Finance Theory Exam
Practice Tests
Course Introduction
Finance Theory provides a comprehensive exploration of the fundamental principles that underpin financial decision-making in organizations and markets. The course examines key concepts such as risk and return, portfolio theory, asset pricing models, market efficiency, and the capital structure of firms. Through the analysis of both classical and contemporary theoretical frameworks, students gain an in-depth understanding of how financial markets operate, how capital is allocated, and how corporate financial policies are formulated. Emphasis is placed on the mathematical and logical reasoning behind major financial models and their application to real-world scenarios, preparing students for advanced study or careers in finance.
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) Mr.Free has $100 dollars income this year and zero income next year.The market interest rate is 10% per year.If Mr.Free consumes $30 this year and invests the rest in the market,what will be his consumption next year?
A)$50
B)$55
C)$77
D)$100
Answer: C
Q2) Ms.Venus has $100 income this year and $110 next year.The market interest rate is 10% per year.Suppose Ms.Venus consumes $60 this year.What will be her consumption next year?
A)$120
B)$154
C)$170
D)210
Answer: B
Q3) Real assets of a corporation are claims on their financial assets.
A)True
B)False
Answer: False
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Chapter 2: How to Calculate Present Values
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Q1) If the present value annuity factor at 8% for 10 years is 6.71,what is the equivalent future value annuity factor?
A)3.108
B)14.486
C)2.159
D)5.384
Answer: B
Q2) What is the present value of a six-year,$5,000 per year annuity at a discount rate of 10%?
A)$21,776.30
B)$3,371.91
C)$16,760.78
D)$18,327.82
Answer: A
Q3) The net present value formula for one period is:
A)NPV = C<sub>0</sub> + [C<sub>1</sub>/(1 + r)].
B)NPV = PV required investment.
C)NPV = C<sub>0</sub>/C<sub>1</sub>.
D)NPV = C<sub>1</sub>/C<sub>0</sub>.
Answer: A
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Chapter 3: Valuing Bonds
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Q1) (1 + r<sub>nominal</sub>)= (1 + r<sub>real</sub>)(1 + inflation rate)
A)True
B)False
Answer: True
Q2) What is the relationship between interest rates and bond prices?
Answer: Interest rates and bond prices are inversely related.Higher interest rates cause bond prices to fall and vice versa.For a given change in interest rates,prices of long-term bonds fluctuate more than those of short-term bonds.Similarly,for a given change in interest rates,low-coupon bond prices fluctuate more than those of high-coupon bonds.
Q3) A bond with duration of 10.0 years has a yield to maturity of 10.0%.This bond's volatility is:
A)9.09%
B)6.80%
C)14.6%
D)10.00%
Answer: A
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Chapter 4: The Value of Common Stocks
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Q1) A large percentage of the total value of a growth stock comes from the present value of its growth opportunities.
A)True
B)False
Q2) The cost of equity capital equals the dividend yield minus the growth rate in dividends for a constant dividend growth stock.
A)True
B)False
Q3) Ottocell Motor Company just paid a dividend of $1.40.Analysts expect its dividend to grow at a rate of 10% next year,8% for the following two years,and then a constant rate of 5% thereafter.What is the expected dividend per share at the end of year 5?
A)$2.08
B)$1.98
C)$1.80
D)$0.99
Q4) Briefly explain the term market capitalization rate.
Q5) Briefly explain how the formulas that are used for valuing common stocks can also be used to value businesses.
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Chapter 5: Net Present Value and Other Investment Criteria
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Q1) Given the following cash flows for project A: C<sub>0</sub> = -3,000,C<sub>1</sub> = +500,C<sub>2</sub> = +1,500,and C<sub>3</sub> = +5,000,calculate the NPV of the project using a 15% discount rate.
A)$5,000
B)$2,352
C)$3,201
D)$1,857
Q2) The net present value of a project depends upon the: A)company's choice of accounting method.
B)manager's tastes and preferences.
C)project's cash flows and opportunity cost of capital.
D)company's profitability index.
Q3) Discuss some of the advantages of using the payback method.
Q4) The denominator of the profitability index is the present value of the investment.
A)True B)False
Q5) The benefit-cost ratio is equal to the profitability index plus one.
