Q&A Hero

Q: The demand curve for a perfectly competitive firm is horizontal becauseA) consumers are willing to pay any price to obtain its product. B) its production decisions cannot influence the market price.C) the firm profits from setting its price higher than the market price.D) its product is easy for consumers to differentiate from those of other firms.

Q: Which of the following types of debt protect a bondholder against an increase in interest rates? a. Floating rate debt. b. Bonds that are redeemable ("putable") at par at the bondholders' option. c. Bonds with call provisions. d. All of the above. e. Only answers a and b above.

Q: An American Depository Receipt (ADR) represents a. Debt sold by a foreign borrower that is denominated in the currency of the country where it is sold. b. Stock of foreign companies that is sold directly to investors in the United States. c. Equity instruments of one country that are sold in another country. d. The certificates that represent ownership in foreign companies that are sold in the United States. e. Certificates representing ownership in stocks of foreign companies that are held in trust by a bank located in the country the stock is traded.

Q: QTFCTVCTC0$90$ 0$ 901902511529032122390421324906415459095185Refer to the above table. At an output of 3 units, average variable costs areA) $42. B) $30. C) $44. D) $14.

Q: Eurodebt is the term used to designate a. Debt sold by a foreign borrower that is denominated in the currency of the country where it is sold. b. European bank loans that are denominated in the new Euro currency. c. Debt that is denominated in a currency that is different than the currency of the country in which it is sold. d. Equity instruments of one country that are sold in another country. e. The certificates that represent ownership in foreign companies that are sold in the United States.

Q: Monitoring the performance of the people managing the firm is easiest in the case ofA) proprietorships. B) partnerships.C) corporations. D) S corporations.

Q: Which of the following are generally considered advantages of term loans over publicly issued bonds? a. Lower flotation costs. b. Speed, or how long it takes to bring the issue to market. c. Flexibility, or the ability to adjust the bond's terms after it has been issued. d. All of the above. e. Only answers b and c above.

Q: Suppose a consumer is at an optimum, consuming 6 hamburgers a week at a price of $1.50 each and 10 donuts a week at 50 cents a donut. If the price of a hamburger increases to $2.00, what will the consumer do to arrive at a new equilibrium? Why?

Q: Your Aunt Agatha purchased a call option a few months ago. Today is the expiration date, so she must decide whether to exercise the option. Which of the following statements is correct? Do not consider brokers' commissions in your answer. a. Aunt Agatha doesn't need to make a decision about exercising the option today; in fact, it would be better if she waited until after the option expires. b. Aunt Agatha should exercise the option if the price of the stock is less than the exercise, or strike, price. c. Aunt Agatha should exercise the option if the price of the stock is greater than the exercise, or strike, price. d. Aunt Agatha should exercise the option, regardless of the current stock price. e. None of the above.

Q: Quantity of Movies Watched per WeekMichelleʹs Total Utility per WeekRobertʹs Total Utility per Week00011001002195190327027043403405390400642035074353908445420945044010440450Refer to the above table. The marginal utility of the 8th movie for Robert is A) 30 units of utility. B) 20 units of utility. C) 420 units of utility. D) 30 units of utility.

Q: Pure options are instruments that are a. Created by investors outside the firm. b. Bought and sold primarily by investors and speculators. c. Of greater importance to investors than to financial managers. d. All of the above. e. None of the above.

Q: ʺHigher prices always yield higher revenues.ʺ Do you agree or disagree? Why?

Q: An option which gives the holder the right to sell a stock at a specified price at some time in the future is called a(n) a. Call option. b. Put option. c. Out-of-the-money option. d. Naked option. e. Covered option.

Q: If a firm is not forced to pay for external costs, it willA) continue to overproduce the good. B) continue to under produce the good.C) request a subsidy from the government. D) raise prices.

Q: ʺTo each exactly the sameʺ refers toA) the productivity standard. B) the free market doctrine.C) the egalitarian principle. D) the Lorenz curve.

Q: Which of the following statements is correct? a. All common stock must have full voting rights. b. While firms are allowed to issue different classes of common stock, the Securities and Exchange Commission (SEC) requires that each class have the same dividend privileges. c. The New York Stock Exchange (NYSE) allows firms with dual class stock to be listed on the exchange. d. In order to increase a stock's liquidity, investment bankers generally require that insiders sell some percentage of their shares after a firm has undergone an initial public offering (IPO). e. When a firm raises capital, investment bankers enter into a "best efforts" arrangement which guarantees that the securities will be sold.

