Question

(     ) 1. Agency problem of a corporation refers to:

            A)        The total dividends paid to shareholders over the lifetime of the firm.

            B)        The costs that result from default and bankruptcy of the firm.

            C)        Corporate income subject to double taxation.

            D)        The conflict of interest between stockholders and management.

(     ) 2. The primary goal of financial management is to:

            A)        Maximize current sales.

            B)        Maximize the current value per share of the existing stock.

            C)        Avoid financial distress.

            D)        Maintain steady earnings growth.

(     ) 3. Which of the following is FALSE regarding the advantage of the corporation structure?

            A)         Easier to raise more capital than sole proprietorship and partnership structure.

            B)         Limited liability for all ownership.

            C)         Income taxed once as personal income.

            D)         Ownership is easy to transfer.

(     ) 4. If we compare money market to capital market, _____ securities have a maturity of one year or less; common stocks such as Google stock is an example of _____ securities.

            A)        Capital market; capital market

            B)        Money market; money market

            C)        Capital market; money market

            D)        Money market; capital market

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) 5. Which of the following securities offers investors the advantage of exemptionfrom federal income tax (the interest payment is not subject to federal personal income tax)?

            A)         Bond issued by Springfield city government with 15 yeas maturity.

            B)         Treasury Note with 8 years maturity.

            C)         Treasury Bond with 25 years maturity

            D)         Bond issued by General Electric with 20 yeas maturity.

(     ) 6. Which one of the following equations about the balance sheet is true?

            A)        Current assets - Fixed assets = Total assets

            B)        Common stock + Short term Debt = Shareholders' equity

            C)        Current liabilities + Long-term debt = Total Assets

            D)        Shareholders’ equity = Assets –Liabilities

(     ) 7. Which one of the followings is an investment bank’s business activity?

            A)        Granting student loans.

            B)        Underwriting in companies’ initial public offerings.

            C)        Generating mortgage loans.

            D)        Accepting customers’ deposit.

(     ) 8. If you have to lend $1,000 to your nephew at a 10% APR, which one of the following loan structure would you prefer (of course you want more money back)?

            A)        Simple interest calculated every month.

            B)        Simple interest calculated every half year.

            C)        Compound interest calculated every month.

            D)        Compound interest calculated every half year.

Answer 1

( ) 1. Agency problem of a corporation refers to:

D) The conflict of interest between stockholders and management.

( ) 2. The primary goal of financial management is to:

B) Maximize the current value per share of the existing stock.

( ) 3. Which of the following is FALSE regarding the advantage of the corporation structure?

C) Income taxed once as personal income.

( ) 4. If we compare money market to capital market, _____ securities have a maturity of one year or less; common stocks such as Google stock is an example of _____ securities.

D) Money market; capital market

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) 5. Which of the following securities offers investors the advantage of exemptionfrom federal income tax (the interest payment is not subject to federal personal income tax)?

A) Bond issued by Springfield city government with 15 yeas maturity.

( ) 6. Which one of the following equations about the balance sheet is true?

D) Shareholders’ equity = Assets –Liabilities

( ) 7. Which one of the followings is an investment bank’s business activity?

B) Underwriting in companies’ initial public offerings.

( ) 8. If you have to lend $1,000 to your nephew at a 10% APR, which one of the following loan structure would you prefer (of course you want more money back)?

C) Compound interest calculated every month.