1 Which of the following would be considered an indirect agency cost Multiple Choice The CEO of a company uses the corporate jet for a personal vacation to Europe A manager makes an honest mistake that causes the company to write a check for $10,000 A manager decides to pass up a project determined to be profitable to the company because he is afraid something might go wrong A fire at a company's largest factory causes a significant financial loss to the company A company's new product line is not selling as well as expected, causing a reduction in forecasted revenue 2 Issuing stock options would have the greatest impact on reducing potential agency problems of which of the following Multiple Choice Shareholders Upper management Custodial Staff Suppliers Support Staff 3 Which of the following is NOT true about stock Multiple Choice When you own stock, you own a piece of the ownership of the company A company cannot discontinue its dividend on common stock without the unanimous consent of the shareholders Stockholders have the right to have someone else vote their shares at annual meetings of a corporation Stock can also be referred to as Equity Stockholders get to share proportionally in assets remaining after a liquidation 4 Which of the following entities currently owns a majority of the shares of stocks listed on U S stock exchanges Multiple Choice Warren Buffett Wealthy individual investors Professional athletes Institutions, primarily mutual fund companies Owners of financial media (television networks and publications such as the Wall Street Journal) companies 5 Which of the following is NOT a right that accrues to owners of common stock Multiple Choice First in line for assets when a company goes through a liquidation Pre emptive Rights Proxy rights Right to share proportionally in dividends paid to holders of the same class of stock Right to vote on important company matters (unless explicitly stated otherwise in the Prospectus) 6 The date on which a bond contract ends and the stated amount of the final payment (as spelled out in the bond's Indenture) is made to bondholders is known as what Multiple Choice Redemption Maturity Par Value Coupon Yield 7 Which of the following is NOT a benefit of issuing stock rather than bonds Multiple Choice It's often easier to sell stock than bonds as many investors find owning a piece of a company more attractive than simply loaning money to it All else equal, investors in stock tend to require less of a return for buying stock than they do for buying bonds Unlike with bondholders, a company has no obligation to make payments to shareholders Issuing stock tends to have a more favorable effect on liquidity than issuing bonds 8 Which of the following is True about bonds Multiple Choice Bondholders have an equal vote as shareholders when it comes to voting on important company matters Coupon payments may legally be withheld from being made to bondholders at the discretion of the Board of Directors Owning a bond does not give the bondholder an ownership stake in the company Following a liquidation, bondholders are behind stockholders in line to receive assets Bonds do not trade on the Secondary Market as stocks do 9 Which of the following is the most likely reason an institution would be barred from owning non Investment Grade bonds in certain investment accounts Multiple Choice Because the institution relies on a fairly reliable stream of income from the account and cannot take on too much risk Because non Investment Grade bonds tend to have lower Coupon Rates than Investment Grade bonds Because Investment Grade bonds tend to be riskier than non Investment Grade bonds Because there are not enough non Investment Grade bonds on the market to meet the needs of most large institutions 10 Which of the following is true about Preferred stock Multiple Choice It's preferred by most investors because investors usually make more money by buying preferred stock than they do by buying common stock Preferred stock carries more overall rights than common stock Preferred stock can only be purchased by investors who meet certain wealth criteria More analysts cover Preferred stock than common stock Preferred stockholders are ahead of common stockholders in receiving assets following a liquidation 11 Which of the following best define Pre emptive Rights Multiple Choice Shareholders have the right to preempt bad decisions made by upper management before they are made Shareholders are allowed to have someone else vote their shares for them at shareholders' meetings Shareholders have the right to purchase enough shares of a new issue of stock to maintain their current percentage ownership of the company Shareholders can block the nomination of a person to the Board of Directors before the vote takes place Shareholders can block, or preempt, the issuance of a new series of bonds to prevent the company from getting into debt trouble

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1.Which of the following would be considered an indirect agency cost? Multiple Choice The CEO of a company uses the corporate jet for a personal

1.Which of the following would be considered an indirect agency cost?

