Capital Markets
Exam Preparation Guide
Course Introduction
Capital Markets explores the structure, function, and dynamics of the markets where long-term debt or equity-backed securities are bought and sold. The course covers the roles of key financial instruments, participants such as investors and intermediaries, and regulatory frameworks that govern market activity. Students will analyze how capital markets facilitate the flow of capital between issuers and investors, assess risk and return factors, and understand the impact of economic and policy developments on market behavior. Emphasis is placed on both domestic and global markets, with case studies illustrating real-world applications and emerging trends shaping the future of capital market operations.
Recommended Textbook
Principles of Corporate Finance 11th Edition by Richard A Brealey
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Page 2
Chapter 1: Introduction to Corporate Finance
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Q1) Which of the following types of assets are intangible?
A)production machinery
B)factories
C)trademarks
D)office equipment
Answer: C
Q2) The financial goal of a corporation is to:
A)maximize profits.
B)maximize sales.
C)maximize the value of the firm for the shareholders.
D)maximize managers' benefits.
Answer: C
Q3) Ms.Newcastle has $60,000 income this year and $40,000 next year.The market interest rate is 10% per year.Suppose Ms.Newcastle wishes to consume $62,000 next year.What will be her consumption this year?
A)$19,000
B)$40,000
C)$60,000
D)$70,000
Answer: B
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Chapter 2: How to Calculate Present Values
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Q1) You would like to have enough money saved to receive a growing annuity for 25 years,growing at a rate of 4% per year,with the first payment of $60,000 occurring exactly one year after retirement.How much would you need to save in your retirement fund to achieve this goal? (The interest rate is 12%.)
A)$1,500,000.00
B)$632,390
C)$452,165
D)$1,043,287
Answer: B
Q2) The value of a five-year annuity is equal to the sum of two perpetuities.One makes its first payment in year 1,and the other makes its first payment in year 6.
A)True
B)False Answer: False
Q3) An annuity is an asset that pays a fixed amount each period for a specified number of periods.
A)True
B)False
Answer: True
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Chapter 3: Valuing Bonds
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Sample Questions
Q1) If a bond's volatility is 10.00% and the interest rate goes down by 0.75% (points),then the price of the bond:
A)decreases by 10%
B)decreases by 7.5%
C)increases by 7.5%
D)increases by 0.75%
Answer: C
Q2) From the investor's perspective,briefly describe the cash flows associated with a bond.
Answer: Bonds generally provide two types of cash flows: interest payments and the principal payment.Interest payments occur each period,usually annually or semiannually.Periodic interest payments are also called coupon payments.Thus,interest payments form an annuity.Principal payment occurs at the time of maturity of the bond and is a lump sum payment.
Q3) Real rates of interest tend to fluctuate more wildly than nominal rates of interest.
A)True
B)False
Answer: False
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Chapter 4: The Value of Common Stocks
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Q1) Galaxy Air,previously a no-growth firm,has two million shares outstanding.Until now,it consistently earned $20 million per year on its assets.(It has no debt and pays out all earnings as dividends.Its cost of capital is 10%.)Due to its newly appointed CEO,Galaxy Air is now able to squeeze out 1% annual growth by plowing back 5% of earnings.Calculate its stock price per share.
A)$200.00
B)$106.61
C)$100.00
D)$110.10
Q2) R&D Technology Corporation just paid a dividend of $0.50 per share.Analysts expect its dividend to grow at 24% per year for the next two years and then 8% per year thereafter.If the required rate of return in the stock is 16%,calculate the current value of the stock.
A)$1.11
B)$7.71
C)$8.82
D)$10.38
Q3) Explain the term secondary market.
Q4) Explain the term primary market.
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Chapter 5: Net Present Value and Other Investment Criteria
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Q1) Which of the following investment rules does NOT use the time value of money concept?
A)Net present value
B)Internal rate of return
C)The payback period
D)Profitability index
Q2) The discounted payback technique will never accept a negative-NPV project.
A)True
B)False
Q3) Discuss some of the disadvantages of the payback rule.
Q4) When calculating a weighted average profitability index,should you apply an index of zero to leftover money?
Q5) The following are measures used by firms when making capital budgeting decisions EXCEPT:
A)payback period.
B)internal rate of return.
C)P/E ratio.
D)net present value.
Q6) Briefly explain the value additivity property.
Q7) Briefly explain the term soft rationing.
