have the ability to share risk with shareholders.
C)  As a sole proprietor,Jeremy would have both ownership and control over the business.
D)  All of the above would be advantages of setting up his business as a sole proprietorship.E) B) and C)
F) C) and D)

Question 17

What do the highest stock price and the lowest stock price over the previous year indicate?

Accepted Answer

A)  Add them together and divide by two to get the stock's current market price.
B)  what the stock's price-earnings ratio is
C)  how volatile the stock's market price has been
D)  They generate the dividend yield.E) A) and C)
F) B) and D)

Question 18

When Internet coupon site Groupon sold stock to the public for the first time,funds were being raised in a ________ market,and when those newly issued shares are resold to other buyers,the sales take place in a ________ market.

Accepted Answer

A)  primary;primary
B)  primary;secondary
C)  secondary;primary
D)  secondary;secondaryE) A) and B)
F) C) and D)

Question 19

The owners of a ________ have a separate legal distinction from the business.

Accepted Answer

A)  corporation
B)  partnership
C)  sole proprietorship
D)  All of the above are correct.E) None of the above
F) A) and D)

Question 20

How can a proprietorship or partnership raise funds for expansion?

Accepted Answer

A)  borrow from someone or an institution willing to lend the funds
B)  reinvest profit back into the business
C)  take on a partner or more partners
D)  Any of these would generate funds for expansion.E) A) and D)
F) None of the above

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

Who operates and controls a corporation in its day-to-day activities?

Correct AnswerverifiedShow Answer

One of the most widely followed stock indexes in the United States is the Dow Jones Industrial Average.This index represents

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

What are liabilities?

Correct AnswerverifiedShow Answer

The owners of a ________ have a separate legal distinction from the business.

Correct AnswerverifiedShow Answer

What do the highest stock price and the lowest stock price over the previous year indicate?

Correct AnswerverifiedShow Answer

When Internet coupon site Groupon sold stock to the public for the first time,funds were being raised in a ________ market,and when those newly issued shares are resold to other buyers,the sales take place in a ________ market.

Correct AnswerverifiedShow Answer

How can a proprietorship or partnership raise funds for expansion?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Dividing the dividend payment by the stock's closing market price determines the

Correct AnswerverifiedShow Answer

Assume you set up a sole proprietorship and your lawyer tells you that as the owner,you could stand to lose your personal wealth if the business goes bankrupt.This means a sole proprietorship

Correct AnswerverifiedShow Answer

In August 2011,Standard & Poor's (S&P) changed its rating on U.S.Treasury bonds from ________ based on the state of the federal government's budget deficit.

Correct AnswerverifiedShow Answer

Corporate governance involves the way in which

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Jeremy is thinking of starting up a small business selling NASCAR memorabilia.He is considering setting up his business as a sole proprietorship.What is one advantage to Jeremy of setting up his business as a sole proprietorship?

Correct AnswerverifiedShow Answer

What happens in the secondary market?

Correct AnswerverifiedShow Answer

What are the advantages of setting up a corporation as opposed to a proprietorship or partnership?

Correct AnswerverifiedCorporations have li...View AnswerShow Answer

Briefly describe the Sarbanes-Oxley Act and explain why it was passed.

Correct AnswerverifiedThe Sarbanes-Oxley Act of 2002 was enact...View AnswerShow Answer

Which of the following would explain why accounting profit might be greater than economic profit?

Correct AnswerverifiedShow Answer

The profits a corporation keeps to finance future expansion are known as

Correct AnswerverifiedShow Answer

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When Internet coupon site Groupon sold stock to the public for the first time,funds were being raised in a market,and when those newly issued shares are resold to other buyers,the sales take place in a market.

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Corporations have li...
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The Sarbanes-Oxley Act of 2002 was enact...
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