Q&A Hero

Q: Recently, Hale Corporation announced the sale of 2.5 million newly issued shares of its stock at a price of $21 per share. Hale sold the stock to investment bankers, who in turn sold it to individual and institutional investors. A transaction such as this is said to be a primary market transaction. a. True b. False

Q: The price elasticity of demand would most likely be the lowest forA) a McDonaldʹs hamburger. B) salt.C) a Toyota sport utility vehicle. D) Shell gasoline.

Q: If an individual investor buys and sells existing stocks through a broker, these are primary market transactions. a. True b. False

Q: To correct for a negative externality, a government might impose a uniform tax related only to the physical quantity of pollution ifA) the administrative costs are high.B) the cost of ascertaining the actual economic costs are relatively small.C) the economic damages are zero.D) the economic damages associated with the pollution are different across different locations.

Q: If Firm A owns no real assets of its own, but simply accepts the savings of individuals and invests them in financial assets issued by other firms or individuals, Firm A is a financial intermediary. a. True b. False

Q: The belief that everyone should have exactly the same amount of income isA) merit standard. B) comparable-worth doctrine. C) egalitarian principle. D) Lorenz principle.

Q: The conversion of stock exchanges from not-for-profit mutual ownership organizations to for profit organizations is called what? a. Going public b. Privatization c. Demutualization d. Communion

Q: If the labor supply curve faced by a firm is rising, the marginal factor cost curve of labor must beA) rising and below the supply curve. B) rising and above the supply curve.C) equal to the supply curve. D) horizontal.

Q: The derivatives market allows for a. investors to speculate on price movements. b. the purchase corporate debt. c. the hedging of exposure to price movements d. two of the above e. all of the above

Q: The profit maximizing combination of resourcesA) usually involves more of each input hired than the cost minimizing combination of resources.B) usually involves less of each input hired than the cost minimizing combination of resources.C) usually involves hiring more of some resources and less of other resources than the cost minimizing combination of resources.D) is also the cost minimizing combination of resources.

Q: The trade-through rule states that a. new securities are traded through the secondary market. b. a stock trade should be executed at the best price that is available in all of the stock markets. c. securities traded in the secondary market are traded through the issuing corporation d. derivatives should be traded only with the approval of the related firm

Q: If the marginal revenue product of the last worker hired exceeds the marginal factor cost of the worker, the firm would be better served if itA) hires additional workers.B) maintains its current level of workers already hired. C) lays off the last worker hired.D) None of the above is a good option for a profit-seeking firm.

Q: Which of the following is most subject to the lemons problem?A) credence goods B) homogeneous goodsC) search goods D) inferior goods

Q: ____ represent(s) ownership in a company and entitle(s) the holder to future cash distributions from the operations of the firm. a. Equity b. Debt c. Swaps d. Options

Q: Financial markets are important because they a. allow individuals to transfer purchasing power over time. b. provide for the efficient transfer funds to businesses. c. facilitate exchanges between the providers and users of capital. d. all of the above

Q: A cartel most likely forms inA) an oligopolistic market. B) a perfectly competitive market.C) a monopolistically competitive market. D) a heavily regulated industry.

Q: Students emerging from college and entering the work force typically consume ____ than their income resulting in ____. a. less; saving b. more; borrowing c. less; borrowing d. more; saving

Q: A product that must be actually consumed before the quality of the product can be determined is a(n)A) search good. B) consumable good. C) consumption good. D) experience good.

Q: Which of the following is not a task that investment bankers perform? a. They buy securities from corporations trying to raise funds. b. They take deposits from investors and make loans to corporations. c. They resell securities purchased from corporations to investors. d. They help corporations design securities with the features that are most attractive to investors given existing market conditions.

Q: Which of the following is NOT a characteristic of monopolistic competition?A) Large number of sellers B) Differentiated productsC) Advertising D) Barriers to entry

Q: ____ are individuals employed by brokerage firms that are members of the exchange. a. Commission brokers b. Floor brokers c. Competitive traders d. Specialists

Q: PriceQuantity$191118121713161415151416Given the data in the above table, what is the marginal revenue when the 14th unit is sold?A) $7.00 B) $5.00 C) $3.00 D) $1.00

Q: Which of the following assets are traded in the derivative markets? a. Stocks, bonds, and options b. Stocks, futures, and options c. Options, futures, and swaps d. Futures, bonds, and swaps

Q: A perfectly competitive industryʹs market price is found by A) finding the point on the market demand curve where the largest number of units will be purchased. B) locating the intersection of the market demand and market supply curves. C) the horizontal summation of all the industry firmsʹ individual supply curves. D) identifying the price at which each firm realizes its largest economic profit.