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Chapter 6: Making Investment Decisions With the Net
Present Value Rule
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Q1) OM Construction Company must choose between two types of cranes.Crane A costs $600,000,will last for five years,and will require $60,000 in maintenance each year.Crane B costs $750,000,will last for seven years,and will require $30,000 in maintenance each year.Maintenance costs for cranes A and B occur at the end of each year.The appropriate discount rate is 12% per year.Which machine should OM Construction purchase?
A)Crane A as EAC is $226,444
B)Crane B as EAC is $194,336
C)Crane A because its PV is $816,286,i.e.,less than the PV of Project B
D)Cannot be calculated as the revenues for the project are not givenCrane A: Annuity factor = (1/.12)× (1 - (1/(1.12^5)))= 3.6048.Crane B: Annuity factor = (1/.12)× (1(1/(1.12^7)))= 4.5638.Costs:PV (A)= 600,000 + 60,000 (3.6048)= 816,286;EAC = 816,286/(3.6048)= $226,444;PV(B)= 750,000 + 30,000 (4.5638)= 886,913;
Q2) Germany allows firms to choose the following depreciation methods: i.straight-line method; II)declining-balance method
A)I only
B)II only
C)I and II only
D)Germany allows a very different system
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Chapter 7: Introduction to Risk and Return
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Sample Questions
Q1) The covariance between the returns on two stocks equals the correlation coefficient multiplied by the standard deviations of the two stocks.
A)True
B)False
Q2) Which of the following portfolios will have the highest beta?
A)Portfolio of U.S.Treasury bills
B)Portfolio of U.S.government bonds
C)Portfolio containing 50% U.S.Treasury bills and 50% U.S.government bonds
D)Portfolio of U.S.common stocks
Q3) Mega Corporation has the following returns for the past three years: 8%,12%,and 10%. Calculate the variance of the returns and the standard deviation of the returns.
A)64 and 8.0%
B)124 and 11.1%
C)4 and 2.0%
D)30 and 10.0%
Q4) The portfolio risk that cannot be eliminated by diversification is called market risk.
A)True
B)False
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Chapter 8: Portfolio Theory and the Capital Asset Pricing Model
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Q1) According to the CAPM,all investments plot along the security market line.
A)True
B)False
Q2) Briefly explain the capital asset pricing model.
Q3) Risk-free U.S.Treasury bills have a beta greater than zero.
A)True
B)False
Q4) Briefly explain the effect of introducing borrowing and lending at the risk-free rate on the efficient portfolios.
Q5) It is not possible to earn a return that is above the efficient frontier without the existence of a risk-free asset or some other asset that is uncorrelated with your portfolio assets.
A)True
B)False
Q6) Almost all tests of the CAPM have confirmed that it explains stock returns,especially for high-beta stocks.
A)True B)False
Q7) Briefly explain the term market portfolio.
10
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Chapter 9: Risk and the Cost of Capital
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Q1) The historical returns for the past three years for Stock B and the stock market portfolio are: Stock B: 24%,0%,24%; Market portfolio: 10%,12%,20%.If the risk-free rate is 4%,calculate the expected market risk premium.
A)18.1%
B)14%
C)10%
D)6%
Q2) An example of diversifiable risk that a financial manager should ignore when analyzing a project's risk would include:
A)commodity price changes
B)labor costs
C)overall stock price fluctuations
D)risks of government nonapproval of the project
Q3) Which of the following types of projects generally have the highest total risk?
A)speculative ventures
B)new products
C)expansions of existing business
D)cost improvements using known technology
Q4) Briefly explain the difference between company and project cost of capital.
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Chapter 10: Project Analysis
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Q1) The Solar Calculator Company proposes to invest $5 million in a new calculator-making plant that will depreciate on a straight-line basis.Fixed costs are $2 million per year.A calculator costs $5 per unit to manufacture and sells for $20 per unit.If the plant lasts for three years and the cost of capital is 12%,what is the accounting break-even level of annual sales? (Assume no taxes.)
A)133,334 units
B)272,117 units
C)244,444 units
D)466,666 unitsFixed costs and depreciation equal $2M and $1.67M per year,respectively.Let X = the annual sales rate.Given a price of $20 and variable cost of $5,
Q2) The option to wait is a type of abandonment option.
A)True B)False
Q3) Firms with higher fixed costs tend to have higher degrees of operating leverage. A)True B)False
Q4) Monte Carlo simulation is mostly an advanced version of scenario analysis. A)True B)False
Page 12
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Chapter 11: Investment, Strategy, and Economic Rents
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Q1) Suppose the current price of gold is $600 per ounce.The price of gold is expected to grow 4% per year for the foreseeable future.If the appropriate discount rate is 10%,then the current value of gold per ounce is:
A)less than $600 per ounce.
