Question 1

On a balance sheet,a company's accounts receivable are listed as

Accepted Answer

Accounts receivable are considered as current assets on a balance sheet because they represent money owed to the company by customers for goods or services sold on credit, which is expected to be collected within a year.

Question 2

If you want to know the present value of $5,000 received in one year,and the interest rate is 2 percent,what formula can you use?

Accepted Answer

The formula for present value is present value = future value / (1 + interest rate)^n, where n is the number of periods. In this case, the future value is $5,000, the interest rate is 2 percent, and n is 1 year. Plugging in these values to the formula, we get present value = $5,000 / (1 + 0.02)^1 = $4,901.96 (rounded to the nearest cent). Therefore, the best choice is option B, which gives the correct formula for calculating present value.

Question 3

If you own a $1,000 face value bond with one year remaining to maturity and a 7 percent coupon rate and new bonds are paying 11 percent,what is the most you can get for your old bond?

Accepted Answer

The most you can get for your old bond can be calculated as follows:

Interest payment for the year = Coupon rate x Face value = 7% x $1,000 = $70

Price of the bond = Present value of interest payment + Present value of face value

Present value of interest payment = $70 / (1 + 11%) = $63.06

Present value of face value = $1,000 / (1 + 11%) = $900.90

Therefore, the most you can get for your old bond is $63.06 + $900.90 = $963.96 (Choice C).

Question 4

Mortgage-backed securities are groups of mortgages that are bundled together and sold to investors.

Accepted Answer

Mortgage-backed securities are indeed groups of mortgages that are bundled together and sold to investors.

Question 5

The Dodd-Frank Act requires that each member of the board of directors personally certify the accuracy of financial reports.

Accepted Answer

The Dodd-Frank Act does not require each member of the board of directors to personally certify the accuracy of financial reports. Instead, it primarily focuses on financial regulatory reforms and does not include such a specific certification requirement for board members. The Sarbanes-Oxley Act, however, requires the CEO and CFO to certify the accuracy of financial reports.

Question 6

If a dollar today will likely have more purchasing power because of inflation,then a dollar a year from now ________ a dollar today.

Accepted Answer

Inflation causes the value of money to decrease over time. Therefore, a dollar a year from now will be able to purchase less goods and services compared to a dollar today, making it less valuable.

Question 7

Why did the principal-agent problem for investment banks become more severe following the repeal of the Glass-Steagall Act in 1999?

Accepted Answer

The answer of Why did the principal-agent problem for investment...

Question 8

What is the present value of $960 in one year if the current rate of interest is 6 percent?

Accepted Answer

The present value (PV) can be calculated using the formula PV = FV / (1 + r)^n, where FV is the future value ($960), r is the interest rate (6% or 0.06), and n is the number of periods (1 year). Plugging in the values, we get PV = $960 / (1 + 0.06)^1 = $960 / 1.06 = $905.66.

Question 9

If a stock's dividend is expected to grow at a constant rate of 4 percent in the future and it has just paid a dividend of $6.00 per share,and you have an alternative investment of equal risk that will earn a 7 percent rate of return,what would you be willing to pay per share for this stock?

Accepted Answer

The formula for the present value of a stock that has a constant growth rate is: 
PV = (Dividend/(r-g))
Where:
PV = Present value of the stock
Dividend = the current dividend per share
r = the rate of return
g = the expected constant growth rate of the dividend

Plugging in the values given in the question, we get:
PV = (6/(0.07-0.04)) = $208.00

Therefore, you would be willing to pay $208.00 per share for this stock. Answer choice D is correct.

Question 10

Why do corporate boards of directors sometimes link top managers' compensation to the corporations' stock prices? How might tying compensation too closely to stock prices create an incentive for corporate fraud.

Accepted Answer

The answer of Why do corporate boards of directors sometimes...

Question 11

The present value of $1,500 received 8 years in the future would be calculated as which of the following when the interest rate is 3%?

Accepted Answer

The present value of $1,500 received in 8 years is calculated as: 
1,500 / (1 + 0.03)^8 = 1,072.11.

Therefore, the correct option is B: 
1,500 / (1.03)^8 = 1,072.11.

Question 12

Why do financial markets depend on accurate accounting and disclosure practices?

Accepted Answer

The answer of Why do financial markets depend on accurate...

Question 13

The legislation passed in 2010 that was intended to reform regulation of the financial system was the

Accepted Answer

The Wall Street Reform and Consumer Protection Act, also known as the Dodd-Frank Act, was passed in 2010 and aimed to reform the regulation of the financial system in response to the 2008 financial crisis. The Sarbanes-Oxley Act was passed in 2002 and focused on financial reporting and corporate governance. The Glass-Steagall Act was a banking regulation passed in 1933 and repealed in 1999. The Federal National Mortgage Act, also known as Fannie Mae, was passed in 1938 and established a secondary mortgage market.

Question 14

The Sarbanes-Oxley Act was passed in response to the 2007-2009 financial crisis.

Accepted Answer

The Sarbanes-Oxley Act was actually passed in response to the Enron scandal in 2002, which resulted in the bankruptcy of the energy company and revealed major flaws in corporate governance and accounting practices. It was meant to increase transparency and accountability in corporate financial reporting. The 2007-2009 financial crisis was a separate event, caused by a variety of factors including risky lending practices and the housing market bubble.

Question 15

Some economists believe that one factor that caused the financial crisis of 2007-2009 was top managers of large financial services firms making riskier investments than were in the best interests of the firms' shareholders.

Accepted Answer

Many economists agree that the risky investments made by top managers of financial services firms contributed to the financial crisis of 2007-2009. These investments often prioritized the short-term gains of the firm over the long-term interests of shareholders and the overall stability of the financial system.

Question 16

As a result of the financial crisis of 2007-2009,Freddie Mac and Fannie Mae were brought under the direct control of the government.

Accepted Answer

In September 2008, both Freddie Mac and Fannie Mae were placed under the conservatorship of the Federal Housing Finance Agency (FHFA), which effectively brought them under government control. This was a result of the financial crisis of 2007-2009 that had severely impacted the housing market and the overall economy.

Question 17

A future payment's present value is

Accepted Answer

The present value of a future payment refers to the value of funds that will be paid or received at a future date, in today's dollars (i.e. adjusted for inflation and the time value of money). Therefore, the correct answer is C.

Question 18

The principal-agent problem is

Accepted Answer

The principal-agent problem is the difficulty of aligning the interests and incentives of the agents (employees, managers) with those of the principals (owners, shareholders). In partnerships, the number of owners is generally smaller, so the interests of the agents are more closely aligned with those of the principals. In corporations, the separation of ownership and control can create conflicts of interest between managers (agents) and shareholders (principals), making the principal-agent problem more severe. Therefore, the principal-agent problem is often less severe for partnerships than for corporations.

Question 19

If a company pays a dividend of $5 to be received one year from now,dividends are expected to grow at a rate of 8 percent per year for the indefinite future,and the interest rate is 14 percent,the price of the company's stock should be ________ per share.

Accepted Answer

The price of the company's stock can be calculated using the Gordon Growth Model (Dividend Discount Model for a perpetually growing dividend), which is P = D / (r - g), where P is the price, D is the dividend, r is the required rate of return (interest rate), and g is the growth rate. Plugging in the values: P = $5 / (0.14 - 0.08) = $5 / 0.06 = $83.33.

Question 20

On a balance sheet,stockholder's equity is equal to

Accepted Answer

Stockholder's equity represents the residual interest in the company's assets after deducting liabilities. Therefore, it is equal to the assets minus the liabilities.

Quiz 6: Firms, the Stock Market, and Corporate Governance