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Test Bank For Intermediate Financial Management, 11th Edition

Test Bank For Intermediate Financial Management, 11th Edition is your go-to resource for exam success, offering a deep dive into critical subjects with expert insights.

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Test Bank For Intermediate Financial Management, 11th Edition - Page 1 preview image©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or postedto a publicly accessible website, in whole or in part.iiiCONTENTSPREFACEOverview of the Test BankDebugging the QuestionsAnswers to Questions and Solutions to ProblemsComputerized Test BanksStudent Preparation for aTest Bank ExamOther Uses of the Test BankAcknowledgmentsCorrespondenceTESTQUESTIONSChapter 1:An Overview of Financial ManagementChapter 2:Risk and Return: Part IChapter 3:Risk and Return: Part IIChapter 4:Bond ValuationChapter 5:Basic Stock ValuationChapter 6:Financial OptionsChapter 7:Accounting for Financial ManagementChapter 8:Analysis of Financial StatementsChapter 9:Financial Planning and Forecasting Financial StatementsChapter 10:Determining the Cost of CapitalChapter 11:Corporate Value and Value-Based ManagementChapter 12:Capital Budgeting: Decision CriteriaChapter 13:Capital Budgeting: Estimating Cash Flows and Analyzing RiskChapter 14:Real Options
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Test Bank For Intermediate Financial Management, 11th Edition - Page 2 preview image
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Test Bank For Intermediate Financial Management, 11th Edition - Page 3 preview image©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or postedto a publicly accessible website, in whole or in part.ivChapter 15:Capital Structure Decisions: Part IChapter 16:Capital Structure Decisions: Part IIChapter 17:Distributions to Shareholders: Dividends and RepurchasesChapter 18:Initial Public Offerings, Investment Banking and Financial RestructuringChapter 19:Lease FinancingChapter 20:Hybrid Financing: Preferred Stock, Warrants, andConvertiblesChapter 21:Working Capital ManagementChapter 22:Providing and Obtaining CreditChapter 23:Other Topics in Working Capital ManagementChapter 24:Derivatives and Risk ManagementChapter 25:Bankruptcy, Reorganization, and LiquidationChapter 26:Mergers, LBOs, Divestitures, and Holding CompaniesChapter 27:Multinational Financial ManagementWeb Chapter 28:Time Value of MoneyWeb Chapter 29:Basic Financial ToolsWeb Chapter 30:Pension Plan ManagementWeb Chapter 31:Financial Management in Not-For-Profit Businesses
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Test Bank For Intermediate Financial Management, 11th Edition - Page 4 preview image©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or postedto a publicly accessible website, in whole or in part.vPREFACEThisTest Bankis designed for use with the11thEdition ofIntermediate Financial Management.Overview of the Test BankWhen we first taught theintermediatefinance course, our exams consistedentirelyof open-endedproblems and essay questions. However, as class sizes and demands on our time increased, webegan experimenting withaddingmultiple choicequestions to our exams to test specific skills, andwith creating short in-class quizzes to cover reading assignments. Also,as textbook authors, wewerereceivingmore and morerequests from professorsfor a really first-ratetest bank.Simultaneously,ourpublisher was working to improve theircomputer systemforconstructing,machine grading, and automatically postingtestscoresto a grade book.Today,we are sowellsatisfied with theTest Bank,andwithCengage’scomputerizedgradingsystem,that we wouldusesomemultiple choicequestions in ourexamseven ifour classes hadonly 25 students.Of course, the questionsand problemsmustbe unambiguous (orvery close to it), becauseif studentsperceivethe testing systemas being even slightly unfair,this willlead todiscontent.Also, the testbankshouldcontainamixofeasy, straightforward questionstoteststudents’ basicknowledgeof a broad range of topics, plusmore difficultquestionsand problemstotestthe depthoftheirunderstanding.ThisTestBankprovidesavery largesetof clear, unambiguous questionsand problems,andCengage’scomputerized procedures(as discussed below)permits one toexpand the problem set almost infinitely.TheTest Bankis available in three forms: (1)As