A)True B)False
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Chapter 6: Making Investment Decisions With the Net
Present Value Rule
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Q1) The real cash flow occurring in year 2 is $60,000.If the inflation rate is 5% per year and the real rate of interest is 2% per year,calculate the nominal cash flow for year 2.
A)$60,000
B)$62,424
C)$66,150
D)$63,654
Q2) When Honda develops a new engine the incidental effects might include the following:
I.demand for replacement parts;
II.profits from the sale of repair services;
III.offer modified or improved versions of the new engine for other uses
A)I only
B)I and II only
C)I,II,and III
D)I and III only
Q3) Briefly explain how inflation is treated consistently while estimating a project's NPV.
Q4) Briefly discuss how tax reporting to governments vs.shareholders is treated in countries like Japan.
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Chapter 7: Introduction to Risk and Return
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Q1) The variability of a well-diversified portfolio mostly reflects the contributions to risk from the standard deviations of the stocks within that portfolio.
A)True
B)False
Q2) The correlation coefficient between a stock and the market portfolio is +0.6.The standard deviation of return of the stock is 30% and that of the market portfolio is 20%.Calculate the beta of the stock.
A)1.1
B)1.0
C)0.9
D)0.6Cov
Q3) Low standard deviation stocks always have low betas.
A)True B)False
Q4) The beta of the market portfolio is:
A)+1.0.
B)+0.5.
C)0. D)-1.0.
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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) Florida Company (FC)and Minnesota Company (MC)are both service companies.Their stock returns for the past three years were: FC: -5%,15%,20%; MC: 8%,8%,20%.What is the standard deviation of a portfolio with 50% of the funds invested in FC and 50% in MC?
A)10.6%
B)14.4%
C)9.3%
D)7.6%
Q3) Suppose you borrow at the risk-free rate an amount equal to your initial wealth and invest in a portfolio with an expected return of 20% and a standard deviation of returns of 16%.The risk-free asset has an interest rate of 4%.Calculate the standard deviation of the resulting portfolio.
A)28%
B)40%
C)32%
D)36%
Q4) Explain the term efficient portfolio.
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Chapter 9: Risk and the Cost of Capital
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Q1) The hurdle rate for capital budgeting decisions is:
A)the cost of capital.
B)the cost of debt.
C)the cost of equity.
D)the risk-free rate.
Q2) Generally,for CAPM calculations,the value to use for the risk-free interest rate is the:
A)short-term U.S.Treasury bill rate.
B)long-term corporate bond rate.
C)medium-term corporate bond rate.
D)medium-term average rate on common stocks.
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 how a firm's cost of equity is estimated using the capital asset pricing model (CAPM).
Q5) Briefly discuss the certainty equivalent approach to estimating the NPV of a project.
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Chapter 10: Project Analysis
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Q1) In constructing a Monte Carlo simulation model of an investment project,one typically ignores possible interdependencies between variables.
A)True
B)False
Q2) The accounting break-even point occurs when:
A)the total revenue line cuts the fixed cost line.
B)the present value of inflows line cuts the present value of outflows line.
C)the total revenue line cuts the total cost line.
D)total revenue is large enough to recapture depreciation expense.
Q3) Most firms keep track of the progress of projects by conducting postaudits shortly after the projects have begun to operate.
A)True
B)False
Q4) The break-even point in terms of NPV is usually lower than the break-even point on an accounting basis.
A)True
B)False
Q5) Briefly discuss various real options associated with capital budgeting projects.
Q6) Why is sensitivity analysis less realistic than Monte Carlo simulation?
Page 12
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Chapter 11: Investment, Strategy, and Economic Rents
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Q1) In order to generate a positive NPV project,a firm must have an economic advantage over its competitors.
A)True
B)False
Q2) Briefly explain how investing in gold is like investing in a stock that pays no dividends.
Q3) When markets become competitive,economic rents:
A)increase.
B)decrease.
C)remain the same.
D)approach zero.
Q4) If you use futures prices to estimate the cash flows of a project,which discount rate should you use?
i.the cost of capital for the firm; II)the cost of capital for the project; III)the risk-free rate
A)I only
B)I and II only
C)III only
D)II only
Q5) Why are economic rents important to a manager?