Q: If you purchase commercial paper that matures in 180 days from the issuing firm this transaction will take place in ____ markets and ____ markets. a. capital; primary b. capital; secondary c. money; primary d. money; secondary

Q: A perfectly competitive producer faces a demand curve for its own product that isA) downward sloping. B) upward sloping.C) horizontal. D) vertical.

Q: If you purchase stock from a firm conducting a seasoned equity offering, this transaction will take place in ____ markets and ____ markets. a. capital; primary b. capital; secondary c. money; primary d. money; secondary

Q: QTFCTVCTC0$90$ 0$ 901902511529032122390421324906415459095185Refer to the above table. When output rises from 2 units to 5 units, marginal costs areA) $26.50. B) $31. C) $21. D) $63.

Q: When a firm makes an earnings announcement that is different than what the analysts expected the market price of the firm's stock adjusts immediately. This is evidence consistent with markets being ____ efficient but not ____ efficient. a. weak-form; strong-form b. weak-form; semistrong-form c. strong-form; semistrong-form d. semistrong-form; strong-form

Q: Corporations are able to raise large amounts of financial capital because A) of the tax breaks corporations are given relative to partnerships or proprietorships. B) of the elimination of the problem of separation of ownership and control. C) of limited liability and the treatment of a corporation as an individual entity. D) of their greater ability to monitor the performance of decision makers.

Q: ____ efficiency states that all private and publicly available information is reflected in the current market prices. a. Weak-form b. Semistrong-form c. Strong-form d. Economic

Q: Explicit costs areA) the opportunity costs of all resources used by the firm.B) the costs associated with the resources that the firm owns. C) actual expenditures that a firm must make.D) all costs associated with the short run.

Q: Given the utility-optimizing rule and the presence of diminishing marginal utility for a good, A) the demand curve for the good will be vertical.B) there will not be a well-defined demand curve. C) there will not be a substitution effect.D) the demand curve for the good will be negatively sloped.

Q: ____ efficiency states that all publicly available information is reflected in current market prices. a. Weak-form b. Semistrong-form c. Strong-form d. Economic

Q: ____ efficiency states that all information contained in past price movements only is fully reflected in the current market prices. a. Weak-form b. Semistrong-form c. Strong-form d. Economic

Q: Economists once believed utility could be measured. The philosophical school based on the thought known as utilitarianism was developed by the English philosopherA) Jeremy Bentham. B) Henri Leconte.C) John Lennon. D) Bernard Mandeville.

Q: Which of the following would NOT affect a goodʹs price elasticity of demand? A) The ease of substitution between goods B) The cost of producing the good C) The number of substitute goods available D) The proportion of oneʹs budget spent on an item

Q: Machina Corporation is financing an ongoing construction project. The firm needs $8 million of new capital during each of the next three years. The firm has a choice of issuing new debt and equity each year as the funds are needed, or issuing the debt now and the equity later. The firm's capital structure is 40 percent debt and 60 percent equity. Flotation costs for a single debt issue would be 1.6 percent of the gross debt proceeds. Yearly flotation costs for three separate issues of debt would be 3.0 percent of the gross amount. Ignoring time value effects due to timing of the cash flows, what is the absolute difference in dollars saved by raising the needed debt all at once in a single issue rather than in three separate issues? a. $0 b. $171,387 c. $140,809 d. $156,098 e. $134,400

Q: To totally internalize an externality, a government can levy a tax related only to the physical quantity of pollution if A) the economic damages associated with the pollution are different across different locations. B) the economic damages are too large to be determined. C) the economic damages associated with the pollution are the same across different locations. D) the economic damages are zero.