acomputerized test bankinExamView®;(2)asMicrosoft Word®files which are available on the instructor companion siteandthe InstructorResource CD (IRCD); and (3) as a printed test bank. With all threeversions, relatively detailedanswersare provided for all of the problemsas well as forallquestions that are not definitional innature. Also,use of theExamView®orMicrosoft Word®filesallowsprofessors toedit ourquestions and/or add questions oftheirown.TheTest Bankcontains enough questions andproblems to make up exams for six semesters without having to repeat questions. See the“Computerized Test Banks” section of this Preface for additional informationaboutusing theExamView®orMicrosoft Word®versionof theTest Bank.If you look through theprintTest Bankyou will quickly seethateach chapter begins with aset of True/False questions, arranged from easiest to hardest, the some conceptual multiple choicequestions, again from easy to hard, and then a set of numerical problems,and finally the answers tothe questions and problems.Also, eachquestion or problemindicates the topic andrelevant
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Test Bank For Intermediate Financial Management, 11th Edition - Page 5 preview image©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or postedto a publicly accessible website, in whole or in part.visection number within the chapter. TheT/F questions provideabroad coverage ofall thetopics inthe chapter, andwe use themto ensure that students havea basic knowledge ofallthe assignedtopics.Theconceptual multiple choice questions test students’knowledge at a deeper level, andthenumerical problems cover all of the quantitativeaspects of thechapter.Finally,we provideworked-out solutions to all problems,plusexplanationsforT/F and conceptual questions where theanswers are notobvious to anyone who has studied the chapter.1The assigned difficulty level is somewhat subjective, and theperceived difficultylevel willalsodepend on what was emphasized in class and in review sessions. Therefore, we recommendthat instructorsconsiderourassignedlevel as a starting point but then make up their own mindsafterlooking overthe questions and answers.Also,difficulty dependson what informationstudents have access to when they are taking the exam. We provide formula sheets sostudentswon’t spend too much time memorizingthings that they could easily look up in the real world.Without those sheets, theexamswoulddefinitelybe harder. Also, we generally give timed exams,where students havethe formula sheet,a calculator, and a set amount of time to take the exam.2Ifthe exams are given online, students can look things up andalsowork on problems until they get asolution that matches one of the indicated answers,soscoreswillbe higher.Wethought aboutindicating approximately how long it would take toanswerthe variousquestions, but we decided that due to the differences notedabove, thismightdo more harm thangood. Instructors should, therefore, look at the questions andourworked-out solutions andthendecide for themselves how long it will take their students totake the exam. Generally, the harderquestions andproblems will require the most time.For larger classes, we always make up an exam, haveone or morestudent assistants take it,and thenmake adjustmentsuntil it seems feasible for a two-hour exam. Further, we give exams atnight. We schedule themfor two hours, andwe try tomake themendon schedule. However, if itis obvious early on that the exam is too longforevenourbest students, wewillextend the time foran extra 15 or 20 minutes.Debugging the QuestionsThe questions andproblems have all been used in class. Wetriedto make themunambiguous, andwe alsotried to make sure thatthey are generic in the sense that they can be answered on the basis1The question number is actually a Word end note reference, and the end noteitself contains details regarding theanswer to the question.This ensures that the answers follow the questions if they are cut and pasted or otherwiseshuffled around.2Our students all use financial calculators for in-class exams and either calculators orExcelfor online quizzes andexams. We don’t worry about students storing a lot of material in their calculators or laptops for use on the exams.Indeed,entering such information is actually a good way to study, and most of our questions can’t be answered fromsnippets of information anyway.
