Quiz 7 of ECON251 Purdue University In Tutorial Library

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TITLE: Quiz 7 of ECON251 Purdue University

UNIVERSITY / INSTITUTE: Purdue University

CLASS / COURSE: Economics

QUESTION DESCRIPTION:

Quiz 7:
 
Quiz 7
Mana Al Abbas
Started: October 10, 2009 8:11 AM
Questions: 20
1.
(Points: 0.5)
If a corporate bond with a face value of $1,000 has an interest rate of eight percent
paid once a year for a term of 30 years, what is the size of the coupon payment?
a. a. $1,000
b. b. $300
c. c. $80
d. d. $8
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2.
(Points: 0.5)
An advantage that the corporate form of business organization does NOT have is:
a. a. separation of ownership and business liability.
b. b. enhanced ability to raise funds.
c. c. ability to share risks.
d. d. favorable tax treatment.
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3.
(Points: 0.5)
A stock's earnings per share equal to:
a. a. the last dividend payment made.
b. b. total dividend payments plus retained earnings divided by
outstanding stock shares.
c. c. the amount by which the stock's market price has increased in the last
year.
d. d. the price of stock divided by its dividend.
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4.
(Points: 0.5)
A dollar today is more valuable than a dollar a year from now because:
a. a. the dollar today can be immediately used to buy something.
b. b. a dollar a year from now will likely have less purchasing power
because of inflation.
c. c. the unknown future is more risky than the known present.
d. d. all of these.
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5.
(Points: 0.5)
A primary difference between a sole proprietorship and a partnership is:
a. a. sole proprietorships have unlimited liability while partnerships have
limited liability.
b. b. partnerships can issue stocks and bonds while sole proprietorships
cannot.
c. c. partnerships have more owners than do sole proprietorships.
d. d. sole proprietorships have more layers of management than partnerships.
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6.
(Points: 0.5)
How are corporate profits taxed?
a. a. Earnings are taxed first by state sales taxes and then as corporate profits
at the Federal level.
b. b. Earnings are taxed first as personal income then as corporate profits at
the Federal level.
c. c. Earnings are taxed first as corporate profits then as personal
income after dividends are paid.
d. d. Corporate profits are not taxed at all.
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7.
(Points: 0.5)
A stock's price-earnings ratio is found by dividing:
a. a. the dividend by the closing price of the stock.
b. b. the dividend by the firm's earnings per share.
c. c. the current market price of the stock by the firm's earnings per
share.
d. d. the coupon payment of the stock by the firm's earnings per share.
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8.
(Points: 0.5)
The difference between the highest stock price and the lowest stock price over the
previous year indicates:
a. a. the stock's coupon yield.
b. b. the stock's price-earnings ratio is.
c. c. how volatile the stock's market price has been.
d. d. the dividend yield.
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9.
(Points: 0.5)
Who owns a corporation?
a. a. The board of directors
b. b. The stockholders
c. c. The employees
d. d. The CEO
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10.
(Points: 0.5)
Sole proprietorship and a corporation differ in that:
a. a. sole proprietorships have unlimited liability while corporations
have limited liability.
b. b. sole proprietorships have an easier access to funds than corporations.
c. c. sole proprietorships face more taxes than corporations.
d. d. sole proprietorships are more difficult to organize than corporations.
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11.
(Points: 0.5)
If a stock's dividend is expected to grow at a constant rate of eight percent in the
future and it has just paid a dividend of $1.25 a share and you have an alternative
investment of equal risk that will earn a 12 percent rate of return, then the market
price of this stock should be:
a. a. $1.25.
b. b. $31.25.
c. c. $1.35.
d. d. $33.75.
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12.
(Points: 0.5)
A stock's dividend yield is calculated as:
a. a. the dividend payment divided by the stock's initial price.
b. b. the dividend payment divided by the stock's closing market price.
c. c. the stock's closing market price by the dividend payment.
d. d. the stock's initial price divided by the dividend payment.
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13.
(Points: 0.5)
An example of a secondary securities market is:
a. a. the New York Stock Exchange.
b. b. the over-the-counter market.
c. c. the NASDAQ.
d. d. all of these.
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14.
(Points: 0.5)
One way to try to reduce the principal-agent problem is to:
a. a. threaten to liquidate the firm.
b. b. link top manager salaries to the profits of the firm or the price of
the firm's stock.
c. c. have the CEO be a rotating position.
d. d. forbid managers from owning any company stock.
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15.
(Points: 0.5)
What is the present value of $888 in a year's time if the current rate of interest is five
percent?
a. a. $4,440
b. b. $845.71
c. c. $177.60
d. d. none of these
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16.
(Points: 0.5)
Among the differences between a share of stock and a bond is:
a. a. a stock can possibly pay dividends forever, but bonds have a fixed
number of payments.
b. b. differences of opinion about a stock's future may vary considerably but
there is less difference about a bond's future.
c. c. the future growth of a stock is more uncertain than the payments of a
bond.
d. d. all of these.
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17.
(Points: 0.5)
Limited liability means:
a. a. the personal assets of the owners can be claimed if the business is
bankrupt.
b. b. only employees can have a claim on the assets of the business.
c. c. the personal assets of the owners cannot be claimed if the
business is bankrupt.
d. d. anybody with a liability against a firm can claim only what their liability
refers to.
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18.
(Points: 0.5)
The type of business where the owner is in control is:
a. a. a sole proprietorship.
b. b. a partnership.
c. c. a corporation.
d. d. the owner of all types of business have control.
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19.
(Points: 0.5)
The type of business that is the most difficult to set up is:
a. a. a sole proprietorship.
b. b. a partnership.
c. c. a corporation.
d. d. all types of businesses are equally difficult to set up.
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20.
(Points: 0.5)
A situation where a hired manager does not have the same interests as the owners of
the business is known as:
a. a. a conquest and control problem.
b. b. a financial problem.
c. c. a principal-agent problem.
d. d. a financial intermediary problem.
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