Q: Which of the following statements is correct? a. Flotation costs under a best-efforts arrangement typically are less for a given new equity issue than the costs associated with an underwritten offering, and the corporation is more certain of getting the needed funds under a best-efforts offering. This is why best efforts deals are most common. b. If a firm decides to issue securities through a direct (or private) placement, then the underwriting syndicate that is formed to distribute the securities to the public may, at its discretion, decide either to guarantee or not to guarantee the sale of the securities. c. If the demand curve for a firm's stock is relatively flat, the firm will have a more difficult time raising a large amount of new equity funds for expansion than would be true if this demand curve were steeper. d. It is possible for a firm to go public, and yet not raise any additional capital. e. None of the above is a correct statement.

Q: Most American investors who are interested in investing in companies listed on foreign exchanges do so by purchasing ____. a. Foreign stocks directly from brokers that do business in the country where the company is located. b. Foreign stocks from brokers in the United States. c. American Depository Receipts (ADRs) or mutual funds that hold international stocks. d. Stocks directly from the foreign company. e. None of the above.

Q: The egalitarian principle says A) that everyone should have exactly the same income. B) that the age-earnings cycle should determine income. C) that people should be compensated on the basis of what they produce. D) that people should be compensated on the basis of their need.

Q: Which of the following statements about listing on a stock exchange is most correct? a. Listing is a decision of more significance to a firm than going public. b. Any firm can be listed on the NYSE as long as it pays the listing fee. c. Listing provides a company with some "free" advertising, and status as a listed company may enhance the firm's prestige. d. Listing reduces the reporting requirements for firms, because listed firms file reports with the exchange rather than with the SEC. e. Statements b and c are both correct.

Q: A monopsonist isA) a single buyer.B) a single seller.C) one of a few firms that face a unionized labor market.D) a non-profit-maximizing firm.

Q: Large, well-known public companies can reduce the time required to register and issue securities by using a(n) a. Shelf registration. b. Subchapter S registration. c. Underwriting syndicate. d. Secondary market registration. e. "Red herring" registration.

Q: Profit maximization requires thatA) the marginal factor cost of every input equals that inputʹs marginal physical product.B) the marginal factor cost of every input equals that inputʹs marginal revenue product.C) the amount of one input hired divided by the amount of another input hired equals the total costs of the first input hired divided by the total costs of the second input. D) equal amounts of each input are employed.

Q: Which of the following statements is correct? a. The SEC must approve the price at which a stock is to be offered to the public when a company "goes public." b. If a company's stock is listed, then it trades in the over-the-counter (OTC) market. c. If the "preemptive right" exists in a company's charter, then the holders of its Class A shares have the right to receive a specified amount of dividends before dividends can be paid on Class B shares. d. A "prospectus" is a document which describes a company and the securities it plans to offer, and the prospectus generally must be approved by the SEC before a public offering of new securities can be made. e. The decision to list a company's stock generally is more important to the company than the decision to go public, i.e., listing has a larger impact on the way the firm is operated than does going public.

Q: Ajax has just discovered that the marginal revenue product generated by the last worker hired was $50 while the marginal factor cost was $50. What should Ajax do?A) Leave the level of production unchanged. B) Increase the amount produced.C) Reduce the amount produced.D) Collect more information before making a decision.

Q: You have just purchased shares in the Hi-Tech Long-Term Bond Fund, a mutual fund that invests in long-term corporate bonds. Your purchase constitutes a. A direct transfer of funds. b. An indirect transfer through an investment banker. c. An indirect transfer through a financial intermediary. d. A money market transaction. e. All of the above.

Q: Which of the following is a government response to asymmetric information?A) Product guarantees B) External product certificationC) Manufacturerʹs warranties D) Government licensing

Q: Money markets are markets for a. Foreign currency exchange. b. Consumer automobile loans. c. Corporate stocks. d. Long-term bonds. e. Short-term debt securities.

Q: The goal of a cartel is toA) increase competition among members. B) maximize industry profits. C) increase industry production. D) all of the above

Q: The New York Stock Exchange is primarily a. A secondary market. b. An organized auction market. c. An over-the-counter market. d. Answers a and b above are both correct. e. Answers b and c above are both correct.

Q: Out of all advertising spending, the largest share goes toA) television ads. B) magazine ads. C) direct marketing. D) newspaper ads.

