BUSN Multiple Choice Questions

BUSN Multiple Choice Questions

Question
	

1. Which of the following statements is correct?
A. a. It is generally more expensive to form a proprietorship than a corporation because, with a proprietorship, extensive legal documents are required. 
B. b. Corporations face fewer regulations than sole proprietorships. 
C. c. One disadvantage of operating a business as a sole proprietorship is that the firm is subject to double taxation, at both the firm level and the owner level. 
D. d. One advantage of forming a corporation is that equity investors are usually exposed to less liability than a regular partnership. 
E. e. If a regular partnership goes bankrupt, each partner is exposed to liabilities only up to the amount of his or her investment in the business.
Question 2 of 20 
Cheers Inc. operates as a partnership. Now the parents have decided to convert the business into a regular corporation. Which of the following statements is correct?
A. a. Assuming Cheers is profitable, less of its income will be subject to federal income taxes. 
B. b. Cheers will now be subject to fewer regulations. 
C. c. Cheers’ shareholders (the ex-partners) will now be exposed to less liability. 
D. d. Cheers' investors will be exposed to less liability, but they will find it more difficult to transfer their ownership. 
E. e. Cheers will find it more difficult to raise additional capital.
Question 3 of 20 
Which of the following statements is correct?
A. a. It is usually easier to transfer ownership in a corporation than it is to transfer ownership in a sole proprietorship. 
B. b. Corporate shareholders are exposed to unlimited liability. 
C. c. Corporations generally face fewer regulations than sole proprietorships. 
D. d. Corporate shareholders are exposed to unlimited liability, and this factor may be compounded by the tax advantage of incorporation. 
E. e. There is a tax disadvantage to incorporation, and there is no way any corporation can escape this disadvantage, even if it is very small.
Question 4 of 20 
Which of the following statements is correct?
A. a. Hedge funds are legal in Europe and Asia, but they are not permitted to operate in the United States. 
B. b. Hedge funds have more in common with commercial banks than with any other type of financial institution. 
C. c. Hedge funds have more in common with investment banks than with any other type of financial institution. 
D. d. Hedge funds are not permitted to operate in the United States, Europe, and Asia. 
E. e. The justification for the “light” regulation of hedge funds is that only “sophisticated” investors with high net worth and high income are permitted to invest in these funds, and such investors supposedly can do the necessary “due diligence” on their own rather than have it done by the SEC or some other regulator.
Question 5 of 20 
Money markets are markets for:
A. a. Foreign stocks. 
B. b. Consumer automobile loans. 
C. c. U.S. stocks. 
D. d. Short-term debt securities. 
E. e. Long-term bonds.

Question 6 of 20 
Which of the following is a primary market transaction?
A. a. You sell 200 shares of IBM stock on the NYSE through your broker. 
B. b. IBM issues 2,000,000 shares of new stock and sells them to the public through an investment banker. 
C. c. You buy 200 shares of IBM stock from your brother. The trade is not made through a broker – you just give him cash and he gives you the stock. 
D. d. One financial institution buys 200,000 shares of IBM stock from another institution. An investment banker arranges the transaction. 
E. e. You invest $10,000 in a mutual fund, which then uses the money to buy $10,000 of IBM shares on the NYSE.
Question 7 of 20 
Which of the following statement is correct?
A. a. If Disney issues additional shares of common stock through an investment banker, this would be a secondary market transaction. 
B. b. If you purchased 100 shares of Disney stock from your brother-in-law, this would be an example of a primary market transaction. 
C. c. The IPO market is a subset of the secondary market. 
D. d. Only institutions, and not individuals, can participate in derivative market transactions. 
E. e. As they are generally defined, money market transactions involve debt securities with maturities of less than one year.