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Test Bank For Intermediate Financial Management, 11th Edition - Page 6 preview image©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or postedto a publicly accessible website, in whole or in part.viiof material found in the text rather thanrequiringinstructor-specific information. Obviously, wetook care to ensure that they are accurate, and that the correct answer is listed in the set of possibleanswers. Indeed, the "quality control" proceduresusedfor theTest Bankwere at least as strenuousasthosefor the text per se. Still, because of the severe consequences of giving an exam thatcontains errors, we would never give an exam without first taking it, and in a large classwe try tohaveseveral teaching assistants also take it, both to check for errors and to get an idea of how longit will take.3Answers to Questions and Solutions to ProblemsNo explanation is needed for most of the T/F questions andsome ofthe conceptual multiple choicequestions—one answer is correct and the others are false, and students who have read the textcarefully can identify the correct answers. However, a few of the T/Fs and many of the conceptualmultiple choice questions area bitsubtleandrequire critical thinking,and some students might notsee why theindicatedanswer correct.We post the answers, and they are in sufficient detailsothatstudentsdon’t have toask us why their answerswere wrong.Computerized Test BanksAs noted above, theTest Bankcomesasaprinted book,asMicrosoft Word®filesthatareavailableon the IRCD or from the book’s companion site, and as a computerized test bank inExamView®. Note that theExamView®Test Bankis only available on a standalone CD-ROM, andnot on the IRCD or companion website. Adopters can order the IRCD or theExamView®CD-ROMthrough their local Cengage Learning sales representative or directly by calling Cengage LearningCustomer Service at 1-800-354-9706, emailinghigheredcs@cengage.com,or visitingwww.cengage.com/contact.Ifyou plan to use theExamView®Test Bankto create anumber of exams, the product iswellworth the timethat it takes to learn the software—it really is good. One powerful feature ofExamView®is that thetestbankquestions may be exportedtoBlackboard®, WebCT®, or Angel®course management systems.Once the questions are in a pool, the process of creatingweb-basedtestsor homework assignments is very straightforward.If you are familiar withMicrosoft Word®and do not want to invest the timeneededto learnhow to useExamView®,thenyou can usetheMicrosoft Word®files. With the appropriate chapter3In a small class, if a student asks about a question and it becomes clear that it is ambiguous, we one can simplyannounce to the classhow it should be interpreted. This is much more difficult in a large class, especially if it isbeing given in different rooms. It’s also more difficult in online testing situations. Since classes are getting largerand larger, and online testing is increasing, test bank accuracy is increasingly important.
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Test Bank For Intermediate Financial Management, 11th Edition - Page 7 preview image©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or postedto a publicly accessible website, in whole or in part.viiifile retrieved, screen down to the first question to be taken from that chapter,copythe question (donotcut the question as this will alter the original test bank file) except for the first linethatcontainsthe answer, opena blankWorddocument,and paste the questioninto theblank document.Repeat this process for all the questions you want on the exam. Be sure not to copy theproblem’s header rowwiththe answer—it’sembarrassing to includethe answer with thequestion!4In a very large class, the exam will be all multiple choice and wegenerally use 20 questionson an exam. For smaller classes, we mix multiple choice and free-response questions. Whenconstructing the multiple choice portion,it takes us about 30 minutes todo the cutting and pastingtoconstruct an exam once the questions have been selected.Student Preparation for a Test Bank ExamThere arefarmore questionsand problemsin theTest Bankthan at the ends of the chapters, sosome of the items in the bankare different fromthoseat the end of the chapters. Therefore,if astudent goes cold into an exam taken from theTest Bank, he or shemightbe thrown for a loopevenif they workedall of theend-of-chapterproblems.The end-of-chapter problemsweredesigned primarily to help students learn the material, including how it is used in practice, whereasthe test bank questions are designed to test how much knowledge theyhave attained.Also, someof the test bank questions are convoluted,meaning thatstudentsmustwork backwards, from whatwould normally be the answer to what would normally be an input.This requirestransformingequations fromthe formgiven in the textto one thatsolves for a different value.Also, studentsgenerallydo not have severe time constraints when they workon theend-of-chapter problems, andthis makes the test bank questions seem more difficult.With all this in mind, weincludeda number of test-bank-type questions into theStudyGuide. Our students tell us that working through theStudy Guideis particularly useful in gettingready for the exams.TheStudy Guidecan be ordered through your local bookstore for student purchase,or students can purchase these directly from Cengage viawww.cengagebrain.com.4The font may change when the question is pasted into the blankWorddocument. This can be corrected by selecting"Replace" from the "Edit" pull-down menu, clicking on “more” and then the "Format" button at the bottom of the"Dialog" box and clicking on "Font". Select "Times New Roman" as the "Find Font", and then click "OK". Click inthe "Replace With" field, and then click the "Format" button again. Click "Font", and then select "Courier New" and"Size 10" before clicking "OK". Then click "Find Next" button. When the text is highlighted, click "Replace All".Wordmakes the change for all text in "Times New Roman." Because the problem “numbers” are actually endnoteindicators, they will automatically renumber as you add, delete, or move problems in your exam. If they appear asRoman numerals instead of Arabic numbers, select “Insert” from theWordmenu, then “Reference,” then “Footnote.”Select “Endnotes” in the dialog box and choose the format for numbers. When printing the exam, be sure not to includethe section of Endnotes at the end of the exam because these include the worked-out solutions.
