FIN 350 CH1

______ banks help companies raise money from investors by selling their stocks and bonds. A.Investment B.Credit Union C.Savings and Loan D.Commercial

A. Investment

Agency costs refer​ to: A.The costs of any conflicts of interest between stockholders and management. B.Corporate income subject to double taxation. C.The total dividends paid to stockholders over the lifetime of a firm. D.The costs that result from default and bankruptcy of a firm. E.The total interest paid to creditors over the lifetime of the firm.

A. The costs of any conflicts of interest between stockholders and management.

What type of business entity is most independent of its​ owners, the​ shareholders? ​(Select the best choice​ below.) A.Corporation. B.Partnership. C.Entrepreneurship. D.Sole Proprietorship.

A.Corporation.

___________ refers to the way an organization is​ formed, structured, and controlled.

Governance

____________ have a higher payment priority than do _______________.

Preferred dividends, common dividends

____________ markets are for securities offered for sale for the first time.

Primary

What word do we use for the ease with which assets can be converted into​ cash? ​(Select the best choice​ below.) A.Agency. B.Liquidity. C.Solvency. D.Accuracy. E.Efficiency.

B.Liquidity.

Determining whether or not to return money to shareholders or invest in growth opportunities is called the​ _______ decision. A.equity B.dividend C.investment D.capital structure

B.dividend

Managers of corporations should act in ways​ that: ​(Select the best choice​ below.) A.Produce the most technologically advanced products. B.Maximize profits. C.Maximize shareholder wealth. D.Benefit​ society, even if shareholders do not materially prosper. E.Increase sales volume.

C.Maximize shareholder wealth.

The relationship between risk and return in finance can best be described by which of the following​ statements? ​(Select the best choice​ below.) A.High risk always brings with it high returns. B.The riskier the​ security, the lower the return expected from it. C.The riskier the​ security, the greater the return the investors expect from it. D.High risk securities always beat low risk securities. E.Risk and return are inversely related.

C.The riskier the​ security, the greater the return the investors expect from it.

Which of the following is not one of the three basic forms of business​ organization? ​(Select the best choice​ below.) A.Partnership. B.Sole Proprietorship. C.Corporation. D.Entrepreneurship.

D. Entrepreneurship.

The popularity of money market mutual funds is best explained by which of the​ following? A.The fact that they are​ insured, like bank deposits. B.As a last​ resort, investors can always sell mutual fund shares to a Federal Reserve bank. C.Because mutual funds are often​ large, they carry implicit guarantees by the federal government to safeguard investors against failure. D.The desire of small investors to earn returns that exceed interest paid on bank deposits. Your answer is correct. E.Money market mutual funds allow small investors to earn high returns by enabling them to assume greater risk.

D. The desire of small investors to earn returns that exceed interest paid on bank deposits.

Which of the following are financial​ decisions? A.determining whether to buy or lease a car B.retirement planning C.planning to pay for college D.all of the above

D. all of the above

Determining how the company will fund its operations is called the​ _______ decision. A.dividend B.equity C.capital structure D. investment

D. investment

Which of the following is not an example of a situation in which asymmetric information is​ present? ​(Select the best choice​ below.) 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 loan. B.Your friend attempts to purchase an auto insurance contract. C.You purchase one pound of ground beef at the local supermarket. D.You consider what topics to study for a marketing quiz next week. E.All of the above feature asymmetric information.

E.All of the above feature asymmetric information.

Because common stockholders have a right to the cash flows remaining after all claims on the corporation have been​ satisfied, they are known​ as: ​(Select the best choice​ below.) A.Limited liability participants. B.Fiduciary claimants. C.Preferred shareholders. D.Principal shareholders. E.Residual claimants.

E.Residual claimants.