Question 8 of 20 1.0 Points
You recently sold to your brother 200 shares of Disney stock, and the transfer was made through a broker, and the trade occurred on the NYSE. This is an example of:
A. a. A futures market transaction. 
B. b. A primary market transaction. 
C. c. A secondary market transaction. 
D. d. A money market transaction. 
E. e. An over-the-counter market transaction.
Part 2 
Question 9 of 20 
Which of the following statements is correct?
A. a. The New York Stock Exchange is an auction market with a physical location. 
B. b. Capital market transactions involve only the purchase and sale of equity securities, i.e., common stocks. 
C. c. If an investor sells shares of stock through a broker, then this would be a primary market transaction. 
D. d. Consumer automobile loans are evidenced by legal documents called “promissory notes,” and these individual notes are traded in the money market. 
E. e. 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.
Question 10 of 20 
Which of the following statements is correct?
A. a. Capital market instruments include both long-term debt and common stocks. 
B. b. An example of a primary market transaction would be your uncle transferring 100 shares of Wal-Mart stock to you as a birthday gift. 
C. c. The NYSE does not exist as a physical location; rather, it represents a loose collection of dealers who trade stocks electronically. 
D. d. 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. 
E. e. While the two frequently perform similar functions, investment banks generally specialize in lending money, whereas commercial banks generally help companies raise blocks of capital from investors.
Question 11 of 20 
Which of the following statements is correct?
A. a. While the distinctions are blurring, investment banks generally specialize in lending money, whereas commercial banks generally help companies raise capital from other parties. 
B. b. A liquid security is a security whose value is derived from the price of some other “underlying” asset. 
C. c. Money market mutual funds invest most of their money in a well-diversified portfolio of liquid common stocks. 
D. d. Money markets are markets for long-term debt and common stocks. 
E. e. The NYSE operates as an auction market, whereas the Nasdaq is a dealer market.
12. of 20 One drawback of switching from a partnership to the corporate form of organization is the following:
A. a. It subjects the firm to additional regulations. 
B. b. It cannot affect the amount of the firm’s operating income that goes to taxes. 
C. c. It makes it more difficult for the firm to raise additional capital. 
D. d. It makes the firm’s investors subject to greater potential personal liabilities. 
E. e. It makes it more difficult for the firm’s investors to transfer their ownership interests.
Question 13 of 20 
Which of the following statements is correct?
A. a. A hostile takeover is the main method of transferring ownership interest in a corporation. 
B. b. Unlimited liability and limited life are two key advantages of the corporate form over other forms of business organization. 
C. c. A corporation is a legal entity that is generally created by a state, and it has a life and existence that is separate from the lives of its individual owners and mangers. 
D. d. Limited liability of its stockholders is an advantage of the corporate form of organization, but corporations have more trouble raising money in financial markets because of the complexity of this form of organization. 
E. e. Although its stockholders are insulated by limited legal liability, the legal status of the corporation does not protect the firm’s managers in the same way, i.e., bondholders can sue its managers if the firm defaults on its debt, even if the default is the result of poor economic conditions.
Question 14 of 20 
Which of the following statements is correct?
A. a. In a regular partnership, liability for other partners’ misdeeds is limited to the amount of a particular partner’s investment in the business. 
B. b. Partnerships have more difficulty attracting large amounts of capital than corporations because of such factors as unlimited liability, the need to reorganize when a partner dies, and the illiquidity (difficulty buying and selling) of partnership interests. 
C. c. A slow-growth company, with little need for new capital, would be more likely to organize as a corporation than would a faster growing company. 
D. d. In a limited partnership, the limited partners have voting control, while the general partner has operating control over the business. Also, the limited partners are individually responsible, on a pro rata basis, for the firm’s debts in the event of bankruptcy. 
E. e. A major disadvantage of all partnerships relative to all corporations is the fact that federal income taxes must be paid by the partners rather than by the firm itself.
Question 15 of 20 
Which of the following statements is correct?
A. a. Corporations are at a disadvantage relative to partnerships because they have to file more reports to state and federal agencies, including the Securities and Exchange Administration, even if they are not publicly owned. 
B. b. In a regular partnership, liability for the firm’s debts is limited to the amount a particular partner has invested in the business. 
C. c. A fast-growth company would be more likely to set up as a partnership for its business organization than would a slow-growth company. 
D. d. Partnerships have difficulty attracting capital in part because of their unlimited liability, the lack of permanence of the organization, and difficulty in transferring ownership. 
E. e. A major disadvantage of a partnership relative to a corporation as a form of business organization is the high cost and practical difficulty of its formation.
Question 16 of 20 
Which of the following statements is correct?
A. a. Most businesses (by number and total dollar sales) are organized as proprietorships or partnerships because it is easier to set up and operate in one of these forms rather than as a corporation. However, if the business gets very large, it becomes advantageous to convert to a corporation, primarily because corporations have important tax advantages over proprietorships and partnerships. 
B. b. Due to limited liability, unlimited lives, and ease of ownership transfer, the vast majority of U.S. businesses (in terms of number of businesses) are organized as corporations. 
C. c. Due to legal considerations related to ownership transfers and limited liability, most business (measured by dollar sales) is conducted by corporations in spite of large corporations’ often less favorable tax treatment. 
D. d. Large corporations are taxed more favorably than sole proprietorships. 
E. e. Corporate stockholders are exposed to unlimited liability.
Question 17 of 20 
The primary operating goal of a publicly-owned firm interested in serving its stockholders should be to:
A. a. Maximize the stock price per share over the long run, which is the stock’s intrinsic value. 
B. b. Maximize the firm’s expected EPS. 
C. c. Minimize the chances of losses. 
D. d. Maximize the firm’s expected total income. 
E. e. Maximize the stock price on a specific target date.
Question 18 of 20 
Which of the following would be most likely to lead to higher interest rates on all debt securities in the economy?
A. a. Households start saving a larger percentage of their income. 
B. b. The economy moves from a boom to a recession. 
C. c. The level of inflation begins to decline. 
D. d. Corporations step up their expansion plans and thus increase their demand for capital. 
E. e. The Federal Reserve uses monetary policy in an attempt to stimulate the economy.
Question 19 of 20 
Which of the following statements is correct?
A. a. If General Electric were to issue new stock this year it would be considered a secondary market transaction since the company already has stock outstanding. 
B. b. Capital market transactions only include preferred stock and common stock transactions. 
C. c. The distinguishing feature between spot markets versus futures markets transactions is the maturity of the investments. That is, spot market transactions involve securities that have maturities of less than one year, whereas futures markets transactions involve securities with maturities greater than one year. 
D. d. Both Nasdaq “dealers” and NYSE “specialists” hold inventories of stocks. 
E. e. An electronic communications network (ENC) is a physical location exchange.

Question 20 of 20 
Which of the following statements is not correct?
A. a. When a corporation’s shares are owned by a few individuals and are not traded on public markets, we say that the firm is “closely, or privately, held.” 
B. b. “Going public” establishes a firm’s true intrinsic value, and it also insures that a highly liquid market will always exist for the firm’s shares. 
C. c. When stock in a closely held corporation is offered to the public for the first time, the transaction is called “going public,” and the market for such stock is called the primary market. 
D. d. Publicly owned companies have shares owned by investors who are not associated with management, and public companies must register with and report to a regulatory agency such as the SEC. 
E. e. It is possible for a firm to go public and yet not raise any additional new capital at the time.