Chapter 1

Question 1

deals with the issue of whether stock and bond markets at any given time are too high, too low, or about right

Answer 1

market analysis

Question 2

business trend

Answer 2

1. globalization
2. ever-improving information technology
3. corporate governance

Question 3

A law passed by Congress that required the CEO and CFO to certify that their firm’s financial statements are accurate

Answer 3

Sarbanes-Oxley Act

Question 4

company’s attitude and conduct toward its employees, customers, community, and stockholders

Answer 4

Business Ethics

Question 5

have money to invest and businesses, individuals, and other entities that need capital for various reasons

Answer 5

savers

Question 6

regulates banks and controls the supply of money

Answer 6

Federal Reserve System

Question 7

useful motivational tools include

Answer 7

1. reasonable compensation packages
2. firing of managers who do not perform well
3. threat of hostile takeovers

Question 8

like LLC but used form professional firms in the fields of accounting and architecture.

Answer 8

Limited Liability Partnership

Question 9

primary goal for managers of publicly ownerd companies

Answer 9

shareholder wealth maximization

Question 10

deals with finding the proper values of individual securities

Answer 10

security analysis

Question 11

the acquisition of company over the opposition of its management

Answer 11

hostile takeover

Question 12

other term for financial management

Answer 12

corporate finance

Question 13

relate to decisions concerning stocks and bonds and include number of activities

Answer 13

Investments

Question 14

disadvantages of proprietorship

Answer 14

1. have unlimited personal liability
2. life of business is limited
3. difficulty in obtaining large capitala

Question 15

a special designation that allows small businesses that meet qualifications to be taxed as if they were a proprietorship or a partnership rather than a corporation

Answer 15

S Corporation

Question 16

the stock value based on perceived but possibly incorrect information as seen by the marginal investor

Answer 16

market price

Question 17

deals with the best way to structure portfolios or baskets, of stocks and bonds

Answer 17

portfolio theory

Question 18

an individual who targets a corporation for takeover because it is undervalued

Answer 18

corporate raider

Question 19

investment include number of activities

Answer 19

1. security analysis
2. portfolio theory
3. market analysis

Question 20

an estimate of a stock’s true value based on accurate risk and return date. it can be estimated but not measured precisely

Answer 20

Intrinsic Value

Question 21

regulates the trading of stocks and bonds in public markets

Answer 21

Securities and Exchange Commission

Question 22

directs the firm’s operations, which include marketing, manufacturing, sales, and other operating departments

Answer 22

COO (Chief Operating Officer)

Question 23

if firm is publicly owned, the CEO and CFO must both certify to the _____ that FS are accuarate

Answer 23

SEC

Question 24

where investor psychology is examined in an effort to determine if stock prices have been bid up to unreasonable heights in a speculative bubble or driven down

Answer 24

Behavioral finance

Question 25

advantages of proprietorship

Answer 25

1. easily and inexpensively formed
2. subject to few govt regulations
3. subject to lower income taxes than are corporations

Question 26

hybrid between a partnership and corporation

Answer 26

Limited Liability Company (LLC)

Question 27

focuses on decisions relating to how much and what type of assets to acquire, how to raise the capital needed to purchase assets, and how to run the firm so as to maximize its value

Answer 27

financial management

Question 28

relate to the markets where interest rates, along with stock and bond prices, are determined

Answer 28

capital markets

Question 29

3 areas of finance

Answer 29

1. financial management
2. capital markets
3. investments

Question 30

accounting department fall under the control of the

Answer 30

Chief Financial Officer (CFO)

Question 31

generally a senior vice president and third-ranking officer, is in charge of accounting, financing, credit policy, decisions regarding asset acquisition, and investor relations, which involves communication with stockholders and the press

Answer 31

CFO (Chief Finance Officer)

Question 32

implement an aggressive overhaul of the US financial regulatory system aimed at preventing reckless actions that would cause another financial crisis

Answer 32

Dodd-Frank Act

Question 33

forms of business organization

Answer 33

1. proprietorship
2. partnership
3. corporation
4. limited liability companies
5. limited liability partnerships

Question 34

the situation in which the actual market price equals the intrinsic value, so investors are indifferent between buying or selling a stock

Answer 34

equilibrium

Question 35

an investor whose views determine the actual stock price

Answer 35

marginal investor