ECON 101 1st Edition Lecture 5 Outline of Last Lecture I Practice Problems Outline of Current Lecture II Practice Problems III Business Organization IV Separation of Ownership and Control V Liquidity Current Lecture 1 Which of the following groups does not participate in financial capital markets a Financial Institutions b Households c Government d Businesses e None of the above 2 Sale of stocks and bonds by business to savers without going through a financial institution are referred to as a Direct Transfers b Intermediary Facilitated transfers c Investment ban underwritten transfers 3 Financial Assets can be characterized as claims to future risky cash flows a True b False 4 Preferred stock is instrument a Debt b Equity c Commodity d Derivative 5 How much is 10 10 years from now if the discount rate is 5 a 10 1 05 10 6 14 6 Which class of financial assets has earned the highest average return over 1925 2004 a Treasury Bills b Corporate Bonds c 102 mM d Micro cap stocks These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute e Large Corporate stocks 7 Which of the following are very short term highly liquid fixed income securities a Corporate Bonds b Certificates of Deposit c Shares of Common Stock d Mortgages 8 Which of the following is true a Mutual funds are less regulated than Hedge funds b Mutual funds are only available to a selected number of wealthy participants but are not open to the public c Hedge funds are more likely to take high risk derivative positions compared to mutual funds 9 The too big to fail problem is most generally characterized by as a Separation of Ownership and Control b Moral Hazard c Adverse Selection d Free Riding Lecture Notes 10 Business Organization a Proprietorship i Easiest to Begin ii Limited Life iii Unlimited Liability b Partnership i 2 or more owners ii Unlimited Liability c Corporation i Unlimited Liability ii Taxed at corporate level 11 Separation of Ownership and Control a Advantages i Allows for large firm size ii May improve decision making b Disadvantages i Managerial interests may conflict with those of shareholders 1 Goal of company is to maximize shareholder wealth 2 Number of shares owned x Stock Price 12 Liquidity a Fair Price and Quality 13 Short Term vs Long Term a Short Term i Less than 1 year ii The Money Market is considered to be short term b Long Term i Over 1 year ii The Capital Market is considered to be long term