True / False
1. Corporations produce most of the output in the United States.
a.
True
b.
False
True
Easy
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Corporations and Their Unique Characteristics
2. The sales of the 50 largest corporations in the U.S. economy amount to nearly 37 percent of GDP.
a.
True
b.
False
True
Moderate
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Corporations and Their Unique Characteristics
3. More than 80% of American firms are incorporated.
a.
True
b.
False
False
Moderate
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Corporations and Their Unique Characteristics
4. Most American firms are corporations.
a.
True
b.
False
False
Moderate
5. Unlimited liability is a distinct advantage of the proprietorship.
a.
True
b.
False
False
Easy
6. The basic disadvantage of a proprietorship is unlimited liability.
a.
True
b.
False
True
Easy
7. A partnership requires the agreement of most or all partners to any major decision.
a.
True
b.
False
True
Easy
economics
8. A corporation has legal status like an individual citizen.
a.
True
b.
False
True
Easy
9. Corporate profits are taxed twice.
a.
True
b.
False
True
Easy
10. A corporation is the most preferable type of firm if the investor wants to limit liability.
a.
True
b.
False
True
Easy
11. Owners of a corporation have limited liability for the debts of the business.
a.
True
b.
False
True
12. A corporation is often financed through stocks and bonds.
a.
True
b.
False
True
Moderate
13. When business is profitable, corporate managers will prefer plowback to other sources of funding.
a.
True
b.
False
True
Moderate
14. The special privileges and obligations of corporations are defined by law
a.
True
b.
False
True
Easy
15. Double taxation is a problem for corporations.
a.
True
b.
False
True
Moderate
16. One disadvantage of corporations is the double taxation of income to the owners.
a.
True
b.
False
True
Easy
economics
17. A corporation is an entity separate and distinct from its owners.
a.
True
b.
False
True
Moderate
18. Business firms are prohibited by law from borrowing money from banks.
a.
True
b.
False
False
Easy
economics
19. The sale of new stocks by a corporation is one source of investment funds.
a.
True
b.
False
True
Easy
20. “Common stock” is the type sold to small investors.
a.
True
b.
False
False
Easy
economics
21. Corporations must always pay dividends to their shareholders.
a.
True
b.
False
False
Moderate
22. If a firm goes bankrupt, the bondholders will get paid back before the stockholders get any money.
a.
True
b.
False
True
Moderate
23. A stockholder’s investment is usually riskier than a bondholder’s.
a.
True
b.
False
True
Moderate
24. The price of bonds is tied to the interest rate; when one goes up, the other must fall.
a.
True
b.
False
True
Easy
25. Whenever the interest rate goes up, the price of bonds will go down.
a.
True
b.
False
True
Moderate
26. For a corporation, issuing bonds is riskier than issuing stock.
a.
True
b.
False
True
Easy
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
False
Moderate
28. Stocks are riskier for buyers because there is no commitment to pay dividends.
a.
True
b.
False
True
Moderate
29. Purchasers of corporate bonds lend money to a corporation.
a.
True
b.
False
True
Easy
30. Bondholders have a “prior claim” over stockholders on a company’s earnings or its assets.
a.
True
b.
False
True
Moderate
31. Plowback refers to the profits management decides to keep and reinvest in the firm’s operations.
a.
True
b.
False
True
Easy
economics
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
True
Moderate
33. Issuing stocks with little or nothing to back them up is described as “plowing back.”
a.
True
b.
False
False
Easy
34. Retained earnings are the same thing as “plowback.”
a.
True
b.
False
True
Moderate
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
True
Easy
36. An investor will diversify his portfolio to reduce risk.
a.
True
b.
False
True
Moderate
37. A portfolio of stocks, bonds, and other investments helps reduce the risk of investment.
a.
True
b.
False
True
Easy
38. A portfolio’s performance is its yield to the holder.
a.
True
b.
False
True
Moderate
economics
39. When a firm’s earnings rise, its stock prices will tend to fall.
a.
True
b.
False
False
Easy
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
True
Moderate
41. A diversified portfolio only makes sense for large institutional investors, not for small investors.
a.
True
b.
False
False
Easy
42. A private investment firm that holds a portfolio of securities is called a mutual fund.
a.
True
b.
False
True
Moderate
economics
43. Derivatives can be used to reduce risk but they also can be a source of risk in themselves.
a.
True
b.
False
True
Moderate
economics
44. Investors must rely on stockbrokers to give detailed, day-to-day reports on stocks and bonds.
a.
True
b.
False
False
Moderate
45. The New York Stock Exchange handles only about 10 percent of all stock market transactions in the United States.
a.
True
b.
False
False
Moderate
46. The New York Stock Exchange is the only place where a corporation can sell stocks and raise money.
a.
True
b.
False
False
Easy
47. The Securities and Exchange Commission (SEC) oversees the regulation of the securities market.
a.
True
b.
False
True
Moderate
48. Corporations obtain funds when their previously issued stock is traded.
a.
True
b.
False
False
Moderate
49. The stock market provides two functions for corporate financing: reducing investors’ risk and setting the prices of
stocks.
a.
True
b.
False
True
Moderate
50. A hostile takeover is one opposed by the firm’s existing management.
a.
True
b.
False
True
Moderate
51. Takeovers and takeover attempts waste valuable capital.
a.
True
b.
False
False
Moderate
52. The takeover process does not use up capital; it merely redistributes it.
a.
True
b.
False
True
Difficult
53. The activities of speculators often reduce the risk borne by other stock market participants.
a.
True
b.
False
True
Moderate
economics
54. One effect of speculators is to iron out price fluctuations because this is the way they make their profits.
a.
True
b.
False
True
Moderate
55. Derivatives are securities that derive their values from the values of underlying investments.
a.
True
b.
False
True
Easy
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
True
Moderate
57. Investing in risky assets in the hope of earning profits is called speculation.
a.
True
b.
False
True
Easy
economics
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Speculation
58. Speculators serve no useful function in a market.
a.
True
b.
False
False
Moderate
economics
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Speculation
59. The term “random walk” means that stock prices are fairly predictable.
a.
True
b.
False
False
Easy
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Betting on Securities: Risks to the Entire Economy
60. Overall, professional securities analysts have a 75% success rate in predicting winning stocks.
a.
True
b.
False
False
Easy
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Betting on Securities: Risks to the Entire Economy
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
True
Moderate
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Betting on Securities: Risks to the Entire Economy
Multiple Choice
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
Moderate
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Corporations and Their Unique Characteristics
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
a
Moderate
economics
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Corporations and Their Unique Characteristics
64. Almost 85% of American firms have less than
a.
20 employees.
b.
100 employees.
c.
500 employees.
d.
1,000 employees.
a
Moderate
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Corporations and Their Unique Characteristics
65. Why is it that only a small percentage of American firms are incorporated?
a.
b.
c.
d.
Moderate
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Corporations and Their Unique Characteristics
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
Moderate
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Corporations and Their Unique Characteristics
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
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Corporations and Their Unique Characteristics
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
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Corporations and Their Unique Characteristics
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
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Corporations and Their Unique Characteristics
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