History of Wall Street

Who was Enron's CFO?

c. Andrew Fastow

The financial goal of a corporation is to:

c. Maximize the value of the firm for the shareholders

49. If a company starts purchasing its own stock, what are the company leaders attempting to do?

c. To show that the company believes the price is too low

19. The purpose of financial markets is to:

c. allocate savings efficiently.

56. The entrance of large numbers of "baby boomers" into the labor force in the 1970s and 1980s:

c. increased income inequality.

13. Corporations, potentially, have infinite life because:

c. it is a legal entity

34. Benefits from trade would NOT include

c. reduced competition.

26. The focal point of financial management in a firm is

c. the creation of value for shareholders.

11. The following are advantages of separation of ownership and management of corporations except:

d. Incur agency costs

48. Which of the following decisions will guarantee that a person will make money in the stock market?

d. None of these decisions will guarantee that an individual will make money in the stock market.

54. Economists generally agree that the most significant cause of the recent increase in income inequality in the United States is:

d. increased demand for, and hence pay to, highly skilled workers.

25. The market price of a share of common stock is determined by:

d. individuals buying and selling the stock.

33. In a market economy, economic activity is guided by

d. prices as incentives to both buyers and sellers.

20. Shareholder wealth" in a firm is represented by

d. the market price per share of the firm's common stock.

47. Corporations sell new issues of stock on the New York Stock Exchange T/F

false

Insider" stock trading means that trading stocks takes place inside a building. T/F

false

40. A major advantage of the corporate form of organization is:

limited owner liability.

18. A corporation in which you are a shareholder has just gone bankrupt. Its liabilities are far in excess of its assets. You will be called on to pay:

nothing

A 30-year bond issued by Gary's Pants Warehouse, Inc., in 1997 would now trade in the

secondary capital market.

36. A market economy allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services. T/F

true

22. What are the earnings per share (EPS) for a company that earned $100,000 last year in after-tax profits, has 200,000 common shares outstanding and $1.2 million in retained earnings at the year end?

$6.00

37. Trade between two countries

Can make both countries better off

The following are examples of real assets except

Common Stock

5. Limited liability is an important feature of:

Corporations

6. The main disadvantage of organizing a business as a corporation in the United States is:

Double Taxation

9. The following are examples of foreign-based corporations except:

General Electric

The following are examples of intangible assets except:

Machinery

41. Enron was involved in what business sector?

Natural Gas Industry

2. The following are examples of the United States-based corporations except:

Unilever

29. Which of the following is NOT an example of a financial intermediary?

a. International Business Machines, Inc. (IBM).

31. Scarcity arises because of

a. a finite amount of resources

52. Which of the following would likely reduce income inequality?

a. a reduction in the number of high school dropouts.

30. Sarbanes-Oxley Act of 2002 (SOX) was largely a response to

a. a series of corporate scandals involving Enron, WorldCom, Global Crossing, Tyco and numerous others.

50. Money market mutual funds

a. enable individuals and small businesses to invest indirectly in money-market instruments.

27. The decision function of financial management can be broken down into the decisions

a. financing and investment

Agency costs are incurred by a corporation because:

a. managers may not attempt to maximize the value of the firm to shareholders b. shareholders incur monitoring cost c. separation of ownership and management d. all of the above

21. The long-run objective of financial management is to

a. maximize the value of the firm's common stock.

1. Finance, generally, deals with

a. money b. markets c. people d. all of the above

24. A(n) ________would be an example of a principal, while a(n) __________would be an example of an agent.

a. shareholder; manager

3.Businesses can be organized as

a. sole proprietorships b. partnerships c. corporations d. any of the above

15. Costs associated with the conflicts of interest between the bondholders and a shareholders of a corporation is called:

b. Agency costs

23. How are funds allocated efficiently in a market economy?

b. The economic unit that is willing to pay the highest expected return receives the funds.

32. The value or cost of a good or service that is given up by choosing one alternative over another is called

b. an opportunity cost

28. A company's __________is (are) potentially the most effective instrument of good corporate governance.

b. board of directors

53. One cause of income inequality in the United States is:

b. differences in preferences for market work relative to nonmarket activities as well as differences inpreferences for types of work.

55. In the past two decades the difference between the earnings of college graduates and high school graduates has:

b. increased, thereby increasing income inequality.

10. The following cities are also important financial centers of the world:

Tokyo, New York, London

35. Inflation is an increase in the overall level of prices in the economy and is usually caused by growth in the quantity of money. T/F

True

39. In economics, efficiency refers to the property of society getting the most it can from its scarce resources. T/F

True

38. Adam Smith argues that when the government prevents prices from adjusting naturally to supply and demand, it aids the invisible hand's ability to coordinate the millions of households and firms that make up the economy. T/F

False

45. When the stock market goes up, it causes the economy to grow. T/F

False

16. The following are examples of financial assets except:

Patents

4. Generally, a corporation is owned by the:

Shareholders

51. Which of the following does not represent a Zero Sum Game?

stock market