Fin 534 quiz 1 questions 1 15
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Fin 534 quiz 1 questions 1 15 Document Transcript

  • 1. FIN 534 Quiz 1 Questions 1-15 PLEASE DOWNLOAD HEREFIN 534 Quiz 1 Questions 1-15Question 1You recently sold 100 shares of your new company, XYZ Corporation, toyour brother at a family reunion. At the reunion your brother gave you acheck for the stock and you gave your brother the stock certificates. Whichof the following statements best describes this transaction?1) Prices and interest rates would both rise.2) Prices would rise and interest rates would decline3) Prices and interest rates would both decline4) There would be no changes in either prices or interest rates.5) Prices would decline and interest rates would rise.Question 2Which of the following statements is CORRECT?1) While the distinctions are blurring, investment banks generally specialize inlending money, whereas commercial banks generally help companies raisecapital from other parties2) A liquid security is a security whose value is derived from the price of someother “underlying” asset3) Money market mutual funds usually invest most of their money in a well-diversified portfolio of liquid common stocks.4) Money markets are markets for long-term debt and common stocks.5) The NYSE operates as an auction market, whereas the Nasdaq is a dealermarketQuestion 3
  • 2. Which of the following statements is CORRECT?1) The NYSE does not exist as a physical location; rather it represents a loosecollection of dealers who trade stock electronically. 2) An example of a primary market transaction would be your uncle transferring100 shares of Wal-Mart stock to you as a birthday gift. 3) Capital market instruments include both long-term debt and common stocks. 4) If your uncle in New York sold 100 shares of Microsoft through his broker toan investor in Los Angeles, this would be a primary market transaction. 5) While the two frequently perform similar functions, investment banksgenerally specialize in lending money, whereas commercial banks generally helpcompanies raise large blocks ofcapital from investors.Question 4 Wich of the following statements is CORRECT?1) It is usually easier to transfer ownership in a corporation than it is to transferownership in a sole proprietorship2) Corporate shareholders are exposed to unlimited liability.3) Corporations generally face fewer regulations than sole proprietorships.4) Corporate shareholders are exposed to unlimited liability, and this factor maybe compounded by the tax disadvantages of incorporation.5) There is a tax disadvantage to incorporation, and there is no way anycorporation can escape this disadvantage, even if it is very smallQuestion 5Which of the following statements is CORRECT?1) One disadvantage of operating as a corporation rather than as a partnership isthat corporate shareholders are exposed to more personal liability than partners2) There is no good reason to expect a firms stockholders and bondholders toreact differently to the types of new asset investments a firm makes3) Bondholders are generally more willing than stockholders to have managersinvest in risky projects with high potential returns as opposed to safer projectswith lower expected returns
  • 3. 4) Stockholders are generally more willing than bondholders to have managersinvest in risky projects with high potential returns as opposed to safer projectswith lower expected returns5) Relative to sole proprietorships, corporations generally face fewer regulations,and this makes it easier for corporations to raise capitalQuestion 6Suppose the U.S. Treasury announces plans to issue $50 billion of newbonds. Assuming the announcement was not expected, what effect, otherthings held constant, would that have on bond prices and interest rates?1) Prices and interest rates would both rise.2) Prices would rise and interest rates would decline.3) Prices and interest rates would both decline.4) There would be no changes in either prices or interest rates.5) Prices would decline and interest rates would rise.Question 7Which of the following statements is CORRECT?1) Corporations are at a disadvantage relative to partnerships because they haveto file more reports to state and federal agencies, including the Securities andExchange Administration, even if they are not publicly owned2) In a regular partnership, liability for the firms debts is limited to the amount aparticular partner has invested in the business3) A fast-growth company would be more likely to set up as a partnership for itsbusiness organization than would a slow-growth company4) Partnerships have difficulty attracting capital in part because of their unlimitedliability, the lack of impermanence of the organization, and difficulty in transferringownership5) A major disadvantage of a partnership relative to a corporation as a form ofbusiness organization is the high cost and practical difficulty of its formationQuestion 8Which of the following statements is CORRECT?
