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d.
all of these
71. Bonds differ from stocks in all of these ways except:
a.
a purchase of corporate stock becomes a part owner of the corporation, while a bondholder does not
b.
a bondholder loans money to the corporation, which has priority for repayment, while a stockholder may lose
her investment
c.
stockholders know with a high degree of certainty how much money they will get, while bondholders do not
d.
all of these are correct
72. A corporation seeking to expand, and looking for the least risky financing option would choose:
a.
stocks
b.
bonds
c.
retained earnings
d.
a bank loan
73. For legal purposes, a corporation is treated as
a.
an individual.
b.
a nonprofit organization.
c.
a partnership.
d.
a limited partner in a partnership.
74. A corporation is legally owned by its
a.
chief executive officer.
b.
board of directors.
c.
bondholders.
d.
stockholders.
75. A corporation's income is taxed
a.
immediately after it is deposited in the bank.
b.
only before it is distributed to its owners.
c.
only after it is distributed to owners.
d.
both before and after it is distributed to owners.
76. A major advantage of the corporation is
a.
limited taxes.
b.
preferential treatment by state governments.
c.
limited liability of individual owners.
d.
limited numbers of owners and ease of decision making.
77.
A stockholder who owns 1,000 shares of the corporation's 100,000 shares is entitled to what percentage of the vote in an
election of corporate officers?
a.
1%
b.
2%
c.
5%
d.
10%
78. The major advantage of the corporation is
a.
limited liability for owners.
b.
greater profit incentive than the other forms of business organization.
c.
lower taxes for owners, who are taxed only once.
d.
ability of owners to have hands-on management of the firm.
79. The tax treatment of corporate profit means that corporations
a.
cannot profitably issue common stock.
b.
choose investment opportunities more efficiently than do other types of firms.
c.
limits the things in which corporations can invest.
d.
can generally avoid paying federal taxes but not state taxes.
80. Double taxation of corporate earnings means
a.
for individuals who get dividends on personal income, tax rates are twice as high as for wage earners.
b.
stockholders pay personal income taxes and corporation taxes on profits.
c.
stockholders don't get the plowback but still pay taxes on it.
d.
the corporation tax raises stock prices so individuals also pay a capital gains tax in addition to a tax on
dividends.
81. Double taxation of corporate profits
a.
imposes losses on investors' incentives in corporate stock.
b.
tends to keep corporations out of low-profit activities.
c.
makes the allocation of resources more efficient.
d.
makes issuing new stock prohibitively expensive.
82. Corporations have the disadvantage of (i) double taxation; (ii) unlimited liability.
a.
i and ii
b.
i not ii
c.
ii not i
d.
neither i nor ii
83. Double taxation of corporate earnings
a.
tends to restrict the activities of corporate firms.
b.
causes stockholders to earn a lower return than they would on other securities of comparable risk.
c.
results in more investment in research and development.
d.
All of the above are correct.
84. Bond prices and interest rates:
a.
are interrelated
b.
have no relationship to one another
c.
rise or fall in tandem
d.
none of these choices
85. A company may borrow money from
a.
banks.
b.
insurance companies.
c.
other firms.
d.
All of the above are correct.
86. Which of the following is true?
a.
A stockholder owns part of the corporation.
b.
A stockholder has loaned money to the corporation.
c.
A stockholder is owed money by the corporation.
d.
A stockholder must be consulted on all major decisions.
87. When a company's stock is owned by thousands of individuals,
a.
management will be very independent.
b.
management will be lacking.
c.
individuals will band together to socialize the firm.
d.
management will be prevented by government from taking any risks.
88. A company's annual payment to stockholders is called the
a.
dividend.
b.
kickback.
c.
plowback.
d.
retained earnings.
89. Dividend refers to
a.
a corporation's regular payments to lenders.
b.
part of the revenue given to stockholders of a corporation.
c.
a lender's legal claim on the assets of a bankrupt corporation.
d.
a prepayment of a corporation's legal obligation.
90. An individual who acquires a bond from a corporation
a.
lends money to the corporation.
b.
borrows money from the corporation.
c.
buys part of the corporation.
d.
promises to pay part of any debts of the corporation.
91. The major difference between stocks and bonds is
a.
a stock is ownership in the corporation and a bond is a debt instrument of the corporation.
b.
a stock is a debt instrument of the corporation and a bond is ownership in the corporation.
c.
a stock has value in the marketplace and a bond does not.
d.
a bond has value in the marketplace and a stock does not.
