Chapter One
Financial Economics
This chapter contains 48 multiple choice questions, 20 short problems and 5 longer problems.
Multiple Choice
The primary goal of corporate management is to ________ shareholder wealth.
Minimize
maximize
leverage
mitigate
Answer: (b)
________ stock market imposes ________ discipline on managers to take actions to maximize the market value of the firm’s shares.
competitive, strong
dispersed, weak
mature, no
dispersed, strong
Answer: (a)
3. The ________ form is especially well suited to the separation of ownership and management of firms because it allows relatively frequent changes in owners by share transfer without affecting the operations of the firm.
corporate
sole proprietorship
partnership
household
Answer: (a)
4. ________ is anything that has economic value.
A partnership
An asset
A balance sheet
An e statement
Answer: (b)
5. A household’s wealth worth is measured by the value of its ________ minus its ________.
liabilities; assets
assets; liabilities
stocks; bonds
bonds; liabilities
Answer: (b)
6. The branch of finance dealing with financial decisions of firms is called ________ or ________.
investments; international finance
markets; institutions
business finance; institutions
business finance; corporate finance
Answer: (d)
7. Bonds promise ________ cash payments, while stocks pay the ________ value left over after all other claimants have been paid.
variable; residual
residual; fixed
fixed; residual
fixed; variable
Answer: (c)
8. The day-to-day financial affairs of the firm are usually referred to as ________.
working capital management
capital structure
capital budgeting
strategic planning
Answer: (a)
9. A disadvantage of the sole proprietorship is the fact that the sole proprietor has ________.
limited liability for the debts of the firm
unlimited liability for the debts of the firm
expensive costs to establish the firm
limited authority over the day-to-day busin
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