Q: Which of the following statements is correct? a. One danger a family-owned business faces when it goes public is the loss of absolute voting control of the company, because there is no way to keep new stockholders from voting. b. The market is less active for small companies' shares, so these stocks must be included on the SEC's list in order to inform investors of their existence. Therefore, "listed shares" as the term is generally used refers to shares of smaller as opposed to larger companies. c. Before a company can offer a new issue of common stock to the public, it must get approval from the SEC for the price at which the stock can be sold. If the SEC thinks the proposed price is too high, then the company's prospectus is rejected and the stock cannot be sold. d. The preemptive right refers to stockholders' right to elect a company's board of directors. e. Each of the above statements is false.

Q: In recent decades, the union-nonunion hourly wage differential hasA) increased substantially. B) increased slightly.C) stayed the same. D) fallen significantly.

Q: Companies can issue different classes of common stock. Which of the following statements concerning stock classes is correct? a. All common stocks fall into one of three classes: A, B, and C. b. Most firms have several classes of common stock outstanding. c. All common stock, regardless of class, must have voting rights. d. All common stock, regardless of class, must have the same dividend privileges. e. None of the above statements is necessarily true.

Q: If a firm faces perfectly competitive product and factor markets and the marginal product of labor and capital are 4 and 9, respectively, while the wage rate is $2 and the rental rate on capital is $4, the firm shouldA) use relatively more capital. B) use relatively less capital.C) increase all inputs proportionately. D) decrease all inputs proportionately.

Q: The preemptive right is important to shareholders because it a. Allows management to sell additional shares below the current market price. b. Protects the current shareholders against dilution of ownership interests. c. Is included in every corporate charter. d. Will result in higher dividends per share. e. The preemptive right is not important to shareholders.

Q: The cost of using an additional unit of an input is called theA) marginal revenue product. B) marginal physical product cost.C) marginal factor cost. D) marginal product of labor.

Q: Common equity refers to the sum of which of the following balance sheet accounts? a. Common stock and retained earnings b. Book value, retained earnings, and common stock c. Common stock, additional paid-in capital, retained earnings d. Either answer a or c above could be correct depending on whether the firm has "par" or "no par" stock. e. Both b and c are correct since additional paid-in capital is equivalent to book value.

Q: Asymmetric information is A) when a market failure occurs. B) an externality. C) when the producer has information on the product that the consumer lacks. D) the regulatory price for a natural monopoly.

Q: Which of the following factors does not influence a firm's long-term financing decisions? a. Its target capital structure. b. Maturity matching considerations. c. Comparative costs of financing alternatives. d. Availability of collateral. e. All of the above factors may influence a firm's long-term financing decisions.

Q: After participating members of a cartel form an agreement on common prices and output quotas, then an individual firm can increase its own profits byA) decreasing production. B) decreasing prices.C) advertising. D) paying its employees higher wages.

Q: All of the following may serve to reduce the coupon rate that would otherwise be required on a bond issued at par, except a a. Sinking fund. b. Restrictive covenant. c. Call provision. d. Change in rating from Aa to Aaa. e. None of the above (all may reduce the required coupon rate).

Q: Which statement is INCORRECT with respect to sales promotion and advertising?A) Perfect competition differs from monopolistic competition in that no individual firm in a perfectly competitive market will advertise.B) A perfectly competitive firm, by definition, can sell all that it wants to sell at the going market price.C) A perfect competitor advertises a product that is different from the products that all other firms in the industry are selling.D) Advertising should be carried to the point at which the additional revenue from one more dollar of advertising just equals that one dollar of marginal cost.

Q: The terms and conditions to which a bond is subject are set forth in its a. Debenture. b. Underwriting agreement. c. Indenture. d. Restrictive covenants. e. Call provision.

Q: What is deadweight loss? Whose loss is it? Explain.

Q: Of the following provisions that might be found in a bond indenture, which would tend to reduce the coupon interest rate on the bond in question? a. A subordination clause in a debenture. b. A call provision. c. A convertible feature. d. Having relatively few restrictive covenants. e. All of the above.

Q: A firm that faces a downward sloping demand curve is known as aA) price taker. B) utility maximizer. C) price searcher. D) perfect competitor.