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Chapter 12: Agency Problems, Compensation, and Performance Measurement
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Q1) Agency costs can be thought of as the loss in the value of a firm resulting from the following actions by managers: i.reduced effort; II)perks or private benefits; III)empire building; IV)entrenching investments; V)avoiding risks
A)I,II,and V only
B)I,II,and IV only
C)I,II,III,and IV only
D)I,II,III,IV,and V
Q2) An advantage of stock-based performance compensation for managers is that such managers must bear macroeconomic risks.
A)True
B)False
Q3) A firm produces $65 million of net income on $2,030 million of assets.Given that investors expect a 5% return,what is the economic profit?
A)-$65.0 million
B)-$36.5 million
C)$32.6 million
D)$65.1 million65/2030 = .032.
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Chapter 13: Efficient Markets and Behavioral Finance
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Q1) If the abnormal return for a stock during the first week is +5% and +3% during the second week,what is the abnormal return for the two-week period?
A)5%
B)3%
C)8.15%
D)8.00%
Q2) What are puzzles and anomalies?
Q3) Weak-form efficiency implies that past stock returns: A)form patterns that tend to repeat.
B)are major inputs to investors for forming trading strategies. C)do not matter.
D)are difficult to explain.
Q4) The following are anomalies countering the efficient market hypothesis EXCEPT: i.the small-firm effect; II)the earnings announcement puzzle; III)the new-issue puzzle; IV)trading rules based on patterns
A)I only
B)I and II only
C)I,II,and III only
D)IV only
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Chapter 14: An Overview of Corporate Financing
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Q1) In the United Sates,who holds the smallest portion of corporate equities?
A)households
B)pension funds
C)mutual funds
D)insurance companies
Q2) When completing a large debt issue,financial managers of large firms will usually consider the following questions EXCEPT:
I.Should the firm borrow short term or long term?
II.Should the firm issue fixed- or floating-rate debt?
III.Should the firm borrow in foreign currency?
A)I only
B)II only
C)III only
D)I,II,and III
Q3) Exploitation of minority shareholders by majority shareholders is called:
A)a reverse stock split.
B)tunneling.
C)financial engineering.
D)proxy fighting.
Q4) Briefly list the various functions of financial institutions.
Page 16
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Chapter 15: How Corporations Issue Securities
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Q1) Suppose that a government wishes to auction 5 million bonds (quantity),and three potential buyers submit the following bids: \[\begin{array} { l c l } & \text { Price } & \text { Quantity } \\
\text { Buyer A } & \$ 1,015 & 2 \text { million } \\
\text { Buyer B } & \$ 1,000 & 3 \text { million } \\
\text { Buyer C } & \$ 990 & 1 \text { million } \end{array}\]
In a discriminatory auction:
A)Buyer A pays $1,015 and Buyer B pays $1,000.
B)Buyer A pays $1,000 and Buyer B pays $1,000.
C)Buyer A pays $990 and Buyer B pays $990.
D)Buyer A pays $1,000 and Buyer C Pays $990.
Q2) For industrial stocks in the U.S.,the announcement of an SEO usually leads to a decline in stock price,with the decline averaging 3-4%.
A)True
B)False
Q3) Briefly explain the basic procedure for a new issue.
Q4) Briefly explain the term venture capital.
Q5) Briefly discuss SEC rule 144A.
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Chapter 16: Payout Policy
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Q1) Australia follows an imputation tax system for the payment of taxes on dividends.
A)True
B)False
Q2) Briefly describe the leftists' point of view on dividends and taxes.
Q3) The Miller and Modigliani dividend irrelevance argument assumes that the firm's investment policy and debt policy are both settled.
A)True
B)False
Q4) Briefly describe an imputation tax system.
Q5) The following statements are true of dividend reinvestment plans (DRIPs):
I.They are offered by the companies to their shareholders.
II.Generally,new shares are issued at a discount.
III.The dividends are taxable as ordinary income.
A)I only
B)I and III only
C)I,II,and III
D)III only
Q6) What information does a share repurchase convey to investors?
Q7) Briefly describe how current tax laws favor capital gains.
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Chapter 17: Does Debt Policy Matter
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Q1) Modigliani and Miller Proposition II states that the rate of return required by shareholders increases steadily as the firm's debt-equity ratio increases.