Q: T-bills are issued electronically with face values ranging from $1,000 to $5 million and with maturities of 4, 13, 26, or 52 weeks at the time of issue. a. True b. False

Q: Which of the following describes monopolistic competition?A) Homogenous products B) P = MR = MCC) Advertising plays a key role D) There is only one seller in the industry

Q: The par value of a share of common stock represents the minimum price at which new shares can be sold. All new issues of common stock must have a par value equal to the current market price of the share. a. True b. False

Q: PriceQuantity$191118121713161415151416Given the data in the above table, what is the marginal revenue when the 13th unit is sold?A) $7.00 B) $5.00 C) $3.00 D) $1.00

Q: Discounted securities are debt instruments that pay periodic interest payments and sell at par value when issued. The interest payments generate a positive return for the purchaser of discounted securities. a. True b. False

Q: A perfectly competitive industryʹs market or ʺgoingʺ price is established byA) the largest firm in the industry.B) the largest purchaser of this industryʹs output.C) each individual producing firm and reflects that firmʹs costs. D) the forces of supply and demand.

Q: A firm that issues "no-par" stock will not have a separate common stock and additional paid-in capital account on their balance sheet, it will be consolidated into a single account called common stock. a. True b. False

Q: Which of the following statements is not true for a perfectly competitive firm?A) A firmʹs demand curve is horizontal.B) The firm can influence its demand curve by advertising its product. C) The firmʹs demand curve is perfectly elastic.D) The market demand and supply curves determine the market price.

Q: The balance sheet item common equity represents the sum of the firm's common stock, paid-in capital, and retained earnings, which equal the common stockholders' total investment in the firm stated at book value. a. True b. False

Q: QTFCTVCTC0$90$ 0$ 901902511529032122390421324906415459095185Refer to the above table. When output rises from 4 units to 5 units, marginal costs areA) $19. B) $10. C) $22. D) $31.

Q: Retained earnings are a balance sheet account that indicates the total amount of earnings the firm has not paid out as dividends throughout its history. a. True b. False

Q: Each of the following is a source of financial capital for a corporation EXCEPT A) issuing new stock.B) reinvestment of profit or retained earnings.C) issuing bonds or borrowing funds from a bank. D) dividends.

Q: Retained earnings are the difference between the value of newly issued stock and its par value. a. True b. False

Q: Which is the best example of a firmʹs implicit costs? A) Wages B) The opportunity cost of owner-provided labor C) Rent D) Taxes

Q: Current liabilities are liabilities that must be paid during the next twelve months. a. True b. False

Q: Which of the following is FALSE?A) A consumer is maximizing total utility when he or she gets the same amount of marginal utility from the last dollar spent on each good purchased.B) As additional units of a good or service are consumed, marginal utility diminishes.C) Utility is want-satisfying power.D) Assuming that the law of diminishing marginal utility holds, the demand curve must be upward sloping.

Q: Corporations often issue financial instruments such as debt and equity to raise the funds needed to purchase real assets. a. True b. False

Q: When you buy something, you do so because of the satisfaction you expect to receive from having and using that good. Another term that can be used for satisfaction isA) need. B) purchasing power. C) utility. D) price elasticity.

Q: A financial asset is tangible; it is a physically observable and touchable item. a. True b. False

Q: One of the most important determinants of a goodʹs price elasticity of demand is A) the profits of suppliers. B) the numbers of buyers in the market. C) the ease with which consumers can substitute other goods for that product. D) the cost of producing the good.

Q: A real asset is intangible, because it represents a promise that future cash flows will be paid to the owner. a. True b. False

Q: In order to internalize the externality due to pollution, the government should impose a tax based onA) the economic damage associated with the pollution. B) the physical amount of pollution.C) the size of the firm causing the pollution.D) the value of the pollution -causing business activity.

Q: Preferred stock can provide a financing alternative for some firms when market conditions are such that those firms can issue neither pure debt nor common stock at reasonable cost. a. True b. False

Q: The merit standard refers to:A) ʺTo each according to her need.ʺ B) ʺTo each exactly the same.ʺC) ʺTo each according to her productivity.ʺ D) ʺTo each according to his ability.ʺ

Q: As with common stock, preferred stock always has a par value, and also, like common stock, the par value is unimportant in the event of liquidation. However, the preferred stock dividend does depend on the par value and the dividend is usually stated as a percentage of par. a. True b. False

Q: A monopsony has an upward sloping supply curve because A) diminishing marginal product to scale does not exist in a monopsony. B) each additional unit of labor costs less. C) when more units of labor are hired, all laborers must receive the higher wage. D) when more units of labor are hired, only the new workers receive the higher wage.