Q: Other things held constant, if a bond indenture contains a call provision, the yield to maturity that would exist without such a call provision will generally be ____ the YTM with it. a. Higher than b. Lower than c. The same as d. Either higher or lower, depending on the level of call premium, than e. Unrelated to

Q: The short-run supply curve for a perfectly competitive firm is the portion of itsA) ATC curve above the MC curve. B) MC curve above the ATC curve.C) ATC curve below the MC curve. D) MC curve above its AVC curve.

Q: A perfectly elastic demand functionA) shows that a consumer is willing to pay any amount for the product.B) is characteristic of an individual firm operating in a perfectly competitive market.C) shows that the individual firm can increase sales by lowering the price of output. D) has a marginal revenue that is always decreasing.

Q: Which of the following events would make it more likely that a company would choose to call its outstanding callable bonds? a. A reduction in market interest rates. b. The company's bonds are downgraded. c. An increase in the call premium. d. Answers a and b are both correct. e. Answers a, b, and c are all correct.

Q: QTFCTVCTC0$90$ 0$ 901902511529032122390421324906415459095185Refer to the above table. At an output of 4 units, average variable costs areA) $16. B) $22. C) $38.50. D) $44.

Q: The average American is knowledgeable about personal finance and tends to manage their retirement needs and debt levels responsibly. a. True b. False

Q: Do people make decisions on the basis of the nominal interest rate or the real interest rate? What is the relationship between the two interest rates?

Q: The electronic revolution has not really caught on in finance, primarily because finance decision making is a localized, private function that a firm does not wish to disclose to outsiders. a. True b. False

Q: Limited liability is a characteristic ofA) partnerships only. B) corporations only.C) partnerships and proprietorships only. D) proprietorships only.

Q: To achieve success in the financial services industry, one needs a knowledge of the factors that cause interest rates to rise and fall, the regulations to which financial institutions are subject, and the various types of financial instruments. a. True b. False

Q: The finance function is fairly independent of most other corporate functions. Marketing decisions, for example, might affect the firm's need for funds but are not affected by conditions in financial markets or other financing issues. a. True b. False

Q: Suppose Lois usually buys two cups of coffee for two dollars each and one scone for two dollars each. If the price of scones falls to one dollar each and she now buys two cups of coffee and two scones, this illustrates theA) substitution effect. B) marginal rate of substitution.C) total utility effect.D) real-income effect.

Q: The well-developed financial markets that exist in the United States have allowed us to achieve a higher standard of living than would otherwise be possible. a. True b. False

Q: Quantity of Movies Watched per WeekMichelleʹs Total Utility per WeekRobertʹs Total Utility per Week00011001002195190327027043403405390400642035074353908445420945044010440450Refer to the above table. The marginal utility of the 5th movie for Robert is A) 400 units of utility. B) 50 units of utility. C) 60 units of utility. D) 70 units of utility.

Q: The three main functions in the investments area are sales, the decisions that firms make concerning their cash flows, and determining the optimal mix of securities for a given investor. a. True b. False

Q: For a linear demand curve, where is the amount of total expenditures on a good maximized?

Q: Much of the recent legislation enacted by the government has focused on the regulating of previously unregulated industries such as financial services and utilities. a. True b. False

Q: If a firm is forced to take external costs into account, it will A) reduce production and charge a higher market price. B) increase production and charge a lower market price. C) reduce prices and hire more workers.D) reduce prices and hire fewer workers.

Q: If you pursue a business career in a nonfinance profession you will not be exposed to finance concepts on the job. a. True b. False

Q: The egalitarian principle of income refers to A) each person being paid differently. B) each person receiving the same income. C) each person receiving tax breaks. D) each person working the same number of hours.

Q: During the depression era of the 1930s, the emphasis of managerial finance was developing sophisticated analytical models used to determine the liquidity and value of firms. a. True b. False

Q: Which of the following is NOT considered to be a benefit of unionism? A) increased featherbedding B) greater workplace safety C) higher workforce stability D) provision of arbitration and grievance procedures

Q: In the early 1900s the emphasis of managerial finance was on the legal aspects of mergers, the formation of new firms, and the various types of securities firms could issue to raise funds. a. True b. False

Q: Assume that a perfectly competitive firm faces a fixed wage rate of $4 and a constant per -unit cost of capital of $2. If the marginal product of labor and capital are 16 and 6, respectively, then to maximize profits the firm shouldA) use relatively more labor. B) use relatively less labor.C) increase all inputs proportionately. D) decrease all inputs proportionately.