A)True
B)False
Q2) The law of conservation of value implies that:
A)the return on a firm's common stock is unchanged when debt is added to its capital structure.
B)the value of any asset is preserved regardless of the nature of the claims against it.
C)the return on a firm's debt is unchanged when common stock is added to its capital structure.
D)the value of an asset increases as debt is reduced.
Q3) If a firm is financed with both debt and equity,the firm's equity is known as:
A)unlevered equity.
B)levered equity.
C)preferred equity.
D)none of the options.
Q4) What circumstances violate MM's Proposition I? Briefly discuss.
Q5) Briefly describe the traditionalists' position on capital structure.
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Chapter 18: How Much Should a Corporation Borrow
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Q1) The trade-off theory of capital structure predicts that:
A)unprofitable firms should borrow more than profitable ones.
B)safe firms should borrow more than risky ones.
C)rapidly growing firms should borrow more than mature firms.
D)increasing leverage increases firm value,especially at high debt ratios.
Q2) Inclusion of restrictions in a bond contract leads to:
A)higher agency costs.
B)higher bankruptcy costs.
C)higher interest costs.
D)lower agency costs.
Q3) What does "risk shifting" imply?
A)When faced with bankruptcy,managers tend to invest in high-risk,high-return projects.
B)When faced with bankruptcy,managers do not invest more equity capital.
C)When faced with bankruptcy,managers may make accounting changes to conceal the true extent of the problem.
D)When faced with bankruptcy,managers invest in low risk projects to conserve capital.
Q4) What is the relative tax advantage of debt when corporate and personal taxes are considered?
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Chapter 19: Financing and Valuation
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Q1) A firm has debt beta of 0.2 and an asset beta of 1.9.If the debt-equity ratio is 75%,what is the levered equity beta?
A)1.90
B)3.18
C)2.42
D)2.63
Q2) The firm's horizon value at period H is given by: PV<sub>H</sub> = (FCF<sub>H</sub> <sub>+</sub> <sub>1</sub>)/(WACC - g).
A)True
B)False
Q3) Which of the following is an important assumption required if using the WACC formula?
A)Companies rebalance their capital structure to maintain a constant debt ratio.
B)WACC must be used on public companies with actively traded securities.
C)Management bonuses must be added back to free cash flows.
D)The firm cannot issue any further debt without adjusting its WACC.
Q4) What are some of the additional factors that have to be considered when analyzing an international project? Briefly explain.
Q5) Briefly explain how APV can be used for valuing a business.
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Chapter 20: Understanding Options
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Q1) Briefly explain what is meant by put-call parity?
Q2) Buying an in-the-money option will almost always produce a profit.
A)True
B)False
Q3) All else equal,as the underlying stock price increases:
A)the call price decreases.
B)the call price increases.
C)there is no effect on call price.
D)the call price can either increase,decrease,or remain the same.
Q4) 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.
Q5) The writer of a put option loses if the stock price declines.
A)True
B)False
Q6) Define the term call option.
Q7) Why would an option holder almost never exercise an option early?
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Chapter 21: Valuing Options
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Q1) The Black-Scholes option pricing model employs which five parameters?
A)Stock price,exercise price,risk-free rate,beta,and time to maturity
B)Stock price,risk-free rate,beta,time to maturity,and variance
C)Stock price,risk-free rate,probability of bankruptcy,variance,and exercise price
D)Stock price,exercise price,risk-free rate,variance,and time to maturity
Q2) Suppose an investor wishes to "cash-in" an in-the-money American call option (on a nondividend paying stock)that has lots of time until expiration.The investor will be better off trading the option to another investor rather than exercising the option early.
A)True
B)False
Q3) A stock is currently selling for $50.The stock price could go up by 10% or fall by 5% each month.The monthly interest rate is 1% (periodic rate).Calculate the price of a call option on the stock with an exercise price of $50 and a maturity of two months.(Use the two-stage binomial method.)
A)$5.10
B)$2.71
C)$4.78
D)$3.62
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Chapter 22: Real Options
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Q1) Real options cannot be valued using the risk-neutral method since real assets do not trade in a liquid market where prices are readily observable and arbitrage opportunities are exploited immediately.
A)True
B)False
Q2) How does an abandonment option increase the value of a project?