B)$600 per ounce.
C)greater than $600 per ounce.
D)not enough information provided.
Q2) The manufacture of folic acid is a competitive business.A new plant costs $100,000 and lasts for three years.The cash flow from the plant is as follows: year 1: +$43,300,year 2: +$43,300 and year 3 = +$58,300.(Assume no taxes.)If the discount rate is 20%,what is the value of the plant at the end of year 1?
A)+$76,569
B)-$23,400
C)$48,600
D)none of the options
Q3) Briefly explain how investing in gold is like investing in a stock that pays no dividends.
Q4) Briefly explain the concept of economic rent.
Q5) Briefly explain the effect of competition on economic rents.
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Chapter 12: Agency Problems, Compensation, and Performance Measurement
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Q1) Define the term economic value added (EVA).
Q2) Stock option grants are generally a more appropriate form of compensation for lower-level managers than for higher-level managers.
A)True
B)False
Q3) One calculates economic profit (EP)as follows:
A)EP = (ROI - r)× (capital invested),where r = cost of capital
B)EP = (ROI + r)× (capital invested),where r = cost of capital
C)EP = (ROI)× (capital invested)
D)EP = (ROI)/(capital invested)
Q4) The ultimate responsibility for monitoring a firm rests with the: i.shareholders; II)board of directors; III)independent accountants; IV)lenders
A)I only
B)I and II only
C)I,II,and III only
D)I,II,III,and IV
Q5) An example of an entrenching investment is a manager that expands the scope of his or her operation.
A)True
B)False
Page 14
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Chapter 13: Efficient Markets and Behavioral Finance
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Q1) Stock price cycles or patterns tend to self-destruct as soon as investors recognize them through:
A)stock market regulation by the Securities and Exchange Commission (SEC).
B)price fixing by the specialists on the New York Stock Exchange.
C)trading by investors.
D)the actions of corporate treasurers.
Q2) Analysis of past monthly movements in IBM's stock price produces the following estimates: = 2.5% and = 1.6.If the market index subsequently rises by 12% in one month and IBM's stock price increases by 20%,what is the abnormal change in IBM's stock price?
A)+1.7%
B)+8.0%
C)-1.7%
D)+2.5%
Q3) Informational efficiency in financial markets results in stock prices being:
A)higher.
B)lower.
C)fairer.
D)easier to predict.
Q4) Briefly discuss some of the important findings of behavioral finance studies.
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Chapter 14: An Overview of Corporate Financing
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Q1) A modification to the company charter that requires 75% shareholder approval for a merger is called a:
A)majority voting amendment.
B)cumulative voting amendment.
C)proxy voting amendment.
D)supermajority amendment.
Q2) Eurobonds are almost always denominated in euros.
A)True
B)False
Q3) The maximum number of shares that can be issued by a firm is called:
A)Treasury stock.
B)outstanding shares.
C)authorized shares.
D)none of the options.
Q4) Briefly list the various functions of financial institutions.
Q5) Which voting system is most friendly towards minority shareholders?
A)majority voting
B)cumulative voting
C)straight voting
D)dual-class share voting
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Chapter 15: How Corporations Issue Securities
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Q1) If a shareholder or an investor wants to acquire a new share of stock under a rights issue,he/she must:
A)buy call options on the stock.
B)acquire the appropriate number of rights per share and subscription price per share and submit them to the subscription agent.
C)acquire the correct number of rights per share and submit them to the subscription agent.
D)register his order with the NYSE.
Q2) Generally,underwriters provide the following services to the issuing firm: i.provide advice; II)buy some or all of the new issue; III)resell the issue to the public
A)I only
B)I and II only
C)I and III only
D)I,II,and III
Q3) Underpricing is a technique used by underwriters to enhance the success of an issue.
A)True
B)False
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Chapter 16: Payout Policy
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Q1) According to financial executives' views on dividend policy,which of the following statements is most frequently cited?
A)We try to avoid reducing the dividend.
B)We try to maintain a smooth dividend stream.
C)We look at the current dividend level.
D)We are reluctant to make a change that may have to be reversed.
Q2) Dividend policy changes are decided by: i.the managers of a firm; II)the government; III)the board of directors
A)I only
B)II only
C)III only
D)I and II only
Q3) A retiree believes that investing in a nondividend paying growth firm,which requires the periodic sale of stock for income,will eventually lead to a loss of all shares.Explain the flaw in this logic.
