Finance 3004 Ch 1

Which of the following are financial decisions?A. Planning to pay for collegeB. Retirement planningC. Determining whether to buy or lease a carD. All of the above D
Determining how the company will find its operations is called the _____ decision.A. investmentB. DividendC. Capital structureD. Equity C
Determining whether or not to return money to share holders or invest in growth opportunities is called the _____ decision.A. InvestmentB. DividendC. EquityD. Capital structure B
_____ banks help companies raise money from investors by selling their stocks and bonds.A. Credit UnionB. InvestmentC. Savings and LoanD. Commercial B
The popularity of money market mutual funds is best explained by which of the following?A. As a last resort, investors can always sell mutual fund shares to a Federal Reserve BankB. The desire of small investors to earn returns that exceed interest paid on bank depositsC. The fact that they are uninsured, like bank deposits.D. Money Market mutual funds allow small investors to earn high returns by enabling them to assume greater risk B
Because common stockholders have a right to the cash flows remaining after all claims on the corporation have been satisfied, they are known as:A. Residual claimantsB. Preferred shareholdersC. Limited liability participantsD. Principal shareholders A
_____ have a higher payment priority than do ________. Preferred dividends; common dividends
What word do we use for the ease with which assets can be converted into cash?A. AccuracyB. EfficiencyC. AgencyD. SolvencyE. Liquidity E
_______ markets are for securities offered for sale for the first time. Primary
Managers of corporations should act in ways that:A. Produce the most technologically advanced productsB. Benefit society, even if shareholders do not materially prosperC. Maximize profitsD. Maximize shareholder wealth D
Agency costs refer to:A. The total interest paid to creditors over the lifetime of the firmB. The total dividends paid to stockholders over the lifetime of a firmC. The costs that result from default and bankruptcy of a firmD. The costs of any conflicts of interest between stockholders and management D
_____ refers to the way an organization is formed, structured, and controlled. Governance
Which of the following is not one of the three basic forms of business organization?A. EntrepreneurshipB. Sole proprietorshipC. CorporationD. Partnership A
What type of business entity is most independent of its owners, the shareholders?A. partnershipB. EntrepreneurshipC. CorporationD. Sole proprietorship C
The relationship between risk and return in finance can best be described by which of the following statements?A. Risk and return are inversely relatedB. High risk securities always beat low risk securitiesC. The riskier the security, the greater the return the investors expect from itD. High risk always brings with it high returnsE. The riskier the security, the lower the return expected from it C
Which of the following is not an example of a situation in which asymmetric information is present?A. A business owner applies for a loan at a bank and must disclose information about the expected earnings from the project to be funded by the loanB. You consider what topics to study for a marketing quiz next weekC. Your friend attempts to purchase an auto insurance contractD. You purchase one pound of ground beef at the local supermarketE. All of the above feature asymmetric information E
The largest providers of funds in the financial system are:A. IndividualsB. Government agenciesC. BIll and Melinda GatesD. Businesses A
All of the following are characteristics of common stock EXCEPT:A. Voting rights which permit selection of the firm’s directorsB. The dividends are tax-deductible for issuing corporationC. Claims on income and assets which are subordinate to the creditors of the firmD. That there is no fixed payment obligation B
True or false? The primary market is the only market in which the issuer is directly involved in the transaction and receives direct benefits from the issue. True
Which of the following is not an example of an agency problem?A. A stockbroker picks a mutual fund with a high expense ratio for an investor B. The CEO has a museum constructed to house the oil company’s collection of french impressionist paintingsC. The general practitioner recommends a specialist with a tremor to perform your surgeryD. The General Manager trades an outfielder batting .450 in exchange for his wife’s nephewE. A book keeper hierd from a temp agency mis-keys several large transactions E
Which of the following is not a finance maxim mentioned in your text?A. A dollar received in the future is worth more than a dollar received todayB. Good deals go to the investor who is able to recognize them and reacts firstC. Investors will not delay consumption unless they expect to get something in return, nor will they incur risk without being compensated for that riskD. Cash flows determine value A
_____ is the variability in returns associated with an investment Risk
True or false? Information asymmetry means that all market participants have exactly the same information set with which to make decisions. False
Which of the following is a major disadvantage of a sole proprietorship?A. Unlimited liabilityB. Joint liabilityC. Agency problemsD. Expensive to set up A
Who is responsible for hiring senior management and setting their compensation?A. Board of DirectorsB. CEOC. PresidentD. Shareholders A
Which of the following is not a key provision of the Sarbanes_Oxley Act?A. Prohibits the CEO from serving on the Board of DirectorsB. Requires CEOs and CFOs to certify the financial statementsC. Requires disclosure of all material off-balance sheet activitiesD. Requires a committee of outside directors to review firm’s auditsE. Stiffened criminal penalties for fraudulent disclosure A
In Market A, widgets are selling for $12. In Market B, identical widgets are selling for $13. Recognizing the price difference, you buy widgets from Market A and sell them in Market B. This is an example of:A. ArbitrageB. Efficient marketsC. Law of one priceD. Information asymmetry A

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