Q3) The following are examples of expansion options:
I.A mining company acquires mineral rights to land that is not worth developing today but could be profitable if ore prices increase.
II.A film studio acquires the rights to produce a film based on the novel.
III.A real estate developer acquires a parcel of land that could be turned into a shopping mall.
IV.A pharmaceutical company purchases a patent to market a new drug.
A)I only
B)I and II only
C)I,II,and III only
D)I,II,III,and IV
Q4) Briefly discuss three practical problems associated with real options analysis.
Q5) How does an option to wait or postpone a project add value to the project?
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Chapter 23: Credit Risk and the Value of Corporate Debt
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Q1) Briefly explain the model developed by Beaver,McNichols,and Rhie to predict the chance of failure of a firm.
Q2) If the discount rate on a bond is 7% and the expected payment in year 1 is $952.50,calculate the price of the bond.
A)$1,050
B)$985
C)$890
D)$935
Q3) Which of the following rated bonds has the most risk?
A)Aaa
B)Aa
C)Baa
D)Ba
Q4) Which of the following rated bonds has the least risk?
A)AAA
B)AA
C)A
D)BBB
Q5) Briefly describe bond ratings.
Q6) Briefly explain the term junk bonds.
Page 25
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Chapter 24: The Many Different Kinds of Debt
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Q1) What are PIK bonds?
Q2) 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.
Q3) The trust company for a bond issue represents the:
A)managers of the firm.
B)firm's shareholders.
C)firm's board of directors.
D)firm's bondholders.
Q4) Government loan guarantees are a risk-free and costless means for helping struggling firms.
A)True
B)False
Q5) Many times warrants may be issued on their own and do not have to be issued in conjunction with other securities.
A)True
B)False
Q6) Discuss the differences between publicly issued bonds and private placements.
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Chapter 25: Leasing
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Q1) The cost of a seven-year lease is $150,000 per year and matches the exact cost of a loan to finance the purchase of equipment.All else equal,and given a usable life of seven years with no salvage value,what is the advantage of a lease given a discount rate of 7% and no taxes?
A)$0
B)$800,000
C)$1,500,000
D)$2,000,000
Q2) What advantage does a sale-lease-back to a SPE have?
Q3) Leveraged leases are a form of:
A)operating leases.
B)financial leases.
C)leases that considerably reduce lessee's obligations. D)rent.
Q4) Briefly explain how the lessor's position changes as the lessee undergoes financial distress.
Q5) Discuss the differences between an operating lease and a financial lease.
Q6) The IRS can modify the tax code to alter the attractiveness of leases.
A)True
B)False
Page 27
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Chapter 26: Managing Risk
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Q1) One can describe a forward contract as agreeing today to buy a product:
A)at a later date at a price to be set in the future;
B)today at its current price;
C)at a later date at a price set today;
D)if and only if its price rises above its exercise price
Q2) What investment would be a hedge for a corn farmer?
A)Long corn put option
B)Long corn call option
C)Long corn futures
D)None of these answers
Q3) Insurance companies have some advantages in bearing risk.These include:
I.superior ability to estimate the probability of loss;
II.extensive experience and knowledge about how to reduce the risk of a loss;
III.the ability to pool risks and thereby gain from diversification;
IV.insurance companies cannot diversify away market or macroeconomic risks
A)I,II,and III only
B)II only
C)III only
D)IV only
Q4) In bearing risk,what disadvantages do insurance companies face?
Page 28
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Chapter 27: Managing International Risks
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Q1) Briefly explain the concept of interest rate parity.
Q2) The Mexican economy is predicted to average double-digit inflation over the next two years at 10% per year.The inflation forecast for the U.S.for the same period is 4% per year.If the current exchange rate is $0.091/peso,what is the expected exchange rate two years from now?
A)$0.08604/peso
B)$0.08134/peso
C)$0.1018/peso
D)$0.09625/peso
Q3) Purchasing power parity provides a better long-run indicator for future price changes than short-run indicator.
A)True
B)False
Q4) Currency risk exposure can be categorized as:
A)transaction exposure
B)economic exposure
C)none of these options
D)all of these options
Q5) Briefly explain the expectations theory of forward exchange rates.
Q6) Briefly describe the different types of currency markets.
