Q&A Hero

Q: When the interest rate on a bond is ________ the equilibrium interest rate, there is excess ________ in the bond market and the interest rate will ________. A) below; demand; rise B) below; demand; fall C) below; supply; rise D) above; supply; fall

Q: When the interest rate on a bond is ________ the equilibrium interest rate, there is excess ________ in the bond market and the interest rate will ________. A) above; demand; fall B) above; demand; rise C) below; supply; fall D) above; supply; rise

Q: A price or cost leader in an industry is usually the firm with the largest market share. True or False

Q: When the interest rate on a bond is below the equilibrium interest rate, there is excess ________ in the bond market and the interest rate will ________. A) demand; rise B) demand; fall C) supply; fall D) supply; rise

Q: A firm should choose that strategy from among the range of reasonable alternatives that enables it to achieve its stated objectives in an acceptable time period without regard for resource constraints. True or False

Q: Corporate objectives are defined as what is to be accomplished within a specific period. True or False

Q: When the interest rate on a bond is above the equilibrium interest rate, there is excess ________ in the bond market and the interest rate will ________. A) demand; rise B) demand; fall C) supply; fall D) supply; rise

Q: When the price of a bond is ________ the equilibrium price, there is an excess demand for bonds and the price will ________. A) above; rise B) above; fall C) below; fall D) below; rise

Q: The market targeted by the firm should reflect the fit between the corporations primary strengths and competencies and its ability to satisfy customer needs better than the competition. True or False

Q: A corporate mission statement should be defined as broadly as possible since it seeks to describe the corporations reason for being, and it should not exclude the firm from pursuing any significant opportunities. True or False

Q: When the price of a bond is ________ the equilibrium price, there is an excess supply of bonds and the price will ________. A) above; rise B) above; fall C) below; fall D) below; rise

Q: Core competencies should be defined as narrowly as possible. True or False

Q: When the price of a bond is below the equilibrium price, there is excess ________ in the bond market and the price will ________. A) demand; rise B) demand; fall C) supply; fall D) supply; rise

Q: A firms core competencies refer to those skills which are required to produce the firms primary products but which have little or no application in producing related products. True or False

Q: When the price of a bond is above the equilibrium price, there is excess ________ in the bond market and the price will ________. A) demand; rise B) demand; fall C) supply; fall D) supply; rise

Q: A competitive self-assessment involves an analysis of the firms absolute strengths and weaknesses. True or False

Q: The supply curve for bonds has the usual upward slope, indicating that as the price ________, ceteris paribus, the ________ increases. A) falls; supply B) falls; quantity supplied C) rises; supply D) rises; quantity supplied

Q: An analysis of markets should involve current and potential customers, as well as current and potential competitors, but it should exclude suppliers. True or False

Q: As the price of a bond ________ and the expected return ________, bonds become more attractive to investors and the quantity demanded rises. A) falls; rises B) falls; falls C) rises; rises D) rises; falls

Q: Identify and describe three factors that cause the supply curve for bonds to shift.

Q: Market segmentation involves identifying customers with common characteristics and needs. True or False

Q: What is the expected return on a bond if the return is 9% two-thirds of the time and 3% one-third of the time? What is the standard deviation of the returns on this bond? Would you prefer this bond or one with an identical expected return and a standard deviation of 4.5? Why?

Q: Determining where a firm should compete starts with deciding who the firms current or potential customers are and what are their needs. True or False

Q: A business plan articulates a mission or vision for the firm and a strategy for realizing that mission. True or False

Q: How will a decrease in the federal government's budget deficit affect the equilibrium interest rate in the bond market? Explain using the bond demand and supply framework.

Q: A planning-based acquisition process consists of both a business plan and acquisition plan, which drive all subsequent phases of the acquisition process. True or False

Q: If investors perceive greater interest rate risk, what will happen to the equilibrium interest rate in the bond market? Explain using the bond demand and supply framework.

Q: In elections involving staggered or classified boards, only one group of board members is up for reelection each year. True or False

Q: Use the bond demand and supply framework to explain the Fisher effect and why it occurs.

Q: Poison pills represent a new class of securities issued by a company to its shareholders, which have no value unless an investor acquires a specific percentage of the firms voting stock. True or False

Q: How is the equilibrium interest rate determined in the bond market? Explain why the interest rate will move toward equilibrium if it is temporarily above or below the equilibrium rate.

Q: Poison pills are a commonly used takeover tactic to remove the management and board of the target firm. True or False

Q: Identify and explain the four factors that influence asset demand. Which of these factors affect total asset demand and which influence investors to demand one asset over another?

Q: The size of the target firm is the best predictor of the likelihood of being taken over by another firm. True or False

Q: A movement along the demand (or supply) curve occurs when the quantity demanded (or supplied) changes at each given price (or interest rate) of the bond in response to a change in some other factor besides the bond's price or interest rate.

Q: The more liquid an asset is relative to alternative assets, holding everything else unchanged, the more desirable it is, and the greater the quantity demanded.

Q: Tender offers always consist of an offer to exchange acquirer shares for shares in the target firm. True or False

Q: Federal and state laws make it extremely difficult for a bidder to acquire a controlling interest in a target without such actions becoming public knowledge. True or False

Q: An increase in an asset's expected return relative to that of an alternative asset, holding everything else unchanged, raises the quantity demanded of the asset.

