FIN 534 Quiz 1 Week 1

Topics: Stock, Corporation, Stock market Pages: 5 (1791 words) Published: May 1, 2015
FIN 534 Quiz 1 Week 1
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Question 1
You recently sold 100 shares of your new company, XYZ Corporation, to your brother at a family reunion. At the reunion your brother gave you a check for the stock and you gave your brother the stock certificates. Which of the following statements best describes this transaction?

1) This is an example of an exchange of physical assets.
2) This is an example of a primary market transaction.
3) This is an example of a direct transfer of capital.
4) This is an example of a money market transaction.
5) This is an example of a derivatives market transaction.

Question 2
Which of the following statements is CORRECT?

1) While the distinctions are blurring, investment banks generally specialize in lending money, whereas commercial banks generally help companies raise capital from other parties 2) A liquid security is a security whose value is derived from the price of some other "underlying" asset 3) Money market mutual funds usually invest most of their money in a well-diversified portfolio of liquid common stocks. 4) Money markets are markets for long-term debt and common stocks. 5) The NYSE operates as an auction market, whereas the Nasdaq is a dealer market

Question 3
Which of the following statements is CORRECT?

1) The NYSE does not exist as a physical location; rather it represents a loose collection of dealers who trade stock electronically.
2) An example of a primary market transaction would be your uncle transferring 100 shares of Wal-Mart stock to you as a birthday gift.
3) Capital market instruments include both long-term debt and common stocks. 4) If your uncle in New York sold 100 shares of Microsoft through his broker to an investor in Los Angeles, this would be a primary market transaction. 5) While the two frequently perform similar functions, investment banks generally specialize in lending money, whereas commercial banks generally help companies raise large blocks of capital from investors.

Question 4
Which of the following statements is CORRECT?

1) It is usually easier to transfer ownership in a corporation than it is to transfer ownership in a sole proprietorship 2) Corporate shareholders are exposed to unlimited liability. 3) Corporations generally face fewer regulations than sole proprietorships. 4) Corporate shareholders are exposed to unlimited liability, and this factor may be compounded by the tax disadvantages of incorporation. 5) There is a tax disadvantage to incorporation, and there is no way any corporation can escape this disadvantage, even if it is very small Question 5

Which of the following statements is CORRECT?

1) One disadvantage of operating as a corporation rather than as a partnership is that corporate shareholders are exposed to more personal liability than partners 2) There is no good reason to expect a firm's stockholders and bondholders to react differently to the types of new asset investments a firm makes 3) Bondholders are generally more willing than stockholders to have managers invest in risky projects with high potential returns as opposed to safer projects with lower expected returns 4) Stockholders are generally more willing than bondholders to have managers invest in risky projects with high potential returns as opposed to safer projects with lower expected returns 5) Relative to sole proprietorships, corporations generally face fewer regulations, and this makes it easier for corporations to raise capital

Question 6
Suppose the U.S. Treasury announces plans to issue $50 billion of new bonds. Assuming the announcement was not expected, what effect, other things held constant, would that have on bond prices and interest rates?

1) Prices and interest rates would both rise.
2)...
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