MT217 Unit 1 Lab

Unit Homework - Lab
Which of the following are financial decisions?
A. Retirement Planning
B. Planning to pay for college
C. Determining whether to buy or lease a car
D. All of the above
D. All of the above
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Determining how the company will fund its operations is called the __ decision.
A. Dividend
B. Capital structure
C. Equity
D. Investment
B. Capital structure
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Determining whether or not to return money to shareholders or invest in growth opportunities is called the __ decision.
A. Investment
B. Dividend
C. Equity
D. Capital Structure
B. Dividend
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__ banks help companies raise money from investors by selling stocks and bonds.
A. Commercial
B. Credit Union
C. investment
D. Savings and loans
C. investment
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The popularity of money market mutual funds is best explained by which of the following?
A> Money market mutual funds allow small investors to earn high returns by enabling them to assume greater risk.
B. Because mutual funds are often large, they carry implicit guarantees by the federal government to safeguard investors against failure.
C. The desire of small investors to earn returns that exceed interest paid on bank deposits.
D. The fact that they are insured, like bank deposits.
E. As a last resort, investors can always sell mutual fund shares to a Federal Reserve Bank.
C. The desire of small investors to earn returns that exceed interest paid on bank deposits.
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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. Preferred shareholders
B. Limited liability participants
C. Residual claimants
D. Fiduciary claimants
E. Principal shareholders
C. Residual claimants
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Star this term
You can study starred terms together
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What word do we use for the ease with which assets can be converted into cash?
A. liquidity
B. Accuracy
C. Agency
D. Efficiency
A. liquidity
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___ markets are for securities offered for sale for the first time.
Primary
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Managers of corporations should act in ways that
A. Produce the most technologically advanced products
B. Increase sales volume
C. Benefit society, even if shareholders do not materially prosper
D. Maximize shareholder wealth
E. Maximize profits
D. Maximize shareholder wealth
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Agency cost refers to:
A. The cost of any conflicts of interests between stockholders and management
B. The total dividends paid to stockholders over the lifetime of a firm
C. The total interest paid to creditors over the lifetime of the firm
D. The costs that result from default and bankruptcy of a firm
E. Corporate income subject to double taxation
A. The cost of any conflicts of interests between stockholders and management
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___ refers to the way an organization is formed, structured, and controlled.
Governance
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Which of the following is not one of the three basic forms of business organization?
A. Partnership
B. Corporation
C. Entrepreneurship
D. Sole proprietorship
C. Entrepreneurship
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What type of business entity is most independent of its owners, the shareholders?
A. Partnership
B. Corporation
C. Entrepreneurship
D. Sole proprietorship
B. Corporation
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The relationship between risk and return in finance can best be described by which of the following statements?
A. High risk securities always beat low risk securities.
B. The riskier the security, the lower the return expected from it. 
C. The riskier the security, the greater the return expected from it. 
D. Risk and return are inversely related.
E. high risk always brings with it high returns.
C. The riskier the security, the greater the return expected from it.
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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 and must disclose information about the expected earnings from the project to be funded by the loan.
B. You purchase one pound of ground beef at the local supermarket.
C. Your friend attempts to purchase an auto insurance contract.
E. All of the above offer asymmetric information.
E. All of the above offer asymmetric information.
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The largest providers of funds in the financial system are:
A. Government Agencies
B. Individuals
C. Bill and Melinda Gates
D. Business
B. Individuals
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All of the following are characteristics of common stock except:
A. That there is no fixed payment
B. Voting rights which permit selection of the firms directors
C. The dividends are tax-deductible for issuing corporation
D. Claims on income and assets which are subordinate to the creditors of the firm
C. The dividends are tax-deductible for issuing corporation
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T or F: 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
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Which of the following is not an example of an agency problem?
A. The CEO has a museum constructed to house the oil company's collection of french impressionist paintings.
B. A book keeper hired from a temp agency mis-keys several large transactions.
C. A stockbroker picks a mutual fund with a high-expense ratio for an investor.
D. The General manager trades an outfielder batting .450 in exchange for his wife's nephew.
E. Your general practitioner recommends a specialist with a tremor to perform your surgery.
B. A book keeper hired from a temp agency mis-keys several large transactions.
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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 today.
B. Good deals go to the investor who is able to recognize them and reacts first. 
C. Asymmetric information is the difference in the information set held by different participants in the financial marketplace. These differences must be addressed by business participants. 
D. Investors will not delay consumption unless they expect to get something extra in return, nor will the incur risk without being compensated for that risk.
E. Cash flows determine value.
A. A dollar received in the future is worth more than a dollar received today.
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____ is the variability in returns associated with an investment.
Risk
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T or F: Information asymmetry means that all market participants have exactly the same information set with which to make decisions.
False
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Which of the following is a major disadvantage of a sole proprietorship?
A. Unlimited liability
B. Agency problems
C. Joint liability
D. Expensive to setup
A. Unlimited liability
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Who is responsible for hiring senior management and setting their compensation?
A. CEO
B. President
C. Shareholders
D. Board of Directors
D. Board of Directors
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Which of the following is not a key provision of the Sarbanes-Oxley Act?
A. Requires disclosure of all material off- balance sheet activities.
B. Stiffened criminal penalties for fraudulent disclosure.
C. Requires CEO and CFO to certify the financial statements.
D. Prohibits the CEO from serving on the Board of Directors
E. Requires a committee of outside directors to review firm's audits.
D. Prohibits the CEO from serving on the Board of Directors
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In Market A, widgets are selling for $9. In Market B, identical widgets are selling for $11. Recognizing the price difference, you buy widgets from market A and sell in Market B. This is an example of:
A. Information asymmetry
B. Arbitrage
C. Efficient markets
D. Law of one price
B. Arbitrage