FIN 534 Week 5 Midterm Exam – Strayer New
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1 Which
of the following statements is CORRECT?
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The New
York Stock Exchange is an auction market with a physical location.
Capital
market transactions involve only the purchase and sale of equity securities,
i.e., common stocks.
If an
investor sells shares of stock through a broker, then this would be a primary
market transaction.
Consumer
automobile loans are evidenced by legal documents called "promissory
notes," and these individual notes are traded in the money market.
While
the distinctions are blurring as investment banks are today buying commercial
banks, and vice versa, investment banks generally specialize in lending money,
whereas commercial banks generally help companies raise capital from other
parties.
2 Which
of the following statements is CORRECT?
It is
usually easier to transfer ownership in a corporation than it is to transfer
ownership in a sole proprietorship.
Corporate
shareholders are exposed to unlimited liability.
Corporations
generally face fewer regulations than sole proprietorships.
Corporate
shareholders are exposed to unlimited liability, and this factor may be
compounded by the tax disadvantages of incorporation.
Shareholders
in a regular corporation (not an S corporation) pay higher taxes than owners of
an otherwise identical proprietorship.
3 Which
of the following statements is CORRECT?
While
the distinctions are blurring, investment banks generally specialize in lending
money, whereas commercial banks generally help companies raise capital from
other parties.
A
security whose value is derived from the price of some other
"underlying" asset is called a liquid security.
Money
market mutual funds usually invest most of their money in a well-diversified
portfolio of liquid common stocks.
Money
markets are markets for common stocks and long-term debt.
The NYSE
operates as an auction market, whereas the Nasdaq is a dealer market.
4 Which
of the following statements is CORRECT?
Capital
market instruments include both long-term debt and common stocks.
An
example of a primary market transaction would be your uncle transferring 100
shares of Wal-Mart stock to you as a birthday gift.
The NYSE
does not exist as a physical location; rather, it represents a loose collection
of dealers who trade stocks electronically.
If your
uncle in New York sold 100 shares of Microsoft through his broker to an
investor in Los Angeles, this would be a primary market transaction.
While
the two frequently perform similar functions, investment banks generally
specialize in lending money, whereas commercial banks generally help companies
raise large blocks of capital from investors.
5
Which of the following could explain why a business might choose to operate as
a corporation rather than as a sole proprietorship or a partnership?
Corporations
generally find it relatively difficult to raise large amounts of capital.
Less of
a corporation's income is generally subjected to taxes than would be true if
the firm were a partnership.
Corporate
shareholders escape liability for the firm's debts, but this factor may be
offset by the tax disadvantages of the corporate form of organization.
Corporate
investors are exposed to unlimited liability.
Corporations
generally face relatively few regulations.
6
You recently sold 100 shares of your new company, XYZ Corporation, to your
brother at a family reunion. At the reunion your brother gave you a check for
the stock and you gave your brother the stock certificates. Which of the
following statements best describes this transaction?
This is
an example of an exchange of physical assets.
This is
an example of a primary market transaction.
This is
an example of a direct transfer of capital.
This is
an example of a money market transaction.
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