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Test Bank For Intermediate Financial Management, 11th Edition - Page 8 preview image©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or postedto a publicly accessible website, in whole or in part.ixWealways put some of our old exams in a "Course Pack" which students can purchasefrom an off-campus copy centertoget anidea of what the exams will be like. Finally, we go oversometest-type questions inourpre-exam review sessions.Other Uses of theTest BankThe primary use of theTest Bankis to make up objective exams for use in large classes where it issimply not feasible to grade papers in the traditional way, or to supplement free-response questionswith skill-specific questions. However, the questions can be used for several other purposes:1.To make up a“regular,”non-multiple choice,exam.It is easy to use the questions andproblems to make up an open-endedexam--just delete the set of answers and ask for anessay answer oraworked-out solutionto a problem.2.For additional problems.We draw from theTest Bankto make up problems that our TAsuse in their pre-exam review sessions. One could also use them for make-up exams, extra-credit work, and the like.3.To create new multiple-choice test questions.The computerized versions of theTest Bankmake it easy to create new problems and questions. For example, four "false" true/falsequestions can be combined with one "true" question to make a "which of the following iscorrect" multiple-choice question, or statements in different multiple-choice questions canbe shuffled to create new questions. Similarly, data in the problems, such as years tomaturity, coupon rates, growth rates, betas, et cetera, can be changed, and wording can bealtered, to expand theTest Bankto an almost unlimited size..AcknowledgmentsWe would like to thank Professors Craig Tapley and Joel Houston for permitting us to use some oftheir old exam questions, and for giving us many insights into the whole examination process,especially with large classes and in online programs. We would also like to thank Steve Bouchardand Chris Buzzard, who helped us develop and debug the test questions. We also appreciate thehelp we got from a whole host of TAs and graduate students, over many years. Dana Clark did herusual good job of riding herd on all of us, and Susan Whitman, and Amelia Bell did a great job ofgetting the final manuscript ready.
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Test Bank For Intermediate Financial Management, 11th Edition - Page 9 preview image©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or postedto a publicly accessible website, in whole or in part.xCorrespondenceWe would very much appreciate hearing from test bank users—please tell usofanydifficultiesyou are having, andmake suggestions forimproving things.Please address your correspondencetoPhillip Davesat the address given below.Eugene F. BrighamPhillip R. DavesUniversity of Floridapdaves@utk.eduFinance Department, SMC429University of TennesseeKnoxville, TN 37996-0540March 2012
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Test Bank For Intermediate Financial Management, 11th Edition - Page 10 preview image© 2013Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or postedto a publicly accessible website, in whole or in part.CHAPTER 1AN OVERVIEW OFFINANCIAL MANAGEMENTAND THE