92. Which of the following is true?
a.
A bondholder owes money to a corporation.
b.
A corporation owes money to a bondholder.
c.
A bondholder owns part of a corporation.
d.
A bondholder votes on company management.
93. To the investor, stocks are riskier than bonds because
a.
interest rates fluctuate more than stock prices.
b.
dividends depend on profits.
c.
speculators manipulate stocks but not bonds.
d.
dividends are taxed twice.
94. If a person owns 2,000 shares in a corporation which has issued 200,000 shares of stock, that person owns ____ of the
company and is entitled to ____ of the dividends.
a.
1 percent; 1 percent
b.
2 percent; 2 percent
c.
10 percent; 10 percent
d.
20 percent; 20 percent
95. Bonds can be risky investments because
a.
bondholders are paid from whatever remains after stockholders have been paid what the corporation owes
them.
b.
if the corporation loses its assets, the bondholders may never recover their investments.
c.
the general price level may fall.
d.
the voting power of an individual bondholder may be more apparent than real.
96. A bond's price is sensitive to changes in
a.
the interest rate.
b.
the accepted rate of return on investment.
c.
investor confidence in the stability and credit worthiness of the firm.
d.
All of the above are correct.
97. Bond prices in the marketplace will fall when
a.
interest rates fall.
b.
the company is losing money.
c.
interest rates rise.
d.
the company is making money.
98. A corporate bond sold in 2000 with a face value of $10,000, a $100 coupon, and a maturity date in 2010
a.
will pay the bondholder $100 a year every year from 2000 to 2010 and will also pay him $9,000 in 2010.
b.
will pay the bondholder $100 a year every year from 2000 to 2010 and will also pay him $10,000 in 2010.
c.
requires the bondholder to pay $100 a year every year from 2000 to 2010 and will pay him $10,000 in 2010.
d.
requires the bondholder to pay $100 in 2000 only and will pay him $10,000 in 2010.
99. Suppose you purchase a $1,000 bond that bears an interest rate of 10 percent. What will happen if the interest rate
goes to 20 percent?
a.
The market price of the bond will increase to $2000.
b.
The market price of the bond will drop to $500.
c.
The return on the bond will double.
d.
The return on the bond will halve.
100. Suppose that many corporations begin issuing new bonds. Everything else being equal, what is most likely to happen
to the interest rate?
a.
It will increase.
b.
It will decrease.
c.
It will not change.
d.
It will vary according to a random walk.
101. Julie is in the 28 percent tax bracket. She earns an 8 percent rate of return after taxes on a tax-free municipal bond.
What will the after-tax rate of return be on a taxable bond (with equal risk)?
a.
36 percent
b.
28 percent
c.
14 percent
d.
8 percent
102. On June 2, 2010, Dow Chemical's 4.1 percent coupon bonds, with face values of $100, sold for $95. This means that
the yield on these bonds was
a.
less than 4.1 percent.
b.
equal to 4.1 percent.
c.
equal to 95 percent of 4.1 percent.
d.
greater than 4.1 percent.
103. A recent issue of the Wall Street Journal headlined a story, "Bond Prices End Lower." From this we can conclude
a.
interest rates fell.
b.
interest rates rose.
c.
interest rates did not change.
d.
stock prices fell.
104. When bond prices rise,
a.
stock prices must fall.
b.
interest rates must fall.
c.
interest rates must rise.
d.
bankruptcies generally increase.
105. When interest rates in the economy fall, the prices of previously issued bonds
a.
must fall.
b.
must change, but may either rise or fall.
c.
must rise.
d.
may remain unchanged.
106. Which of the following is not a principal means by which corporations obtain money for investment?
a.
selling stocks
b.
selling bonds
c.
retaining earnings
d.
receiving dividends
107. In the traditional view, stocks are ____ than bonds to the firm that issues them and ____ than bonds to the investor
who purchases them.
a.
less risky; less risky
b.
less risky; riskier
c.
riskier; less risky
d.
riskier; riskier
108. The risk of financing a project by issuing common stock is borne by
a.
the issuing firm only.
b.
the stockholders only.
c.
both the issuing firm and the stockholders.
d.
the government.
109. Under what conditions is it most likely that a corporation will issue new stock as a form of finance?
a.
when the interest rate is rising
b.
when the interest rate is falling
c.
when the firm's stock prices is falling
d.
when bond prices are very high
110. To the corporation, bonds are more risky than stocks because
a.
interest rates fluctuate.
b.
bond interest is a fixed cost.
c.
investors prefer stocks to bonds.
d.
speculators manipulate bonds more than stocks.