Q4) Briefly describe the sequence of events of a firm's dividend payment.
Q5) Briefly explain how shareholders' returns are taxed twice in the United States.
Q6) Managers are reluctant to make dividend changes that they may have to reverse. A)True B)False
Page 18
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Chapter 17: Does Debt Policy Matter
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Q1) A firm's asset beta equals the weighted average of the betas on its debt and equity,given the assumption of no taxes.
A)True
B)False
Q2) Value additivity works for:
i.combining assets; II)splitting up of assets; III)the mix of debt securities issued by the firm
A)I only
B)II only
C)I and II only
D)I,II,and III
Q3) Modigliani and Miller's Proposition I states that:
A)the market value of any firm is independent of its capital structure
B)the market value of a firm's debt is independent of its capital structure
C)the market value of a firm's common stock is independent of its capital structure
D)none of the options
Q4) Financial leverage increases the expected return and risk of the shareholder.
A)True
B)False
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Chapter 18: How Much Should a Corporation Borrow
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Q1) According to Rajan and Zingales,debt ratios of individual companies depend on:
I.size: large firms have higher debt ratios;
II.tangible assets: firms with high ratios of fixed assets to total assets have higher debt ratios;
III.profitability: more profitable firms have lower debt ratios;
IV.market to book: firms with higher ratios of market-to-book value have lower debt ratios;
V.market structure: firms with monopoly power have higher debt ratios
A)I and II only
B)I,II,and III only
C)I,II,III,and IV only
D)I,II,III,IV,and V
Q2) If a firm borrows $50 million for one year at an interest rate of 9%,what is the present value of the interest tax shield? Assume a 30% marginal corporate tax rate.
A)$50.00 million
B)$17.50 million
C)$1.45 million
D)$1.24 million
Q3) Explain the pecking order theory of capital structure.
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Chapter 19: Financing and Valuation
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Q1) In the case of large international investments,the project might include:
I.custom-tailored project financing;
II.special contracts with suppliers;
III.special contracts with customers;
IV.special arrangements with governments
A)I and II only
B)I,II,and III only
C)I,II,III,and IV
D)IV only
Q2) In the second step of the 3-step process to adjust WACC when debt ratios change,one should use the following formula: r<sub>E</sub> = r + (r - r<sub>D</sub>)× (D/V).
A)True
B)False
Q3) The total value of a firm is the present value of its free cash flows minus the present value of its horizon value.
A)True
B)False
Q4) Briefly explain how WACC can be used for valuing a business.
Q5) Briefly explain how APV can be used for valuing a business.
Page 21
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Chapter 20: Understanding Options
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Q1) For European options,the value of a call plus the present value of the exercise price is equal to:
A)the value of a put minus the value of a share.
B)the value of a share minus the value of a call.
C)the value of a put plus the value of a share.
D)the value of a share minus the value of a put.
Q2) A profit diagram implicitly neglects the time value of money.
A)True
B)False
Q3) If the risk-free interest rate increases,then:
A)call option prices increase.
B)call option prices decrease.
C)call option prices remain the same.
D)call option prices can either increase,decrease,or remain the same.
Q4) It is possible to replicate an investment in a call option by a levered investment in the underlying asset.
A)True
B)False
Q5) Briefly explain how an option holder gains from an increase in the volatility of the underlying stock price.
Page 22
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Chapter 21: Valuing Options
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Q1) Suppose ABCD's stock price is currently $50.In the next six months it will either fall to $40 or rise to $60.What is the current value of a six-month call option with an exercise price of $50? The six-month risk-free interest rate is 2% (periodic rate).
A)$5.39
B)$15.00
C)$8.25
D)$8.09
Q2) Why does the Black-Scholes call formula use the present value of the exercise price and not merely the exercise price in the formula?
A)All finance must use the time value of money.
B)Call options are rarely exercised early.
C)The present value accounts for a potential dividend.
D)The put option
Q3) Calculate the value of d<sub>2</sub>.
A)+0.0657
B)-0.0657
C)+0.5657
D)-0.5657
Q4) Briefly discuss risk-neutral valuation in the context of option valuation.
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Chapter 22: Real Options
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Q1) The option to wait is a type of real option.
A)True
B)False
Q2) The option to make a follow-on investment is a put option.
A)True
B)False
Q3) Which of the following statements about the option to build flexibility into production facilities is true?
A)Typically,production flexibility is more expensive.
