1.The concept of limited liability says a stockholder of a corporation:
a. Is liable for the corporation's liabilities, but nothing more.
b. Cannot receive dividends that exceed their investment.
c. Cannot lose more than their investment.
d. None of the above.
2. Countries that lack well defined property laws and legal structures:
a. Have large secondary financial markets because the primary markets do not exist.
b. Will not develop as fast economically as counties with clear property rights and a formal legal system.
c. Will have much lower transaction costs associated with any level of lending.
d. Will not have any financial markets at all.
3. Professor Jeremy Siegel, of the University of Pennsylvania, did research showing:
a. Owning stocks over the long run produce returns below the risk-free return.
b. If an investor owns stocks for a very short time the risk is greater than if the stocks are held for a long time.
c. The return on the S&P 500 for a 25 year period often produces returns below zero.
d. a and c
e. b and c
4. On the settlement date of a futures contract:
a. The future's price is always above the price of the underlying asset.
b. The future's price is always below the price of the underlying asset.
c. The future's price is equal to the price of the underlying asset.
d. The future's price may be above or below the price of the underlying asset but not equal to it.
5. There's a call option written for 100 shares of GM stock for $85.00 a share, prior to the third Friday of October 2006: The option writer:
a. Has the option but not the requirement of selling 100 shares of GM for $85.00.
b. Will sell 100 shares of GM for $85.00 on the third Friday of October 2006.
c. Has the option to back out of this contract prior to the third Friday of October 2006.
d. None of the above.
6. The better the information provided to financial markets:
a. The less the amount of funds transferred between savers and borrowers.
b. The greater the amount of funds transferred between savers and borrowers, though risk increases.
c. The higher the return required by lenders.
d. The greater will be the flow of funds in these markets.
7. The dividends that stockholders receive:
a. Are fixed by contract and paid annually.
b. Are distributions from profits.
c. Are paid before all other obligations of the company are met.
d. a and c
e. a and b
8. Two characteristics that make owning stock attractive are:
a. Unlimited liability and first claim on assets.
b. Share prices are relatively inexpensive and are transferable.
c. Each share represents a large percentage of ownership and dividends are fixed.
d. Dividends are paid before any other distributions are made and stocks are transferable.
9. Mary purchases a U.S. Treasury bond; the bond is:
a. An asset of the U.S. Government as well as an asset for Mary.
b. A liability of the U.S. government and an asset for Mary.
c. An asset for Mary but not a liability of the U.S. Government.
d. An asset for the government but a liability for Mary.
10. Secondary Financial markets:
a. Are financial markets for all financial instruments rated less than investment grade.
b. Are financial markets where existing securities are bought and sold.
c. Eliminate the transaction costs for buyers and sellers.
d. a and c
e. b and c