FINANCIALENVIRONMENTPleaseseetheprefaceforinformationontheAACSBletterindicators(F,M,etc.)onthesubjectlines.True/FalseEasy:(1.2)FirmorganizationFMAnswer:bEASY1.Theformoforganizationforabusinessisnotanimportantissue,asthisdecisionhasverylittleeffectontheincomeandwealthofthefirm'sowners.a.Trueb.False(1.2)FirmorganizationFMAnswer:bEASY2.Themajoradvantageofaregularpartnershiporacorporationasaformofbusinessorganizationisthefactthatbothoffertheirownerslimitedliability,whereasproprietorshipsdonot.a.Trueb.False(1.2)PartnershipFMAnswer:aEASY3.Therearethreeprimarydisadvantagesofaregularpartnership:(1)unlimitedliability,(2)limitedlifeoftheorganization,and(3)difficultyoftransferringownership.Thesecombinetomakeitdifficultforpartnershipstoattractlargeamountsofcapitalandthustogrowtoaverylargesize.a.Trueb.False(1.2)ProprietorshipFMAnswer:aEASY4.Twodisadvantagesofaproprietorshipare(1)therelativedifficultyofraisingnewcapitaland(2)theowner'sunlimitedpersonalliabilityforthebusiness'debts.a.Trueb.False
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Test Bank For Intermediate Financial Management, 11th Edition - Page 11 preview image© 2013Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or postedto a publicly accessible website, in whole or in part.Page2True/FalseChapter1:Overview(1.2)LimitedliabilityFMAnswer:aEASY5.Onekeyvalueoflimitedliabilityisthatitlowersowners'risksandtherebyenhancesafirm'svalue.a.Trueb.False(1.3)ValuemaximizationFMAnswer:bEASY6.Ifafirm'sgoalistomaximizeitsearningspershare,thisisthebestwaytomaximizethepriceofthecommonstockandthusshareholders'wealth.a.Trueb.False(1.4)FinancialintermediariesFMAnswer:aEASY7.IfFirmA'sbusinessistoobtainsavingsfromindividualsandtheninvesttheminfinancialassetsissuedbyotherfirmsorindividuals,FirmAisafinancialintermediary.a.Trueb.False(1.8)FinancialmarketsFHAnswer:bEASY8.Ifanindividualinvestorbuysorsellsacurrentlyoutstandingstockthroughabroker,thisisaprimarymarkettransaction.a.Trueb.False(1.8)FinancialmarketsFHAnswer:aEASY9.Recently,HaleCorporationannouncedthesaleof2.5millionnewlyissuedsharesofitsstockatapriceof$21pershare.Halesoldthestocktoaninvestmentbanker,whointurnsoldittoindividualandinstitutionalinvestors.Thisisaprimarymarkettransaction.a.Trueb.False(1.11)StockmarkettransactionsFHAnswer:aEASY10.OneofthefunctionsofNYSEspecialistsistofacilitatetradingbykeepinganinventoryofsharesofthestocksinwhichtheyspecialize,buyingwheninvestorswanttosellandsellingwhentheywanttobuy.Theychangethebidandaskpricesofthesecuritiessoastokeepsupplyanddemandinbalance.a.Trueb.False
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Test Bank For Intermediate Financial Management, 11th Edition - Page 12 preview image© 2013Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or postedto a publicly accessible website, in whole or in part.Chapter1:OverviewConceptualQuestionsPage3Medium:(1.2)PartnershipFMAnswer:bMEDIUM11.Thedisadvantagesassociatedwithaproprietorshiparesimilartothoseunderapartnership.Oneexceptionrelatestothemoreformalnatureofthepartnershipagreementandthecommitmentofallpartners'personalassets.Asaresult,partnershipsdonothavedifficultyraisinglargeamountsofcapital.a.Trueb.False(1.2)ProprietorshipFMAnswer:aMEDIUM12.Thefactsthataproprietorship,asabusiness,paysnocorporateincometax,andthatitiseasilyandinexpensivelyformed,aretwokeyadvantagestothatformofbusiness.a.Trueb.FalseMultiple Choice: ConceptualEasy:(1.2)FirmorganizationCMAnswer:dEASY13.WhichofthefollowingstatementsisCORRECT?a.Oneofthedisadvantagesofincorporatingabusinessisthattheownersthenbecomesubjecttoliabilitiesintheeventthefirmgoesbankrupt.b.Soleproprietorshipsaresubjecttomoreregulationsthancorporations.c.Inanytypeofpartnership,everypartnerhasthesamerights,privileges,andliabilityexposureaseveryotherpartner.d.Soleproprietorshipsandpartnershipsgenerallyhaveataxadvantageovermanycorporations,especiallylargeones.e.Corporationsofalltypesaresubjecttothecorporateincometax.
