Which of the following statements is MOST CORRECT?

Select one:

a. Investors should purchase the stock at its intrinsic value when its intrinsic value is smaller than its market value.

b. Investors should sell the stock at its market price when its intrinsic value is larger than its market value.

c. If the required rate of return on a stock is larger than the expected rate of return, the stock should be sold.

d. If the required rate of return on a stock is smaller than the expected rate of return, the intrinsic value of the stock should be smaller than its market value.

e. A stock is considered overvalued if its intrinsic value is larger than its market value.

Which of the following is likely to encourage a firm's managers to make decisions that are in the best interest of shareholders?

Select one:

a. Institutional investors such as mutual funds and pension funds hold small amounts of the firm's stock.

b. Change the corporate charter so as to make it harder for outside investors to acquire a controlling interest in the firm.

c. A manager receives a larger cash salary but receives fewer shares of the company's stock.

d. The board of directors has become more vigilant in its oversight of the company's management.

e. The state legislature recently passed a law that makes it more difficult to successfully complete a hostile takeover.

IBM recently raised funds by borrowing 100 million from Bank of America. Which of the following statements best describes this transaction?

Select one:

a. This is an example of a derivative market transaction.

b. This is an example of a direct transfer of capital.

c. This is an example of an indirect transfer of capital through an investment banker.

d. This is an example of an indirect transfer of capital through a financial intermediary.

e. This is an example of a primary market transaction.

Which of the following statements is CORRECT?

Select one:

a. When stock in a closely held corporation is offered to the public for the first time, the transaction is called going public or an IPO, and the market for such stock is the IOP market.

b. It is impossible for a firm to go public and yet not raise any additional new capital for the firm itself.

c. When a corporations shares are owned by a few individuals, we say that the firm is public owned.

d. Going public establishes a firms true intrinsic value and ensures that a liquid market will always exist for the firms shares.

e. The stocks of publicly owned companies generally are not registered with and not reported to a regulatory agency such as the SEC.