Multiple Choice

The CEO of a company uses the corporate jet for a personal vacation to Europe.
A manager makes an honest mistake that causes the company to write a check for $10,000.
A manager decides to pass up a project determined to be profitable to the company because he is afraid something might go wrong.
A fire at a company's largest factory causes a significant financial loss to the company.
A company's new product line is not selling as well as expected, causing a reduction in forecasted revenue.

2. Issuing stock options would have the greatest impact on reducing potential agency problems of which of the following?

Multiple Choice

Shareholders.
Upper management.
Custodial Staff.
Suppliers.
Support Staff.

3. Which of the following is NOT true about stock?

Multiple Choice

When you own stock, you own a piece of the ownership of the company.
A company cannot discontinue its dividend on common stock without the unanimous consent of the shareholders.
Stockholders have the right to have someone else vote their shares at annual meetings of a corporation.
Stock can also be referred to as "Equity".
Stockholders get to share proportionally in assets remaining after a liquidation.

4. Which of the following entities currently owns a majority of the shares of stocks listed on U.S. stock exchanges?

Multiple Choice

Warren Buffett.
Wealthy individual investors.
Professional athletes.
Institutions, primarily mutual fund companies.
Owners of financial media (television networks and publications such as the Wall Street Journal) companies.

5. Which of the following is NOT a right that accrues to owners of common stock?

Multiple Choice

First in line for assets when a company goes through a liquidation.
Pre-emptive Rights.
Proxy rights.
Right to share proportionally in dividends paid to holders of the same class of stock.
Right to vote on important company matters (unless explicitly stated otherwise in the Prospectus).

6. The date on which a bond contract ends and the stated amount of the final payment (as spelled out in the bond's Indenture) is made to bondholders is known as what?

Multiple Choice

Redemption.
Maturity.
Par Value.
Coupon.
Yield.

7. Which of the following is NOT a benefit of issuing stock rather than bonds?

Multiple Choice

It's often easier to sell stock than bonds as many investors find owning a piece of a company more attractive than simply loaning money to it.
All else equal, investors in stock tend to require less of a return for buying stock than they do for buying bonds.
Unlike with bondholders, a company has no obligation to make payments to shareholders.
Issuing stock tends to have a more favorable effect on liquidity than issuing bonds.

8. Which of the following is True about bonds?

Multiple Choice

Bondholders have an equal vote as shareholders when it comes to voting on important company matters.
Coupon payments may legally be withheld from being made to bondholders at the discretion of the Board of Directors.
Owning a bond does not give the bondholder an ownership stake in the company.
Following a liquidation, bondholders are behind stockholders in line to receive assets.
Bonds do not trade on the Secondary Market as stocks do.

9. Which of the following is the most likely reason an institution would be barred from owning non-Investment Grade bonds in certain investment accounts?

Multiple Choice

Because the institution relies on a fairly reliable stream of income from the account and cannot take on too much risk.
Because non-Investment Grade bonds tend to have lower Coupon Rates than Investment Grade bonds.
Because Investment Grade bonds tend to be riskier than non-Investment Grade bonds.
Because there are not enough non-Investment Grade bonds on the market to meet the needs of most large institutions.

10. Which of the following is true about Preferred stock?

Multiple Choice

It's "preferred" by most investors because investors usually make more money by buying preferred stock than they do by buying common stock.
Preferred stock carries more overall rights than common stock.
Preferred stock can only be purchased by investors who meet certain wealth criteria.
More analysts cover Preferred stock than common stock.
Preferred stockholders are ahead of common stockholders in receiving assets following a liquidation.

11. Which of the following best define "Pre-emptive Rights"?

Multiple Choice

Shareholders have the right to "preempt" bad decisions made by upper management before they are made.
Shareholders are allowed to have someone else vote their shares for them at shareholders' meetings.
Shareholders have the right to purchase enough shares of a new issue of stock to maintain their current percentage ownership of the company.
Shareholders can block the nomination of a person to the Board of Directors before the vote takes place.
Shareholders can block, or preempt, the issuance of a new series of bonds to prevent the company from getting into debt trouble.