Q: All materials in a proxy contest must be filed with the SEC before they are sent to shareholders. True or False

Q: Holding everything else constant, an increase in wealth lowers the quantity demanded of an asset.

Q: Proxy contests and tender offers are often viewed by acquirers as inexpensive ways to takeover another firm. True or False

Q: An increase in the federal government budget deficit will raise the interest rate on bonds.

Q: By replacing the targets board members, proxy fights may be an effective means of gaining control without owning 51% of the targets voting stock. True or False

Q: The Fisher Effect predicts that an increase in expected inflation will lower the interest rate on bonds.

Q: A target firm is unlikely to reject a bid without getting a fairness opinion from an investment banker stating that the offer is inadequate. True or False

Q: An increase in the inflation rate will cause the demand curve for bonds to shift to the right.

Q: An acquiring firm may attempt to limit the options of the targets senior management by making a formal acquisition proposal, usually involving a public announcement, to the board of the directors of the target. True or False

Q: When income and wealth are rising, the demand for bonds rises and the demand curve shifts to the right.

Q: Bylaws may provide for a staggered board, the inability to remove directors without cause, and supermajority voting requirements for approval of mergers. True or False

Q: Interest rates are procyclical in that they tend to rise during business cycle expansions and fall during recessions.

Q: A person who is risk averse prefers to hold assets that are more, not less, risky.

Q: The target firms bylaws may provide significant hurdles for an acquiring firm. True or False

Q: Despite the pressure of an attractive purchase price premium, the composition of the targets board greatly influences what the board does and the timing of its decisions. True or False

Q: Investors make their choices of which assets to hold by comparing the expected return, liquidity, and risk of alternative assets.

Q: The final outcome of a hostile takeover is rarely affected by the composition of the targets stock ownership and how stockholders feel about managements performance. True or False

Q: When the federal government's budget deficit decreases, the demand curve for bonds shifts to the right.

Q: Concern about their fiduciary responsibility and about stockholder lawsuits puts pressure on the targets board to accept the offer. True or False

Q: When an economy grows out of a recession, normally the demand for bonds increases and the supply of bonds increases.

Q: The takeover premium is the dollar or percentage amount the purchase price proposed for a target firm exceeds the acquiring firms share price. True or False

Q: When interest rates decrease, the demand curve for bonds shifts to the left.

Q: Litigation is a tactic that is used only by acquiring firms. True or False

Q: What is the model whose equations are estimated using statistical procedures used in forecasting interest rates called? A) econometric model B) liquidity preference framework C) market equilibrium D) Fisher effect

Q: Most takeover attempts may be characterized as hostile bids. True or False

Q: Determining asset prices using stocks of assets rather than flow is called A) asset transformation. B) expected return. C) asset market approach. D) market equilibrium.

Q: A standstill agreement is one in which the target firm agrees not to solicit bids from other potential buyers while it is negotiating with the first bidder. True or False

Q: When the quantity of bonds demanded equals the quantity of bonds supplied, there is A) excess supply. B) excess demand. C) a market equilibrium. D) an asset market approach.

Q: The shareholder interests theory suggests that shareholders gain when management resists takeover attempts. True or False

Q: A ________ prefers stock in a less risky asset than in a riskier asset. A) risk preferrer B) risk-averse person C) risk lover D) risk-favorable person

Q: According to the management entrenchment hypothesis, takeover defenses are designed to protect the target firms management from a hostile takeover. True or False

Q: ________ is the total resources owned by an individual, including all assets. A) Expected return B) Wealth C) Liquidity D) Risk

Q: A hostile tender offer is a takeover tactic in which the acquirer bypasses the targets board and management and goes directly to the targets shareholders with an offer to purchase their shares. True or False

Q: A proxy contest is one in which a group of dissident shareholders attempts to obtain representation on a firms board by soliciting other shareholders for the right to vote their shares. True or False

Q: Figure 4.4Figure 4.4 illustrates the effect of an increased rate of money supply growth. From the figure, one can conclude that theA) Fisher effect is dominated by the liquidity effect and interest rates adjust slowly to changes in expected inflation.B) liquidity effect is dominated by the Fisher effect and interest rates adjust slowly to changes in expected inflation.C) liquidity effect is dominated by the Fisher effect and interest rates adjust quickly to changes in expected inflation.D) Fisher effect is smaller than the expected inflation effect and interest rates adjust quickly to changes in expected inflation.

Q: Dissident shareholders always undertake a tender offer to change the composition of a firms board of directors. True or False

Q: Milton Friedman contends that it is entirely possible that when the money supply rises, interest rates may ________ if the ________ effect is more than offset by changes in income, the price level, and expected inflation. A) fall; liquidity B) fall; risk C) rise; liquidity D) rise; risk

Q: A bear hug involves mailing a letter containing an acquisition proposal to the targets board without warning and demanding an immediate response. True or False

Q: A tender offer is a proposal made directly to the target firms board as the first step leading to a friendly takeover. True or False

Q: If the Fed wants to permanently lower interest rates, then it should raise the rate of money growth if A) there is fast adjustment of expected inflation. B) there is slow adjustment of expected inflation. C) the liquidity effect is smaller than the expected inflation effect. D) the liquidity effect is larger than the other effects.

Q: If the Fed wants to permanently lower interest rates, then it should lower the rate of money growth if A) there is fast adjustment of expected inflation. B) there is slow adjustment of expected inflation. C) the liquidity effect is smaller than the expected inflation effect. D) the liquidity effect is larger than the other effects.