A) A futures market transaction.
B) A primary market transaction.
C) A secondary market transaction.
D) A money market transaction.
E) An over-the-counter market transaction.
G) A) and B)
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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) A security whose value is derived from the price of some other "underlying" asset is called a liquid security.
C) Money market mutual funds usually invest most of their money in a well-diversified portfolio of liquid common stocks.
D) Money markets are markets for common stocks and long-term debt.
E) The NYSE operates as an auction market, whereas the Nasdaq is a dealer market.
G) None of the above
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A) It subjects the firm to additional regulations.
B) It cannot affect the amount of the firm's operating income that goes to taxes.
C) It makes it more difficult for the firm to raise additional capital.
D) It makes the firm's investors subject to greater potential personal liabilities.
E) It makes it more difficult for the firm's investors to transfer their ownership interests.
G) A) and B)
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A) This is an example of an exchange of physical assets.
B) This is an example of a primary market transaction.
C) This is an example of a direct transfer of capital.
D) This is an example of a money market transaction.
E) This is an example of a derivatives market transaction
G) D) and E)
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B) False
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B) False
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A) The New York Stock Exchange is an auction market with a physical location.
B) Capital market transactions involve only the purchase and sale of equity securities, i.e., common stocks.
C) If an investor sells shares of stock through a broker, then this would be a primary market transaction.
D) Consumer automobile loans are evidenced by legal documents called "promissory notes," and these individual notes are traded in the money market.
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.
G) C) and D)
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A) One of the disadvantages of incorporating a business is that the owners then become subject to liabilities in the event the firm goes bankrupt.
B) Sole proprietorships are subject to more regulations than corporations.
C) In any type of partnership, every partner has the same rights, privileges, and liability exposure as every other partner.
D) Sole proprietorships and partnerships generally have a tax advantage over many corporations, especially large ones.
E) Corporations of all types are subject to the corporate income tax.
G) A) and B)
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B) False
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A) One of the disadvantages of a sole proprietorship is that the proprietor is exposed to unlimited liability.
B) It is generally easier to transfer one's ownership interest in a partnership than in a corporation.
C) One of the advantages of the corporate form of organization is that it avoids double taxation.
D) One of the advantages of a corporation from a social standpoint is that every stockholder has equal voting rights, i.e., "one person, one vote."
E) Corporations of all types are subject to the corporate income tax.
G) A) and D)
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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) Attracting large amounts of capital is more difficult for partnerships than for 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) 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) The limited partners in a limited partnership 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) A major disadvantage of all partnerships compared to all corporations is the fact that federal income taxes must be paid by the partners rather than by the firm itself.
G) D) and E)
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A) It is generally more expensive to form a proprietorship than a corporation because, with a proprietorship, extensive legal documents are required.
B) Corporations face fewer regulations than sole proprietorships.
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) One advantage of forming a corporation is that equity investors are usually exposed to less liability than in a regular partnership.
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.
G) D) and E)
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A) Foreign stocks.
B) Consumer automobile loans.
C) U.S. stocks.
D) Short-term debt securities.
E) Long-term bonds.
G) C) and E)
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B) False
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B) False
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A) A good goal for a firm's management is maximization of expected EPS.
B) Most business in the U.S. is conducted by corporations, and corporations' popularity results primarily from their favorable tax treatment.
C) Because most stock ownership is concentrated in the hands of a relatively small segment of society, firms' actions to maximize their stock prices have little benefit to society.
D) Corporations and partnerships have an advantage over proprietorships because a sole proprietor is exposed to unlimited liability, but the liability of all investors in the other types of businesses is more limited.
E) The potential exists for agency conflicts between stockholders and managers.
G) A) and B)
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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) "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) 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 new issue market.
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) It is possible for a firm to go public and yet not raise any additional new capital at the time.
G) All of the above
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A) Corporations generally find it relatively difficult to raise large amounts of capital.
B) Less of a corporation's income is generally subjected to taxes than would be true if the firm were a partnership.
C) 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.
D) Corporate investors are exposed to unlimited liability.
E) Corporations generally face relatively few regulations.
G) B) and C)
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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) Capital market transactions only include preferred stock and common stock transactions.
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) Both Nasdaq "dealers" and NYSE "specialists" hold inventories of stocks.
E) An electronic communications network (ECN) is a physical location exchange.
G) None of the above
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A) It is usually easier to transfer ownership in a corporation than it is to transfer ownership in a sole proprietorship.
B) Corporate shareholders are exposed to unlimited liability.
C) Corporations generally face fewer regulations than sole proprietorships.
D) Corporate shareholders are exposed to unlimited liability, and this factor may be compounded by the tax disadvantages of incorporation.
E) Shareholders in a regular corporation (not an S corporation) pay higher taxes than owners of an otherwise identical proprietorship.
G) C) and D)
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