1. For businesses with cash-producing assets and no need of large capital expenditures, which business organization is most appropriate?

a. Sole proprietorship b. Limited partnership c. Corporation d. Income trust ANSWER: D How to organize a business is an important decision because the form affects financial liability of owners, funding sources, and taxation, etc. Reducing double taxation is the main perceived attraction of income trust. 2. For businesses with cash-producing assets and no need of large capital expenditures, which business organization is most appropriate? a. Sole proprietorship b. Limited partnership c. Corporation d. Income trust ANSWER: D How to organize a business is an important decision because the form affects financial liability of owners, funding sources, and taxation, etc. Reducing double taxation is the main perceived attraction of income trust. 3. What is the primary financial disadvantage of forming business as a corporation? a. Uneasy transfer of ownership b. Complicated incorporation process c. Limited access to financial markets d. Taxes inefficiency ANSWER: D A corporation is an artificial entity created by law. Often called a legal entity, a corporation is taxed separately from its owners (i.e. shareholders). Same source of income is taxed twice. 4. What is the main perceived attraction of sole proprietorships? a. Higher startup costs b. Unregulated business environment c. Fewer layers in the organizational structure d. Continuity of business ANSWER: C 5. Which of the following is least likely to be found in the articles of incorporation and bylaws? a. Employees salary structure

b. Board member election c. Business life span d. Corporate social responsibility ANSWER:

6. To maximize its fundamental value, a company should _____ a. Lower the free cash flows of the business b. Reduce the risk level of the organization c. Slow down the cash receipt from various sources d. Go for 100% debt financing B ANSWER: 7. The commonly accepted goal of management when operating a business in the real world is ____ a. Ensuring all employees are well paid b. Minimizing the tax bill c. Maximizing shareholder wealth d. Maximizing profit C ANSWER: 8. You deposit money to your CIBC savings account, and then the bank lends your money to a home buyer as a mortgage loan. Which of the following best describes such a financial transaction? a. An exchange of physical assets b. A primary market transaction c. An indirect finance d. A private placement offer C ANSWER: 9. Which of the following may likely decrease the interest rates in the economy? a. The Bank of Canada increases growth in the money supply b. There is an increase in expected inflation c. The government has budget surpluses d. The economy is blooming A ANSWER: 10. The purchases of Treasury bills by the central bank ____ security prices causing interest rates to ____. a. Suppress; fall b. Raise; fall c. Raise; rise

d. Suppress; rise ANSWER: B 11. Which of the following is not considered as a financial institution? a. RBC Capital Markets b. Bank of Montreal c. Treasury department of Sears Canada d. Windsor family credit union ANSWER: C 12. Which of the following financial instrument is traded in the money markets? a. Corporate bonds b. Common shares c. Government of Canada Treasury bills d. 3-year Canada Savings Bonds ANSWER: C POINTS: 0 / 1 What are the two main goals all successful corporations accomplish? a. Create valued products and generate cash flow to cover costs b. Create valued products and earn above-normal returns c. Earn above-normal returns and "give back" to society d. "Give back" to society and pay employees above-normal wages correct: a 2 Which of the following is NOT a key attribute of successful companies? a. Skilled employees b. Strong external relationships c. Sufficient capital

d. Commitment to the environment correct: d

3 Which of the following forms of business exposes a company to double taxation? a. Sole proprietorship b. Partnership c. Corporation d. S-corporation correct: c 4 In the typical order of the life-cycle stages of a company, which comes first? a. personal financing b. getting help from venture capitalists c. issuing debt d. issuing stock correct: c 5 The most important objective of a corporation is to maximize: a. profits. b. earnings. c. fundamental stock value. d. current stockholder value.

correct: c 6 Managers can increase a firm's value by: a. increasing the size of the expected free cash flows. b. speeding up the receipt of the free cash flows. c. reducing the risk of the free cash flows. d. all of these choices. correct: d 7 Which of the following is true in the aggregate? a. Individual households are net borrowers b. Non-financial corporations are net lenders c. Federal, state, and local governments are net lenders d. Financial corporations are net borrowers your answer: d 8 Which of the following is NOT one of the four fundamental factors affecting the cost of money? a. Production opportunities b. Time preference of consumption c. The business cycle d. Inflation correct: c . 9 Which of the following will cause interest rates to rise, especially in the long run?

a. An increase in the money supply b. A decrease in the federal budget c. Consumer expectations of less inflation d. Falling consumer demand correct: a 10 Which of the following is a large conglomerate that combines many different financial companies within a single corporations? a. Investment bank b. Commercial bank c. Financial services corporation d. Hedge fund correct: c 11 Which of the following raises money from a limited number of high wealth investors and uses the funds to buy financial instruments? a. ETF's b. Financial service corporation c. Mutual fund d. Hedge fund correct: d . 12 Which of the following is an example of a capital market? a. Real estate

b. NYSE c. Certificates of deposit d. 6-month futures contracts correct: b 13 Which of the following is an example of a secondary market? a. NYSE b. Real estate c. Mortgage market d. IPO's correct: a 14 An example of a market without a physical location exchange is: a. NYSE. b. AMEX. c. Nasdaq. d. CBOT. correct: c 15 Which of the following is an example of an open outcry auction? a. Nasdaq b. CBOT c. Instinet

d. Archipelago correct: b 16 A company decides to sell extra shares in addition to the ones it already has outstanding. This would be an example of a: a. IPO. b. seasoned offering. c. secondary market. d. private market offering. correct: b 17 For U.S. IPO's, the typical first day run-up was: a. over 100%. b. about 60%. c. about 30%. d. about 10%. correct: d 18 The two leading U.S. stock markets are: a. NYSE and the AMEX. b. AMEX and Nasdaq. c. NYSE and Nasdaq. d. NYSE and Pacific Exchange.

correct: c 19 Which index is most comprehensive? a. DJIA b. S&P500 c. Nasdaq Composite d. NYSE Composite correct: d 20 U.S. stocks can be very risky. For example, they lost about ____ in 1973-74 and 200002? a. 80% b. 60% c. 40% d. 20% correct: c 21 In 2005, which country had the highest stock market returns (in its own currency)? a. U.S. b. Britain c. Malaysia d. Latvia correct: d