Vocab/True False Questions From the HW
True or False: Inflation is currently under 2% a year, and has never been more than 10% a year.
False
True or False: The NYSE is defined as a "primary" market because it is one of the largest and most important stock markets in the world.
False
True or False: The NYSE opens at 9:00am and closes at 4:30pm.
False
True or False: The only way investors make money when buying common stocks is from dividend payments.
False
True or False: The return on investment is inversely related to the risk of the investment.
False
True or False: A share of common stock is not a derivative, but an option to buy the stock is a derivative because the value of the option is derived from the value of the stock.
True
True or False: If a firm's board of directors wants to maximize value for its stockholders in general (as opposed to some specific stockholders), it should design an executive compensation system whose goal is to maximize the stock's intrinsic value rather than the stock's current market price.
True
True or False: Inflation is relatively low at present.
True
The goal of a firm is to: a. Maximize earnings per share b. Maximize company profits c. Maximize shareholder wealth d. Maximize dividends to shareholders
c. Maximize shareholder wealth
Which is an example of a capital market instrument? Answer a. Commercial paper b. U.S. Treasury bills c. Preferred stock d. Banker's acceptances e. Money market mutual funds
c. Preferred stock
The less frequent the compounding the: a. lower the present value. b. greater the amount deposited. c. lower the effective interest rate. d. greater the future value.
c. lower the effective interest rate.
The nominal rate of interest will always be________ the effective rate: a. equal to or greater than b. equal to c. less than d. equal to or less than
d. equal to or less than
True or False: A CEO that makes $100,000,000 a year is an agency cost to the shareholders, and the Board of Directors must reduce his compensation.
False
True or False: A Euro dollar account is a bank account for the common currency in Europe.
False
True or False: A Eurodollar is the currency of the European Union
False
True or False: A Spot market refers to the fact you have to meet the broker at a certain spot at the exchange.
False
True or False: A partnership and a corporation are similar in the way earnings are taxed.
False
True or False: Agency costs are not a problem for large, multi national corporations, only for smaller companies.
False
True or False: All companies use stock splits to keep their prices down so investors can get a higher return on their investment.
False
True or False: Bill Gates is not allowed to sell stock in Micorsoft because he is an insider and knows non-public information.
False
True or False: Double taxation of income refers to companies having to pay both Federal and State income tax.
False
True or False: Double taxation of income refers to companies having to pay both federal and state income tax.
False
True or False: Each stock's rate of return in a given year consists of a dividend yield (which might be zero). plus a capital gains yeild (which could be positive, negative or zero). Such returns are calculated for all the stocks in the S&P 500. A simple average of those returns (which gives equal weight to each company in the S&P 500) is then calculated. That average is called the "return on the S&P Index," and is often used as an indicator of the "return on the market".
False
True or False: FOMC stands for Federal Operations of Markets Commission, and is not part of the Federal Reserve.
False
True or False: For an annuity due, the payment comes at the end of the period.
False
True or False: GAAP rules make sure that all financial statements are prepared exactly the same.
False
True or False: If a company uses a stock split, the owners of common stock lose money because the stock is now worth less.
False
True or False: If an investor in a common stock expects a return of 6% a year on his investment, he is expecting a dividend yield of 6% each year.
False
True or False: If management operates in a manner designed to maximize the firm's expected profits for the current year, this will also maximize the stockholders' wealth as of the current year.
False
True or False: If you save $2,000 a year for 25 years and earn 5% interest compounded monthly, you will have saved a total of $95,454.20.
False
True or False: In a limited liability partnership, there can be many limited partners, but only one general partner.
False
True or False: Insider trading and trading by insiders are both illegal and subject to fines and possible imprisonment.
False
True or False: Martha Stewart went to jail because she was found guilty of insider trading.
False
True or False: One way to prevent agency costs is to prevent employees from owning stock in the company they work for.
False
True or False: Owners of partnerships can easily transfer ownership.
False
True or False: You won the lottery and are going to receive $100,000 a year for 25 years. Assuming an interest rate of 4% a year, the present value of your winnings equals $1,562,207.99.
False
Assume this is the first question on the test. Who is the chairman of the Federal Reserve?
Maximize shareholder wealth
The Federeal Funds Rate is influenced by the FOMC and is currently 0.0% to 0.25%.
True
There are twelve members on the FOMC. Seven of which are employed by the Federal Reserve, the other five are not.
True
True or False: A common stock would be considered a Capital Market item even though you can buy and sell it on the same day.
True
True or False: Fiscal Policy consists of government spending and taxing.
True
True or False: Hedge funds are somewhat similar to mutual funds. The primary differences are that hedge funds are less highly regulated, have more flexibility regarding what they can buy, and restrict their investors to wealthy, sophisticated individuals and institutions.
True
True or False: IPO stands for initial public offering and is usually handled by investment banks.
True
True or False: If people lost faith in the U.S. Financial markets the standard of living would fall. This would happen because the markets could not operate as efficiently without the faith of investors.
True
True or False: If you wanted to know what rate of return stocks have provided in the past, you could examine data on the Dow Jones Industrial Index, the S&P 500 Index, or the Nasdaq Index.
True
True or False: It depends is a good answer to most questions in Business Finance. However, you should explain why to make sure you do not get it marked wrong.
True
True or False: One way of reducing agency costs to a corporation is to pay the employees fairly.
True
True or False: Stock options are sometimes used to prevent agency costs.
True
True or False: The FOMC has not increased the Federal Funds rate since 2006.
True
True or False: The FOMC recently decided to not raise interest rates.
True
True or False: The LIBOR rate is the interest rate paid on Euro Dollar accounts.
True
True or False: The dividend yield is calculated as the annual dividend per share divided by the current stock price.
True
True or False: The prime rate is the interest rate banks charge their best customers, and is 3% above the Federal Funds rate..
True
True or False: The three tools of Monetary Policy are: Federal Funds rate, Discount Rate, and Reserve requirement.
True
True or False: When taking out a loan you would rather get an interest rate of 7% compounded monthly, instead of one compounded daily.
True
Money Markets are markets for: a. For financial assets with a maturity rate of less then one year b. For financial assets with a maturity of more then one year. c. For use in cash transactions d. For use in foreign exchange transactions
a. For financial assets with a maturity rate of less then one year
Capital markets are markets for: a. For financial assets with a maturity of less then one year b. For financial assets with a maturity of more then one year c. For use in cash transactions d. For use in foreign exchange transactions
b. For financial assets with a maturity of more then one year
The goal of all firms is to: a. Maximize profits to the company b. Maximize shareholder wealth c. Maximize earnings per share d. Maximize dividends to shareholders
b. Maximize shareholder wealth
