Question 1

Stocks are

Accepted Answer

Stocks represent shares of ownership in a corporation, therefore they are not promises to repay loans (A), a liability of a proprietorship (B), or a liability of a corporation (C).

Question 2

Which method of corporate finance is used the most? Why?

Accepted Answer

The answer of Which method of corporate finance is used...

Question 3

Suppose a firm wanted to go out of business. The firm sells all its assets and pays off everything it owes to creditors. The stockholders would receive

Accepted Answer

When a firm goes out of business and liquidates its assets, after paying off all its debts and obligations to creditors, the remaining funds (if any) are distributed to the stockholders. This is because stockholders have residual claims on the assets of the firm, meaning they get whatever is left after all other claims have been satisfied.

Question 4

Suppose you own $15,000 of personal property, $5,000 of stock in ABC Corporation, a $1,000 certificate of deposit, and $10,000 of government bonds. If ABC goes bankrupt, the most you could lose is

Accepted Answer

In the event of ABC Corporation going bankrupt, the maximum financial loss you would incur is the total value of your investment in the company, which is $5,000. Your other assets (personal property, certificate of deposit, and government bonds) are not directly affected by the bankruptcy of ABC Corporation.

Question 5

When Patricia sells her General Motors common stock at the same time that Brian purchases the same amount of General Motors stock from another party, General Motors receives

Accepted Answer

When Patricia sells her stock to Brian, it is a transaction between investors in the secondary market, and General Motors does not receive any proceeds from this transaction.

Question 6

The random walk theory says that

Accepted Answer

The random walk theory suggests that successive stock prices are independent of each other and cannot be predicted based on past prices. This means that past trends or patterns cannot be used to reliably predict future prices.

Question 7

Suppose that you decide to purchase either stocks or bonds of a particular corporation and you also prefer to receive some returns from the securities every year. Which should you buy - stocks or bonds? Why?

Accepted Answer

The answer of Suppose that you decide to purchase either...

Question 8

Bonds are

Accepted Answer

Bonds are essentially loans that investors make to corporations, governments, or other entities. The entity issuing the bond promises to pay back the principal amount of the loan along with interest to the bondholder. Therefore, bonds are promises to repay loans. The other choices (B, C, and D) are not accurate descriptions of bonds.

Question 9

What would happen if a corporation goes out of business?

Accepted Answer

The answer of What would happen if a corporation goes...

Question 10

A legal claim to a percentage of a company's future profits and assets is known as a

Accepted Answer

A share of stock represents ownership in a company and entitles the shareholder to a portion of the company’s profits and assets. Bonds represent a company’s debt and do not entitle the holder to ownership or profits. Dividends are payments made to shareholders from a company’s profits. A random walk is a statistical model used to describe the movement of stock prices, but it is not a legal claim to profits or assets.

Question 11

When a corporation uses profits to pay for the purchase of new capital equipment, this is know as

Accepted Answer

Reinvestment involves using profits to purchase new capital equipment or other assets that can help the business grow and increase profitability in the long run. This is an important strategy for businesses that want to stay competitive and maintain their market position. Coupon payments are payments made to investors who hold bonds, while dividends are payments made to shareholders. Collusion is an illegal practice in which competitors work together to fix prices or eliminate competition.

Question 12

If a corporation fails, the first recipients of funds that may remain are

Accepted Answer

Bond holders have priority in receiving funds if a corporation fails because bonds are debtor agreements and the bond holders have lent money to the corporation, unlike preferred and common stockholders who have ownership in the corporation. If there are any remaining funds, bond holders should be paid first before any payments are made to stockholders. If there are no remaining funds, then no one receives anything.

Question 13

When a person buys stock in a company, that person is buying ________, but when a person buys a bond in a company, that person is ________ the company.

Accepted Answer

When a person buys stock, they are purchasing a share of ownership in the company. When they buy a bond, they are lending money to the company, which the company promises to repay with interest at a future date.

Question 14

If a corporation fails, the last recipients of funds that may remain are

Accepted Answer

Common stockholders are the last in line to receive any remaining funds after a corporation fails, following the payment of debts, obligations to bondholders, preferred stockholders, and taxes.

Question 15

According to the random walk theory,

Accepted Answer

According to the random walk theory, successive prices of a stock are independent of each other. This means that previous stock prices cannot be used to accurately predict future stock prices, as each price movement is unrelated to the last.

Question 16

A legal claim entitling the owner of the claim to fixed annual payments and a lump-sum payment is called a(n)

Accepted Answer

A legal claim entitling the owner to fixed annual payments and a lump-sum payment is called a bond. Bonds are debt securities in which an investor loans money to a company or government that borrows the funds for a defined period of time at a fixed interest rate. The issuer of the bond agrees to pay back the principal amount of the loan plus interest to the bondholder on a predetermined date. Bonds are considered to be a fixed-income investment and are generally less risky than stocks.

Question 17

A long-term loan that is given to a firm is known as a

Accepted Answer

A long-term loan given to a firm is known as a bond. Shares of stock represent ownership in a company and dividends are payments made to shareholders. Random walk is a concept in finance related to the unpredictable movements of market prices.

Question 18

A company raises funds by selling 5 million shares of common stock to 5,000 shareholders and $1 million bonds to 1,000 bondholders. The number of individuals who vote for the company's board of directors is

Accepted Answer

Only the shareholders have the right to vote for the board of directors, so the number of individuals who vote for the company's board of directors is equal to the number of shareholders, which is 5,000. Bondholders do not have voting rights for the board of directors.

Question 19

If you want to vote for the management of the corporation, you should buy

Accepted Answer

Only common stockholders have the right to vote for the corporation's management. Preferred stockholders do not have voting rights, and bondholders are not shareholders and do not have ownership in the company, so they cannot vote.

Question 20

Describe and explain the three principle methods of financing used by corporations.

Accepted Answer

The answer of Describe and explain the three principle methods...

Quiz 21: Rents, Profits, and the Financial Environment of Business