1. Money markets are markets for (Points : 5)
Consumer automobile loans.
Short-term debt securities.
2. The primary operating goal of a publicly-owned firm interested in serving its stockholders should be to (Points : 5)
Maximize the stock price per share over the long run, which is the stock?s intrinsic value.
Maximize the firm’s expected EPS.
Minimize the chances of losses.
Maximize the firm’s expected total income.
3. Which of the following statements is CORRECT? (Points : 5)
Sole proprietorships and partnerships generally have a tax advantage over many
corporations, especially large ones.
Sole proprietorships are subject to more regulations than corporations.
In any type of partnership, every partner has the same rights, privileges, and liability
exposure as every other partner.
Corporations of all types are subject to the corporate income tax.
4. Which of the following could explain why a business might choose to operate as a corporation rather than as a sole proprietorship or a partnership? (Points : 5)
Corporations generally find it relatively difficult to raise large amounts of capital.
Less of a corporation’s income is generally subjected to taxes than would be true if the firm were a partnership.
Corporate shareholders escape liability for the firm’s debts, but this factor may be offset by the tax disadvantages of the corporate form of organization.
Corporate investors are exposed to unlimited liability.
5. Which of the following statements is CORRECT? (Points : 5)
If Disney issues additional shares of common stock through an investment banker, this would be a secondary market transaction.
If you purchased 100 shares of Disney stock from your brother-in-law, this would be an example of a primary market transaction.
The IPO market is a subset of the secondary market.
As they are generally defined, money market transactions involve debt securities with maturities of less than one year.
6. Ellen now has $125. How much would she have after 8 years if she leaves it invested at 8.5% with annual compounding?
(Points : 7)
7. How much would $5,000 due in 25 years be worth today if the discount rate were 5.5%? (Points : 8)
8. Which of the following statements is CORRECT? (Points : 5)
The cash flows for an ordinary (or deferred) annuity all occur at the beginning of the periods.
If a series of unequal cash flows occurs at regular intervals, such as once a year, then the series is by definition an annuity.
The cash flows for an annuity due must all occur at the ends of the periods.
The cash flows for an annuity must all be equal, and they must occur at regular intervals, such as once a year or once a month.
9. Your bank account pays a 6% nominal rate of interest. The interest is compounded quarterly. Which of the following statements is CORRECT? (Points : 5)
The periodic rate of interest is 1.5% and the effective rate of interest is 3%.
The periodic rate of interest is 6% and the effective rate of interest is greater than 6%.
The periodic rate of interest is 1.5% and the effective rate of interest is greater than 6%.
The periodic rate of interest is 3% and the effective rate of interest is 6%.
The periodic rate of interest is 6% and the effective rate of interest is also 6%.
10. A $150,000 loan is to be amortized over 7 years, with annual end-of-year payments. Which of these statements is CORRECT? (Points : 5)
The annual payments would be larger if the interest rate were lower.
If the loan were amortized over 10 years rather than 7 years, and if the interest rate were the same in either case, the first payment would include more dollars of interest under the 7-year amortization plan.
The proportion of each payment that represents interest as opposed to repayment of principal would be higher if the interest rate were lower.
The proportion of each payment that represents interest versus repayment of principal would be higher if the interest rate were higher.
The proportion of interest versus principal repayment would be the same for each of the 7 payments.
11. Which of the following items is NOT included in current assets? (Points : 5)
12. Which of the following items cannot be found on a firm’s balance sheet under current liabilities? (Points : 5)
Short-term notes payable to the bank.
Cost of goods sold.
13. Other things held constant, which of the following actions would increase the amount of cash on a company’s balance sheet? (Points : 5)
The company repurchases common stock.
The company pays a dividend.
The company issues new common stock.
The company gives customers more time to pay their bills.