111. The issue of bonds in corporate financing
a.
is cheaper than stocks in the long run to the issuer.
b.
is riskier than stocks to the issuer.
c.
commits the issuer to make fixed annual payments even if profits are negative.
d.
All of the above are correct.
112. Stockholders normally obtain higher expected payments than bondholders because
a.
they are required by law to obtain a higher return.
b.
they face higher risk.
c.
the profit share declared as stock dividends is not taxable.
d.
they vote themselves higher returns.
113. "Plowback" is that portion of corporate profits used to
a.
invest in future activities of the corporation.
b.
advertise the company's product.
c.
buy back bonds (reduce debt).
d.
pay owners for the use of their capital.
114. "Plowback" is a preferred source of financing a corporation because
a.
it is fairly easy, compared to issuing stocks.
b.
it is not subject to double taxation.
c.
selling bonds involves the high cost of money.
d.
stock markets are subject to random walks.
115. If corporations have their choice, they will prefer to invest using
a.
revenue from the sale of stocks.
b.
revenue from the sale of bonds.
c.
plowback.
d.
money borrowed from the bank.
116. A corporation with "plowback"
a.
deliberately earns negative profit on some activities in order to get better tax treatment.
b.
buys back shares of its stock from shareholders.
c.
retains some of its earnings for investment.
d.
issues unsecured stock.
117. The primary source of corporate financing in the United States is
a.
the sale of stock.
b.
the sale of bonds.
c.
retained earnings.
d.
lending from commercial banks.
118. A corporation may be reluctant to raise capital by issuing stock because
a.
issuing stock to obtain money for investment is riskier than selling bonds.
b.
holders of already-existing stock will gain more voting power in the corporation.
c.
obtaining government permission to issue stock can be time-consuming and expensive.
d.
All of the above are correct.
119. A ____ is a type of derivative in which the seller promises to pay the buyer of a particular security the value of that
security if it goes into default.
a.
credit default swap
b.
derivative
c.
mortgage backed security
d.
futures contract
120. In 2013, plowback accounted for approximately ____ of corporate financing while new stock sales accounted for
approximately ____.
a.
$2 trillion; $384 billion
b.
$65 billion; $1 trillion
c.
$1 trillion; negative $65 billion
d.
negative $65 billion; $1 trillion
121. When a business has been profitable and needs to invest, its preferred method of financing will likely be
a.
plowback.
b.
stock issue.
c.
bond sales.
d.
equal issues of stocks and bonds.
122. The least scrutiny of management's operations occurs when ____ is the method used in corporate financing.
a.
stock issue
b.
bond issue
c.
plowback
d.
watering
123. Brokerage houses may differ in the
a.
fees they charge.
b.
services they provide.
c.
stock exchanges on which they hold seats.
d.
All of the above are correct.
124. A stock market
a.
guarantees that a seller of a stock will get the price at which the stock was purchased.
b.
is used only to sell new stock issues from corporations and not to transfer existing stocks.
c.
is used only to sell stocks, not to buy stocks.
d.
gives an individual a chance to invest in stocks without committing funds for long periods of time.
125. Between 1980 and 2005, the Vanguard Index Fund earned 12.3%/year, while the average mutual fund investor
earned:
a.
1.9%
b.
2.3%.
c.
5.1%.
d.
7.3%.
126. An investor in an index fund earning 12.3% per year would see an investment of $10,000 increase to approximately
____ in 25 years.
a.
$11,000
b.
$48,000
c.
$54,000
d.
$170,000
127. In recent years, established U.S. stock markets have faced significant competition from:
a.
new start ups
b.
small, regional stock markets
c.
foreign stock markets
d.
people buying & selling stocks online
128. According to a recent survey, in 2012, the number of U.S. households that owned equitites was about:
a.
3 %
b.
27 %
c.
45 %
d.
55 %
129. An individual with a diversified stock portfolio usually
a.
holds only the stocks of conglomerates (firms that participate in many industries).
b.
deals with several brokerage houses.
c.
holds stock in several types of firms.
d.
holds stocks with several maturity dates.
130. "Never put all your eggs in one basket." This saying refers to the concept of
a.
averaging.
b.
market timing.
c.
diversification.
d.
leveraging.