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Test Bank For Intermediate Financial Management, 11th Edition - Page 13 preview image©2013Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or postedto a publicly accessible website, in whole or in part.Page4Conceptual QuestionsChapter 1: Overview(1.2)FirmorganizationCMAnswer:aEASY14.WhichofthefollowingstatementsisCORRECT?a.Oneofthedisadvantagesofasoleproprietorshipisthattheproprietorisexposedtounlimitedliability.b.Itisgenerallyeasiertotransferone’sownershipinterestinapartnershipthaninacorporation.c.Oneoftheadvantagesofthecorporateformoforganizationisthatitavoidsdoubletaxation.d.Oneoftheadvantagesofacorporationfromasocialstandpointisthateverystockholderhasequalvotingrights,i.e.,“oneperson,onevote.”e.Corporationsofalltypesaresubjecttothecorporateincometax.(1.2)FirmorganizationCMAnswer:dEASY15.WhichofthefollowingstatementsisCORRECT?a.Itisgenerallymoreexpensivetoformaproprietorshipthanacorporationbecause,withaproprietorship,extensivelegaldocumentsarerequired.b.Corporationsfacefewerregulationsthansoleproprietorships.c.Onedisadvantageofoperatingabusinessasasoleproprietorshipisthatthefirmissubjecttodoubletaxation,atboththefirmlevelandtheownerlevel.d.Oneadvantageofformingacorporationisthatequityinvestorsareusuallyexposedtolessliabilitythaninaregularpartnership.e.Ifaregularpartnershipgoesbankrupt,eachpartnerisexposedtoliabilitiesonlyuptotheamountofhisorherinvestmentinthebusiness.(1.2)FirmorganizationCMAnswer:cEASY16.CheersInc.operatesasapartnership.Nowthepartnershavedecidedtoconvertthebusinessintoaregularcorporation.WhichofthefollowingstatementsisCORRECT?a.AssumingCheersisprofitable,lessofitsincomewillbesubjecttofederalincometaxes.b.Cheerswillnowbesubjecttofewerregulations.c.Cheers’shareholders(theex-partners)willnowbeexposedtolessliability.d.Cheers’investorswillbeexposedtolessliability,buttheywillfinditmoredifficulttotransfertheirownership.e.Cheerswillfinditmoredifficulttoraiseadditionalcapital.
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Test Bank For Intermediate Financial Management, 11th Edition - Page 14 preview image© 2013Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or postedto a publicly accessible website, in whole or in part.Chapter1:OverviewConceptualQuestionsPage5(1.2)FirmorganizationCMAnswer:aEASY17.WhichofthefollowingstatementsisCORRECT?a.Itisusuallyeasiertotransferownershipinacorporationthanitistotransferownershipinasoleproprietorship.b.Corporateshareholdersareexposedtounlimitedliability.c.Corporationsgenerallyfacefewerregulationsthansoleproprietorships.d.Corporateshareholdersareexposedtounlimitedliability,andthisfactormaybecompoundedbythetaxdisadvantagesofincorporation.e.Shareholdersinaregularcorporation(notanScorporation)payhighertaxesthanownersofanotherwiseidenticalproprietorship.(1.2)CorporateformoforganizationCMAnswer:cEASY18.Whichofthefollowingcouldexplainwhyabusinessmightchoosetooperateasacorporationratherthanasasoleproprietorshiporapartnership?a.Corporationsgenerallyfinditrelativelydifficulttoraiselargeamountsofcapital.b.Lessofacorporation’sincomeisgenerallysubjectedtotaxesthanwouldbetrueifthefirmwereapartnership.c.Corporateshareholdersescapeliabilityforthefirm'sdebts,butthisfactormaybeoffsetbythetaxdisadvantagesofthecorporateformoforganization.d.Corporateinvestorsareexposedtounlimitedliability.e.Corporationsgenerallyfacerelativelyfewregulations.(1.4)FinancialtransactionsCHAnswer:cEASY19.Yourecentlysold100sharesofyournewcompany,XYZCorporation,toyourbrotheratafamilyreunion.Atthereunionyourbrothergaveyouacheckforthestockandyougaveyourbrotherthestockcertificates.Whichofthefollowingstatementsbestdescribesthistransaction?a.Thisisanexampleofanexchangeofphysicalassets.b.Thisisanexampleofaprimarymarkettransaction.c.Thisisanexampleofadirecttransferofcapital.d.Thisisanexampleofamoneymarkettransaction.e.Thisisanexampleofaderivativesmarkettransaction
