Finance Midterm
FINA300 Fall 2011
Benedictine University
100 points
Name: ___________________________________________________
1) Which of the following statements is CORRECT?
a. The New York Stock Exchange is an auction market, and it has a physical location.
b. Home mortgage loans are traded in the money market.
c. If an investor sells shares of stock through a broker, then it would be a primary market transaction.
d. Capital markets deal only with common stocks and other equity securities.
e. While the distinctions are blurring, investment banks generally specialize in lending money, whereas commercial banks generally help companies raise capital from other parties.
(2) Which of the following statements is CORRECT?
a. A hostile takeover is the main method of transferring ownership interest in a corporation.
b. A corporation is a legal entity created by a state, and it has a life and existence that is separate from the lives and existence of its owners and managers.
c. Unlimited liability and limited life are two key advantages of the corporate form over other forms of business organization.
d. Limited liability is an advantage of the corporate form of organization to its owners (stockholders), but corporations have more trouble raising money in financial markets because of the complexity of this form of organization.
e. Although the stockholders of the corporation are insulated by limited legal liability, the legal status of the corporation does not protect the firm’s managers in the same way, i.e., bondholders can sue its managers if the firm defaults on its debt.
3) The retained earnings account on the balance sheet does not represent cash. Rather, it represents part of the stockholders' claim against the firm's existing assets. Put another way retained earnings are stockholders' reinvested earnings.
a. True
b. False
(4) In finance,
Benedictine University
100 points
Name: ___________________________________________________
1) Which of the following statements is CORRECT?
a. The New York Stock Exchange is an auction market, and it has a physical location.
b. Home mortgage loans are traded in the money market.
c. If an investor sells shares of stock through a broker, then it would be a primary market transaction.
d. Capital markets deal only with common stocks and other equity securities.
e. While the distinctions are blurring, investment banks generally specialize in lending money, whereas commercial banks generally help companies raise capital from other parties.
(2) Which of the following statements is CORRECT?
a. A hostile takeover is the main method of transferring ownership interest in a corporation.
b. A corporation is a legal entity created by a state, and it has a life and existence that is separate from the lives and existence of its owners and managers.
c. Unlimited liability and limited life are two key advantages of the corporate form over other forms of business organization.
d. Limited liability is an advantage of the corporate form of organization to its owners (stockholders), but corporations have more trouble raising money in financial markets because of the complexity of this form of organization.
e. Although the stockholders of the corporation are insulated by limited legal liability, the legal status of the corporation does not protect the firm’s managers in the same way, i.e., bondholders can sue its managers if the firm defaults on its debt.
3) The retained earnings account on the balance sheet does not represent cash. Rather, it represents part of the stockholders' claim against the firm's existing assets. Put another way retained earnings are stockholders' reinvested earnings.
a. True
b. False
(4) In finance,