Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
True / False
1. Corporations produce most of the output in the United States.
a.
True
b.
False
2. The sales of the 50 largest corporations in the U.S. economy amount to nearly 37 percent of GDP.
a.
True
b.
False
3. More than 80% of American firms are incorporated.
a.
True
b.
False
4. Most American firms are corporations.
a.
True
b.
False
5. Unlimited liability is a distinct advantage of the proprietorship.
a.
True
b.
False
6. The basic disadvantage of a proprietorship is unlimited liability.
a.
True
b.
False
7. A partnership requires the agreement of most or all partners to any major decision.
a.
True
b.
False
8. A corporation has legal status like an individual citizen.
a.
True
b.
False
9. Corporate profits are taxed twice.
a.
True
b.
False
10. A corporation is the most preferable type of firm if the investor wants to limit liability.
a.
True
b.
False
11. Owners of a corporation have limited liability for the debts of the business.
a.
True
b.
False
12. A corporation is often financed through stocks and bonds.
a.
True
b.
False
13. When business is profitable, corporate managers will prefer plowback to other sources of funding.
a.
True
b.
False
14. The special privileges and obligations of corporations are defined by law
a.
True
b.
False
15. Double taxation is a problem for corporations.
a.
True
b.
False
16. One disadvantage of corporations is the double taxation of income to the owners.
a.
True
b.
False
17. A corporation is an entity separate and distinct from its owners.
a.
True
b.
False
18. Business firms are prohibited by law from borrowing money from banks.
a.
True
b.
False
19. The sale of new stocks by a corporation is one source of investment funds.
a.
True
b.
False
20. "Common stock" is the type sold to small investors.
a.
True
b.
False
21. Corporations must always pay dividends to their shareholders.
a.
True
b.
False
22. If a firm goes bankrupt, the bondholders will get paid back before the stockholders get any money.
a.
True
b.
False
23. A stockholder's investment is usually riskier than a bondholder's.
a.
True
b.
False
24. The price of bonds is tied to the interest rate; when one goes up, the other must fall.
a.
True
b.
False
25. Whenever the interest rate goes up, the price of bonds will go down.
a.
True
b.
False
26. For a corporation, issuing bonds is riskier than issuing stock.
a.
True
b.
False
27. A bond and stock differ in that a stock is an IOU for a fixed amount and a bond is a portion of ownership.
a.
True
b.
False
28. Stocks are riskier for buyers because there is no commitment to pay dividends.
a.
True
b.
False
29. Purchasers of corporate bonds lend money to a corporation.
a.
True
b.
False
30. Bondholders have a "prior claim" over stockholders on a company's earnings or its assets.
a.
True
b.
False
31. Plowback refers to the profits management decides to keep and reinvest in the firm's operations.
a.
True
b.
False
32. Retained earnings may be a better source of funds than issuing stocks or bonds because management does not have to
account for their effectiveness this way.
a.
True
b.
False
33. Issuing stocks with little or nothing to back them up is described as "plowing back."
a.
True
b.
False
34. Retained earnings are the same thing as "plowback."
a.
True
b.
False
35. A person's portfolio of investments is the package of all the stocks, bonds, and other assets the person owns.
a.
True
b.
False
36. An investor will diversify his portfolio to reduce risk.
a.
True
b.
False
37. A portfolio of stocks, bonds, and other investments helps reduce the risk of investment.
a.
True
b.
False
38. A portfolio's performance is its yield to the holder.
a.
True
b.
False
39. When a firm's earnings rise, its stock prices will tend to fall.
a.
True
b.
False
40. A futures contract is an agreement to buy a commodity at a specific future date, at a price set today.
a.
True
b.
False
41. A diversified portfolio only makes sense for large institutional investors, not for small investors.
a.
True
b.
False
42. A private investment firm that holds a portfolio of securities is called a mutual fund.
a.
True
b.
False
43. Derivatives can be used to reduce risk but they also can be a source of risk in themselves.
a.
True
b.
False
44. Investors must rely on stockbrokers to give detailed, day-to-day reports on stocks and bonds.
a.
True
b.
False
45. The New York Stock Exchange handles only about 10 percent of all stock market transactions in the United States.
a.
True
b.
False
46. The New York Stock Exchange is the only place where a corporation can sell stocks and raise money.
a.
True
b.
False
47. The Securities and Exchange Commission (SEC) oversees the regulation of the securities market.
a.
True
b.
False
48. Corporations obtain funds when their previously issued stock is traded.
a.
True
b.
False
49. The stock market provides two functions for corporate financing: reducing investors' risk and setting the prices of
stocks.
a.
True
b.
False
50. A hostile takeover is one opposed by the firm's existing management.
a.
True
b.
False
51. Takeovers and takeover attempts waste valuable capital.
a.
True
b.
False
52. The takeover process does not use up capital; it merely redistributes it.
a.
True
b.
False
53. The activities of speculators often reduce the risk borne by other stock market participants.
a.
True
b.
False
54. One effect of speculators is to iron out price fluctuations because this is the way they make their profits.
a.
True
b.
False
55. Derivatives are securities that derive their values from the values of underlying investments.
a.
True
b.
False
56. Stock prices can be described as "random walks" if there is no relationship between one day's prices and the following
day's prices.
a.
True
b.
False
57. Investing in risky assets in the hope of earning profits is called speculation.
a.
True
b.
False
58. Speculators serve no useful function in a market.
a.
True
b.
False
59. The term "random walk" means that stock prices are fairly predictable.
a.
True
b.
False
60. Overall, professional securities analysts have a 75% success rate in predicting winning stocks.
a.
True
b.
False
61. In the context of stock markets, "the tail wags the dog" means that the failure of the stock market can drag down the
entire economy.
a.
True
b.
False
62. Corporations account for a ____ proportion of U.S. firms and a ____ proportion of sales by U.S. firms.
a.
small; small
b.
small; large
c.
large; small
d.
large; large
63. What percentage of American business firms are incorporated?
a.
about 20 percent
b.
about 40 percent
c.
about 50 percent
d.
over 60 percent
64. Almost 85% of American firms have less than
a.
20 employees.
b.
100 employees.
c.
500 employees.
d.
1,000 employees.
65. Why is it that only a small percentage of American firms are incorporated?
a.
Corporate debt as stockholder's liability.
b.
Small size of firms.
c.
Unlimited liability.
d.
Inability to outlast associated individuals.
66. The combined incomes of Walmart, ExxonMobil and Chevron total more than the GDP of:
a.
Belgium
b.
Denmark
c.
Ireland
d.
all of these
67. The three noteworthy features of corporations' legal status include all of these except:
a.
they are taxed
b.
special limits are placed on the losses that may be incurred by those who invest incorporations
c.
the corporation is a distinct entity separate from its owners
d.
they may invest in the stock market and acquire financing
68. The sole owner of a unincorporated business unable to pay its debts:
a.
may be sued by the people to whom the business owes money
b.
may be forced to pay them out of his own bank account
c.
may be forced to sell his personal property to pay those debts
d.
all of these are correct
69. The reason that some corporations grow so big is:
a.
double taxation
b.
that they are a separate entity from their owners
c.
that they have limited liability
d.
none of these
70. When a corporation needs capital to expand, its choices are:
a.
to sell stocks on a stock exchange
b.
to sell bonds
c.
to reinvest its own earnings