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Test Bank For Intermediate Financial Management, 11th Edition - Page 15 preview image©2013Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or postedto a publicly accessible website, in whole or in part.Page6Conceptual QuestionsChapter 1: Overview(1.7)HedgefundsCOAnswer:eEASY21.WhichofthefollowingstatementsisCORRECT?a.InEuropeandAsiahedgefundsarelegal,buttheyarenotpermittedtooperateintheUnitedStates.b.Hedgefundshavemoreincommonwithcommercialbanksthanwithanyothertypeoffinancialinstitution.c.Hedgefundshavemoreincommonwithinvestmentbanksthanwithanyothertypeoffinancialinstitution.d.IntheUnitedStateshedgefundsarelegal,butinEuropeandAsiatheyarenotpermittedtooperate.e.Thejustificationforthe"light"regulationofhedgefundsisthatonly“sophisticated”investorswithhighnetworthsandhighincomesarepermittedtoinvestinthesefunds,andsuchinvestorssupposedlycandothenecessary“duediligence”ontheirownratherthanhaveitdonebytheSECorsomeotherregulator.(1.8)MoneymarketsCOAnswer:dEASY22.Moneymarketsaremarketsfora.Foreignstocks.b.Consumerautomobileloans.c.U.S.stocks.d.Short-termdebtsecurities.e.Long-termbonds.(1.6)InterestratesCHAnswer:aEASY20.WhichofthefollowingstatementsisCORRECT?a.Ifexpectedinflationincreases,interestratesarelikelytoincrease.b.Ifindividualsingeneralincreasethepercentageoftheirincomethattheysave,interestratesarelikelytoincrease.c.Ifcompanieshavefewergoodinvestmentopportunities,interestratesarelikelytoincrease.d.Interestratesonalldebtsecuritiestendtoriseduringrecessionsbecauserecessionsincreasethepossibilityofbankruptcy,hencetheriskinessofalldebtsecurities.e.Interestratesonlong-termbondsaremorevolatilethanratesonshort-termdebtsecuritieslikeT-bills.
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Test Bank For Intermediate Financial Management, 11th Edition - Page 16 preview image© 2013Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or postedto a publicly accessible website, in whole or in part.Chapter1:OverviewConceptualQuestionsPage7(1.8)FinancialmarketsCHAnswer:bEASY23.Whichofthefollowingisaprimarymarkettransaction?a.Yousell200sharesofJohnson&JohnsonstockontheNYSEthroughyourbroker.b.Johnson&Johnsonissues2,000,000sharesofnewstockandsellsthemtothepublicthroughaninvestmentbanker.c.Youbuy200sharesofJohnson&Johnsonstockfromyouryoungerbrother.Youjustgivehimcashandhegivesyouthestock--thetradeisnotmadethroughabroker.d.Onefinancialinstitutionbuys200,000sharesofJohnson&Johnsonstockfromanotherinstitution.Aninvestmentbankerarrangesthetransaction.e.Youinvest$10,000inamutualfund,whichthenusesthemoneytobuy$10,000ofJohnson&JohnsonsharesontheNYSE.(1.8)FinancialmarketsCHAnswer:eEASY24.WhichofthefollowingstatementsisCORRECT?a.IfAppleissuesadditionalsharesofcommonstockthroughaninvestmentbanker,thiswouldbeasecondarymarkettransaction.b.Ifyoupurchased100sharesofApplestockfromyoursister-in-law,thiswouldbeanexampleofaprimarymarkettransaction.c.TheIPOmarketisasubsetofthesecondarymarket.d.Onlyinstitutions,andnotindividuals,canparticipateinderivativesmarkettransactions.e.Astheyaregenerallydefined,moneymarkettransactionsinvolvedebtsecuritieswithmaturitiesoflessthanoneyear.(1.8)FinancialmarketsCHAnswer:cEASY25.Yourecentlysold200sharesofApplestocktoyourbrother.Thetransferwasmadethroughabroker,andthetradeoccurredontheNYSE.Thisisanexampleof:a.Afuturesmarkettransaction.b.Aprimarymarkettransaction.c.Asecondarymarkettransaction.d.Amoneymarkettransaction.e.Anover-the-countermarkettransaction.
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