Q: During the 1930s, investment experts suggested that stock value should be determined by computing the present value of the future cash flows associated with the stock. a. True b. False

Q: Number of WorkersTotal OutputNumber of WorkersTotal Output00694512007100024208102536209103547701010405870 Refer to the above table. Suppose the price of the good sold is $4 and the marginal factor cost of labor is $600, how many units of labor will the firm hire?A) 4. B) 5. C) 6. D) 3.

Q: At the beginning of the twentieth century, for the most part, the only investments available to individual investors were corporate stocks and bonds; but, today, there are a significantly greater number of investment choices because investors' demands have changed. a. True b. False

Q: During the production process Ajax Corporation releases pollution into the air. Ajax Corporation operates in a monopolistic competitive industry. Which of the following statements addresses the pollution situation?A) Ajax is taking advantage of asymmetric information.B) This is an example of a market failure and is a reason for the government to regulate the industry.C) The quality of the product could be improved if the amount of pollution can be reduced.D) This is known as the lemons problem.

Q: In the early 1900s, the investments arena was dominated by a small group of very wealthy investors and opulent corporations. a. True b. False

Q: After participating members of a cartel form an agreement on common prices and output quotas, then an individual firm can increase its own profits byA) increasing production. B) increasing prices.C) leaving the cartel. D) incurring higher input costs.

Q: Typically a mix of informational and persuasive advertising is used for A) experience goods. B) credence goods. C) credible goods. D) search goods.

Q: Historically, in the United States, after the country has experienced economic or financial tragedy, cries for new, tougher regulations become abundant, and politicians are generally quick to enact new legislation to take what they think are corrective actions. a. True b. False

Q: Coordination of the finance function and the marketing function is critical to the success of newly formed companies which must generate enough cash to survive a. True b. False

Q: Suppose that a perfect-maximizing monopolist operates with a horizontal marginal cost curve and no fixed costs. Which of the following would NOT be represented as part of the area between its demand curve and marginal cost curve?A) total costs B) economic profitsC) consumer surplus D) deadweight loss

Q: The history of banking in the United States is one of continuous regulation to ensure the safety of our banking institution. For this reason, little deregulation has taken place. a. True b. False

Q: A firm that faces a downward sloping demand curve isA) a price taker. B) a price provider.C) a price searcher. D) a price creator.

Q: A major reason there has been a great deal of deregulation in the banking industry since the 1970s is due to the emergence of nonbank organizations and the need to increase competitiveness of U.S. banks and other financial institutions. a. True b. False

Q: If the wage rate increases and firms in a perfectly competitive industry are hiring labor, thenA) the firms will quit using labor. B) profits will increase.C) market supply will decrease. D) market price will decrease.

Q: Throughout the twentieth century, the banking industry has often been the subject of a great deal of regulation, much of which has placed banks at a competitive disadvantage compared with other financial institutions in the United States and other banks throughout the world. a. True b. False

Q: The perfectly competitive firm facesA) a downward sloping demand curve. B) a horizontal supply function. C) perfectly elastic demand. D) constant marginal costs.

Q: There are financial implications in virtually all business decisions, and non-financial executives must understand the financial implications of the decisions they make. a. True b. False

Q: In the short run, average total cost isA) higher than average variable cost.B) equal to average variable cost. C) less than average variable cost.D) sometimes higher and sometimes lower than average variable cost.

Q: What are the two meanings of interest in economics?

Q: The financial manager must execute his or her duties independent of the other activities of the firm in order to properly maximize the value of the firm. a. True b. False

Q: The financial manager interacts jointly with many different individuals and departments within the firm. Forecasting and planning, as well as coordination and control, are two of the major areas of responsibility where this interaction takes place. a. True b. False

Q: An advantage of a corporation isA) the ability to raise large sums of financial capital. B) unlimited liability on the part of shareholders.C) the fact that ownership and control are never separated.D) the fact that the corporation is dissolved when one of its owners dies.

Q: In general, the role of the financial manager is to plan for the acquisition and use of funds in order to maximize the value of the firm. a. True b. False

Q: Suppose the price of pizza falls to $1 per slice. Assuming that Tomʹs preferences continue to be those shown in the above table, and assuming that MU/P = 3 is still the point at which his consumer optimum is reached, how many slices will Tom now buy?A) 1 slice B) 2 slices C) 3 slices D) 4 slices