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Microeconomics chapter 8 exam- J Baker -Online- Owens

A bond is a financial security that represents ?

A) The portion of profits paid to shareholders.

B) Ownership in a corporation.

C) The interest rate paid on a share of stock.

D) A promise to repay a fixed amount of funds.

D) A promise to repay a fixed amount of funds.
A corporation is owned by its ?

A) Employees.

B) Stockholders.

C) Doard of directors.

D) CEO.

B) Stockholders.
A corporation is the type of business has ________ government rules and regulations affecting it.

A) The most

B) Only federal

C) The fewest

D) No

A) The most
A sole proprietorship is ?

A) The most expensive type of business to set up.

B) The easiest type of business to set up.

C) The least profitable type of business to set up.

D) The most difficult type of business to set up.

B) The easiest type of business to set up.
Assume you set up a sole proprietorship and your lawyer tells you that as the owner, you could stand to lose your personal wealth if the business goes bankrupt. This means a sole proprietorship ?

A) Faces limited liability.

B) Has little chance of succeeding.

C) Faces unlimited liability.

D) Is not a good type of business to set up.

C) Faces unlimited liability.
How are corporate profits taxed in the United States?

A) Corporate profits are not taxed at all.

B) Earnings are taxed first as personal income then as corporate profits at the Federal level.

C) Earnings are taxed first by state sales taxes and then as corporate profits at the Federal level.

D) Earnings are taxed first as corporate profits then as personal income after dividends are paid.

D) Earnings are taxed first as corporate profits then as personal income after dividends are paid.
How can a proprietorship or partnership raise funds for expansion?

A) Reinvest profit back into the business

B) Take on a partner or more partners

C) Borrow from someone or an institution willing to lend the funds

D) Any of these would generate funds for expansion.

D) Any of these would generate funds for expansion.
If a corporate bond with face value of $1,000 has an interest rate of eight percent paid once a year for a term of 30 years, what is the size of the coupon payment?

A) $1,000

B) $300

C) $80

D) $8

C) $80
If a corporation goes bankrupt, which of the following has first claim on the firm’s assets?

A) Stockholders

B) The state where chartered

C) Employees

D) Bondholders

D) Bondholders
In a typical year, ________ of new jobs are created by small firms.

A) Less than 5 percent

B) 10 percent

C) 40 percent

D) 75 percent

C) 40 percent
In addition to requiring that CEO’s personally certify the accuracy of financial statements, the Sarbanes-Oxley Act of 2002 also requires that ?

A) Auditors disclose any potential conflicts of interest.

B) CEO’s conduct audits of their corporations themselves.

C) Firms raise funds for expansion through the sale of bonds only, not stocks.

D) Corporations issue financial statements monthly rather than quarterly.

A) Auditors disclose any potential conflicts of interest.
In response to accounting scandals in 2002, the federal government passed legislation requiring that corporate directors have a certain level of expertise with financial information and mandating that chief executive officers personally certify the accuracy of financial statements. What is the name of this legislation?

A) The 24th amendment to the Constitution

B) The Sarbanes-Oxley Act

C) The Accountant Reliability Act

D) The Kennedy-Lott Act

B) The Sarbanes-Oxley Act
Mortgages issued to borrowers whose credit histories include failures to make payments on bills are known as ________ mortgages.

A) Catastrophic

B) Subprime

C) Variable rate

D) Alt-A

B) Subprime
One of the most widely followed stock indexes in the United States is the Dow Jones Industrial Average. This index represents ?

A) The stock prices of 30 large U.S. corporations.

B) The stock prices of more than 4,000 U.S. firms.

C) An over-the-counter market.

D) the stock prices of 500 large U.S. firms.

A) The stock prices of 30 large U.S. corporations.
Payments by a corporation to its shareholders are known as ?

A) Stocks.

B) Dividends.

C) Coupons.

D) Bonds.

B) Dividends.
The owners of a ________ have a separate legal distinction from the business.

A) Sole proprietorship

B) Corporation

C) partnership

D) All of the above are correct.

B) Corporation
Traditionally, Wall Street investment banks had been organized as partnerships, but by 2000 they had converted to being publicly traded companies. As partnerships, the principal-agent problem is ________ because there is ________ separation of ownership from control.

A) Reduced; little

B) Increased; little

C) increased; much

D) Reduced; much

A) Reduced; little
What do economists call the situation where a hired manager does not have the same interests as the owners of the business?

A) A financial intermediary problem

B) A principal-agent problem

C) Conquest and control

D) A financial problem

B) A principal-agent problem
What is a primary market?

A) A market where you can sell any stocks you own as a private investor

B) A market where a newly issued claims are sold to initial buyers by the borrowing firm.

C) A market where you can sell any bonds you own as a private investor

D) A market where primary inputs like steel are sold

B) A market where a newly issued claims are sold to initial buyers by the borrowing firm.
What is different about buying stocks and buying bonds?

A) The future growth of a stock is more uncertain than the payments of a bond.

B) Differences of opinion about a stock’s future may vary considerably but there is less difference about a bond’s future.

C) A stock can possibly pay dividends forever, but bonds have a fixed number of payments.

D) All these are differences between stocks and bonds.

D) All these are differences between stocks and bonds.
What is the Congressional act, enacted in 1933 and repealed in 1999, which prevented financial firms from being both commercial banks and investment banks?

A) The Glass-Steagall Act

B) The Sarbanes-Oxley Act

C) The Cellar-Kefauver Act

D the Taft-Hartley Act

A) The Glass-Steagall Act
What takes place in the indirect finance market?

A) Part ownership of corporations is sold in the form of stocks.

B) Government purchases of buildings and equipment are sold to the highest bidder.

C) Corporate and government bonds are sold to savers.

D) Deposits of savers are accepted and loans made to borrowers.

D) Deposits of savers are accepted and loans made to borrowers.
When groups of mortgages are bundled together by financial institutions and sold to investors, these institutions are said to be ________ mortgage loans.

A) Underwriting

B) Securitizing

C) liquidating

D) Harvesting

A) Underwriting
Which type of business is the most difficult to set up?

A) Partnership

B) Sole proprietorship

C) Corporation

D) There is no difference in the difficulty of establishment.

C) Corporation
Who controls a sole proprietorship?

A)Bondholders

B) The owner

C) Stockholders

D) All of these

B) The owner

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