B)One should consider the NPV of alternate production configurations.
C)Production flexibility may be valuable by enabling the firm to choose the inputs with the lowest available costs.
D)All of the options are true.
Q4) Adjusted present value of project (APV)= NPV (without abandonment option)+ value of abandonment option.
A)True
B)False
Q5) Briefly explain how temporary abandonment can be thought of as a complex option.
Q6) How does an option to wait or postpone a project add value to the project?
Page 24
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Chapter 23: Credit Risk and the Value of Corporate Debt
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Q1) What is a credit default swap? Briefly explain.
Q2) Generally,a corporate bond has a higher promised yield than the yield on a similar government bond.
A)True
B)False
Q3) The three main bond rating agencies in the U.S.are:
i.Moody's; II)Standard and Poor's; III)A.M.Best; IV)Dominion Bond; V)Fitch
A)I,II,and III
B)I,II,and IV
C)I,II,and V
D)I,II,III,IV,and V
Q4) Define the term credit risk.
Q5) Briefly explain the model developed by Beaver,McNichols,and Rhie to predict the chance of failure of a firm.
Q6) Generally,you can insure corporate bonds through a(an):
A)arrangement with the Treasury department.
B)arrangement with the state government.
C)credit default swap.
D)back-dated options contract.
Q7) Briefly describe bond ratings.
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Chapter 24: The Many Different Kinds of Debt
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Q1) A "samurai bond" is a bond:
A)sold by a company from Japan.
B)sold in the United States by a company from Japan.
C)sold in Japan by a local company.
D)sold in Japan by a company from some other country.
Q2) The following are secured bonds except:
A)mortgage bonds.
B)debentures.
C)collateral trust bonds.
D)equipment trust certificates.
Q3) Affirmative covenants impose certain duties on the company.
A)True
B)False
Q4) Loan guarantees are valuable methods for propping up the value of debt without up-front cash.
A)True
B)False
Q5) The term Yankee bond refers to any bond sold in the United States.
A)True
B)False
26
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Chapter 25: Leasing
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Q1) A dubious reason for leasing is that leasing preserves capital.
A)True
B)False
Q2) The following are sensible reasons for leasing:
I.Maintenance is provided
II.There is affirmation of lease cash flows during bankruptcy.
III.Leasing avoids capital expenditure controls.
IV.Alternative minimum tax can be avoided.
A)I and II only
B)I,II,and III only
C)I,II,III,and IV
D)I,II,and IV only
Q3) If the net present value of a project is -$10,000,and the net present value of leasing for the project is +$12,000,calculate the APV (adjusted present value)of the project.
A)-$2,000
B)$2,000
C)$12,000
D)-$10,000
Q4) Discuss the critical conditions under which leasing may be advantageous.
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Chapter 26: Managing Risk
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Q1) If a bank is asked to quote a rate on a one-year loan one year from today and the current interest rate on a one-year loan is 7% and a two-year loan is 8%,it should quote 9%.
A)True
B)False
Q2) Suppose that you bought eight Euro currency futures contracts .
A)$22,680,$22,180,$20,380,$19,280,$29,280
B)$22,680,$22,380,$20,180,$19,280,$29,280
C)$22,680,$22,180,$19,280,$22,380,$29,280
D)none of these answers
Q3) Suppose you borrow $95.24 for one year at 5% and invest $95.24 for two years at 7%.For the time period beginning one year from today,you have:
A)borrowed at 7%.
B)invested at 7%.
C)borrowed at 9%.
D)invested at 9%.
Q4) Briefly describe a swap contract.
Q5) Briefly explain the mechanics of homemade forward rate agreements.
Q6) Why are derivatives necessary for a thriving economy?
Q7) Briefly explain the term marked to market.
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Chapter 27: Managing International Risks
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Q1) Briefly explain why a currency forecast is not necessarily required when a multinational firm estimates the cash flows from an international project?
Q2) If a Big Mac costs $C3.00 in Canada and $2.31 in the U.S.,according to purchasing power parity,what is the implied exchange rate in terms of $C/$US?
A)1.3793
B)1.2987
C)1.3276
D)0.7700
Q3) Briefly describe the different types of currency markets.
Q4) Important aspects of international finance include:
I.that the basic principles of corporate finance do not apply; II.the process of foreign exchange valuation of different currencies; III.that the NPV principle cannot be applied to foreign operations
A)I only
B)I and III only
C)II only
D)III only
Q5) Briefly explain the expectations theory of forward exchange rates.
