Multiple Choice

1. Each of the following is a factor that may influence the equilibrium interest rate in the economy EXCEPT

A. the number of common stock shares which a given firm has outstanding.

B. the inflation rate.

C. the liquidity preference of investors for short-term vs. long-term securities.

D. the risk level associated with a given security.

2. According to the liquidity preference theory, investors find short-term securities attractive because

A. short-term securities tend to be highly liquid.

B. prices of short-term securities are not as volatile vs. prices for long-term securities.

C. common stocks tend to have a short life-span.

D. A and B and C.

E. A and B.

3. In general, the highest risk premiums and the highest returns result from securities that

A. are issued by firms with a high risk of default.

B. have long-term maturities with unfavorable contract provisions.

C. have a low par or face value.

D. are issued by the U.S. government.

E. A and B and D.

F. A and B.

4. A bonds principal is

A. the amount borrowed by the company that issues the bond.

B. the amount owed to the bondholder on the maturity date.

C. often unspecified.

D. A and B.

E. A and B and C.

5. Stockholders in a given corporation generally have voting rights that allow them to

A. elect the firms Board of Directors.

B. vote on special issues facing the firm.

C. A and B.

D. none of the above.

6. Common stockholders may receive compensation for their investment in the form of

A. dividend payment(s).

B. capital gains when the stock is sold.

C. interest earnings.

D. A and B and C.

E. A and B.

7. The common stock of a corporation may be

A. privately owned by an individual.

B. closely owned by a small group of investors, such as a family.

C. publicly owned by a broad group of investors.

D. B and C.

E. A and B and C.

8. The ____________________ allows common stockholders to maintain their proportionate ownership in a corporation when new shares are issued.

A. preemptive right

B. sinking fund

C. debenture clause

D. collateral right

9. Since most shareholders in a corporation do not attend the annual meeting to vote, they may assign their voting rights to another party via a ___________________.

A. no-fault clause.

B. proxy statement.

C. preemptive right.

D. trustee lien.

10. When a corporation decides to go public and sell its common stock on the public equity market for the first time

A. it must obtain approval from its current shareholders.

B. the firms auditors and lawyers must certify that all documents for the company are legitimate.

C. the firm must hire an investment bank to underwrite the stock offering.

D. A and B and C.

E. A and B.