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Chapter 28: Financial Analysis
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Q1) What are some of the pitfalls involved in using financial ratios?
B.Finally,an analyst should understand how a given ratio has changed over time and the reasons for that change.A ratio for a given period may be acceptable,but ignoring changes over time can lead an analyst to overlook important developments.
Q2) The P/E ratio measures the price that investors are prepared to pay for each dollar of earnings.
A)True B)False
Q3) The following are known as current assets: i.cash; II)marketable securities; III)receivables; IV)inventories; V)payables
A)I,II,and III only
B)I,II,III,and IV only
C)II,III,IV,and V only
D)III,IV,and V only
Q4) What are the common ratios used to measure the liquidity of a firm?
Q5) Briefly describe the different categories of financial ratios.
Q6) ROA can be increased by increasing asset turnover.
A)True B)False
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Chapter 29: Financial Planning
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Q1) Discuss the process of preparing a financial plan.
Q2) Among models used to develop a financial plan,the following is the simplest:
A)percentage of sales model.
B)regression model.
C)computer simulation model.
D)optimization model.
Q3) A problem with the percentage of sales method is that some variables are relatively insensitive to sales.The percentage of sales method will therefore,in a growing company,overstate such values.
A)True
B)False
Q4) A firm that chooses Strategy A,as portrayed in Chapter 29,should plan to:
A)maintain a high ratio of current assets to sales.
B)use high levels of short-term debt and low levels of long-term financing.
C)decrease its dividend soon.
D)have surplus cash that can be invested in short-term securities.
Q5) Two common sources of short-term financing are borrowing from a bank and stretching payables.
A)True
B)False
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Chapter 30: Working Capital Management
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Q1) The net credit period for a company with terms of 3/10,net 60 is:
A)50 days.
B)60 days.
C)10 days.
D)57 days.
Q2) The following are advantages of electronic payment systems except:
A)record keeping is easy.
B)marginal cost of transaction is low.
C)float is drastically reduced.
D)initial investment is high.
Q3) In the U.S.,export credit insurance is provided by the Export-Import Bank in association with a group of insurance companies known as the Foreign Credit Insurance Association (FCIA).
A)True
B)False
Q4) List some of the different money market instruments available for short-term investments.
Q5) Fedwire is a system that transfers money between banks.
A)True
B)False
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Chapter 31: Mergers
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Q1) Merging in order to lower financing costs is likely to fail for the following reason:
A)costs of issuing larger amounts of debt increase.
B)tax shields decrease for larger companies.
C)any gain from lowering the required interest rate is offset by increased guarantees on the debt.
D)it is difficult for bondholders to calculate the postmerger debt outstanding.
Q2) Briefly explain what is meant by "the cost of acquisition" in the context of a merger?
Q3) Explain the central tenet of the Clayton Act of 1914.
Q4) Firm A has a value of $100 million and Firm B has a value of $70 million.Merging the two would enable cost savings with a present value of $20 million.Firm A purchases Firm B for $75 million.What is the gain from this merger?
A)$30 million
B)$20 million
C)$15 million
D)$75 million
Q5) Who are antitakeover defenses designed to protect?
Q6) Briefly discuss takeover defenses.
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Chapter 32: Corporate Restructuring
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Q1) A privatization is a sale of a government-owned company to private investors.
A)True
B)False
Q2) The largest gainers from LBO transactions have typically been:
A)junk bond holders.
B)raiders.
C)selling stockholders.
D)investment banking firms.
Q3) Spin-offs are not taxed if the shareholders of the parent company are given at least:
A)90% of the shares in the new company.
B)80% of the shares in the new company.
C)70% of the shares in the new company.
D)60% of the shares in the new company.
Q4) 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.
Q5) Briefly explain what is meant by privatization?
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Chapter 33: Governance and Corporate Control Around the World
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Q1) The German system of corporate governance is referred to as:
A)Aufsichtsrat
B)Vorstand
C)codetermination
D)Directoire
Q2) Households,financial institutions,and other firms are the main sources of funds for firms.
A)True
B)False
Q3) The legal systems in France,Germany,and Scandinavia have evolved from a common law tradition.
A)True
B)False
Q4) 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
Q5) What is corporate governance?
Q6) Briefly explain the term keiretsu.
Page 35
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