Q6) Briefly describe what happens in foreign exchange markets.
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Chapter 28: Financial Analysis
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Q1) Assume the following data: Sales = 3200; Cost of goods sold = 1600; Average total assets = 1600; Average inventory = 200.Calculate the days in inventory.
A)18.3
B)45.6
C)22.8
D)16.0
Q2) Market value ratios indicate:
I.whether the firm is using its assets productively;
II.whether the firm is liquid;
III.whether the firm is profitable;
IV.how highly the firm is valued by investors
A)I only
B)II only
C)II and III only
D)IV only
Q3) Net working capital (NWC)is calculated as:
A)total assets - total liabilities.
B)current assets + current liabilities.
C)current assets - current liabilities.
D)current liabilities - current assets.
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Chapter 29: Financial Planning
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Q1) A firm can achieve a higher growth rate (within limits)without raising external capital by:
A)increasing the proportion of debt in its capital structure.
B)increasing its current ratio.
C)decreasing its inventory turnover.
D)increasing its plowback ratio.
Q2) Discuss the process of preparing a financial plan.
Q3) Last year Axle Inc.reported total assets of $400,equity of $200,net income of $50,dividends of $10,and earnings retained in the period of $40.What is Axle Inc.'s sustainable growth rate?
A)25.0%
B)57.1%
C)20.0%
D)71.4%
Q4) The first step in the preparation of a cash budget is:
A)calculating appropriate financial ratios.
B)preparing a sales forecast.
C)determining the firm's dividend policy.
D)determining long-term capital structure.
Q5) Define net working capital.
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Chapter 30: Working Capital Management
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Q1) "Eurodollars" or "international dollars" are:
A)dollars deposited in banks outside the U.S.
B)dollars deposited in the U.S.by foreigners.
C)dollars held by foreign governments.
D)Euros or international currency deposited in U.S.branches of foreign banks.
Q2) In the U.S.,large-value electronic payments are made through: I.Fedwire; II.ACH; III.CHIPS
A)I only
B)II only
C)III only
D)I and III only
Q3) Discuss the fundamental trade-off involved in cash management.
Q4) A factor buys a firm's receivables,and then the firm's customer makes payments directly to the factor.
A)True
B)False
Q5) Briefly describe the most widely used commercial credit instruments.
Q6) Briefly explain how firms can protect against bad debt?
Page 32
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Chapter 31: Mergers
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Q1) The following are pre-offer defenses: litigation,asset restructuring,and liability restructuring.
A)True
B)False
Q2) The easiest task for the managers of an acquiring firm is the integration of the target firm.
A)True
B)False
Q3) In the purchase method of merger accounting a new asset category called goodwill is created.
A)True
B)False
Q4) If Firm A acquires Firm B for cash,then the cost of the merger is equal to the cash payment minus Firm B's value as a separate entity.
A)True
B)False
Q5) Who are antitakeover defenses designed to protect?
Q6) Briefly explain what is meant by "the cost of acquisition" in the context of a merger?
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Chapter 32: Corporate Restructuring
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Q1) In 1991 RJR:
A)reverted to being a public company.
B)went bankrupt because of the high debt burden.
C)carved-out the stake held by KKR.
D)all of these options.
Q2) The gains from LBOs typically derive from:
A)tax savings because of high debt servicing.
B)loss in the value to bondholders.
C)improved performance because of incentives to managers and employees.
D)all of these options.
Q3) Junk bonds are bonds with:
A)AAA or Aaa ratings.
B)BBB or Baa ratings.
C)BB or Ba ratings or lower.
D)D rated bonds.
Q4) Which class of creditor suffered the most during the Chrysler reorganization?
A)Dealer and warranty obligations
B)Trade creditors
C)Pension liabilities
D)Secured creditors
Page 34
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Chapter 33: Governance and Corporate Control Around the World
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Q1) What is corporate governance?
Q2) Suppose that managers were given incentives in the form of restricted stock ownership (i.e.,the stock is not easily sold)instead of outright stock ownership.One would expect such firms to have fewer agency problems.
A)True
B)False
Q3) The legal system in France is based on the:
A)common law tradition.
B)civil law tradition.
C)Sharia tradition.
D)none of these options.
Q4) A Korean conglomerate is called a:
A)keiretsu.
B)Chaebol.
C)industrial house.
D)conglomerate.
Q5) The largest conglomerate in India is the Tata Group. A)True B)False
Q6) Briefly explain the term keiretsu. Page 35
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