  • 4. 1) In a regular partnership, liability for other partners’ misdeeds is limited to theamount of a particular partner’s investment in the business2) Partnerships have more difficulty attracting large amounts of capital thancorporations because of such factors as unlimited liability, the need to reorganizewhen a partner dies, and the illiquidity (difficulty buying and selling) of partnershipinterests3) A slow-growth company, with little need for new capital, would be more likelyto organize as a corporation than would a faster growing company4) In a limited partnership, the limited partners have voting control, while thegeneral partner has operating control over the business. Also, the limitedpartners are individually responsible, on a pro rata basis, for the firm’s debts inthe event of bankruptcy.5) A major disadvantage of all partnerships relative to all corporations is the factthat federal income taxes must be paid by the partners rather than by the firmitselfQuestion 9Which of the following statements is CORRECT?1) If you purchase 100 shares of Disney stock from your brother-in-law, this is anexample of a primary market transaction.2) If Disney issues additional shares of common stock through an investmentbanker, this would be a secondary market transaction.3) The NYSE is an example of an over-the-counter market.4) Only institutions, and not individuals, can engage in derivative markettransactions.5) As they are generally defined, money market transactions involve debtsecurities with maturities of less than one yearQuestion 10Which of the following factors would be most likely to lead to an increase ininterest rates in the economy?1) Households reduce their consumption and increase their savings2) The Federal Reserve decides to try to stimulate the economy.3) There is a decrease in expected inflation
  • 5. 4) The economy falls into a recession5) Most businesses decide to modernize and expand their manufacturingcapacity, and to install new equipment to reduce labor costsQuestion 11Which of the following statements is CORRECT?1) Hedge funds are legal in Europe and Asia, but they are not permitted tooperate in the United States2) Hedge funds have more in common with commercial banks than with anyother type of financial institution3) Hedge funds have more in common with investment banks than with any othertype of financial institution4) Hedge funds are legal in the United States, but they are not permitted tooperate in Europe or Asia5) The justification for the "light" regulation of hedge funds is that only“sophisticated” investors with high net worths and high incomes are permitted toinvest in these funds, and such investors supposedly can do the necessary “duediligence” on their own rather than have it done by the SEC or some otherregulatorQuestion 12Which of the following statements is CORRECT?1) The New York Stock Exchange is an auction market with a physical location2) Capital market transactions involve only the purchase and sale of equitysecurities, i.e., common stocks3) If an investor sells shares of stock through a broker, then this would be aprimary market transaction.4) Consumer automobile loans are evidenced by legal documents called"promissory notes," and these individual notes are traded in the money market5) Consumer automobile loans are evidenced by legal documents called"promissory notes," and these individual notes are traded in the money marketQuestion 13Which of the following statements is CORRECT?
  • 6. 1) The corporate bylaws are a standard set of rules established by the state ofincorporation. These rules are identical for all corporations in the state, and theirpurpose is to ensure that the firm’s managers run the firm in accordance withstate laws2) The corporate charter is a standard document prescribed by the state ofincorporation, and its purpose is to ensure that the firm’s managers run the firm inaccordance with state laws. Procedures for electing corporate directors arecontained in bylaws, while the declaration of the activities that the firm will pursueand the number of directors are included in the corporate charter.3) Companies must establish a home office, or domicile, in a particular state, andthat state must be the one in which most of their business (sales, manufacturing,and so forth) is conducted4) Attorney fees are generally involved when a company develops its charter andbylaws, but since these documents are voluntary, a new corporation can avoidthese costs by deciding not to have either a charter or bylaws5) The corporate charter is concerned with things like what business thecompany will engage in, whereas the bylaws are concerned with things likeprocedures for electing the board of directorsQuestion 14Which of the following statements is CORRECT?1) If expected inflation increases, interest rates are likely to increase2) If individuals in general increase the percentage of their income that theysave, interest rates are likely to increase3) If companies have fewer good investment opportunities, interest rates arelikely to increase4) Interest rates on all debt securities tend to rise during recessions becauserecessions increase the possibility of bankruptcy, hence the riskiness of all debtsecurities5) Interest rates on long-term bonds are more volatile than rates on short-termdebt securities like T-billsQuestion 15The primary operating goal of a publicly-owned firm interested in serving itsstockholders should be to _________1) maximize its expected total corporate income
  • 7. 2) maximize its expected EPS3) minimize the chances of losses4) maximize the stock price per share over the long run, which is the stocksintrinsic value5) maximize the stock price on a specific target date