Question

‏____ 17. Which of the following statements is CORRECT? a. It is usually easier to transfer...

‏____ 17. Which of the following statements is CORRECT?
a. It is usually easier to transfer ownership in a corporation than it is to transfer ownership in a sole proprietorship.
b. Corporate shareholders are exposed to unlimited liability.
c. Corporations generally face fewer regulations than sole proprietorships.
d. Corporate shareholders are exposed to unlimited liability, and this factor may be compounded by the tax disadvantages of incorporation.
e. There is a tax disadvantage to incorporation, and there is no way any corporation can escape this disadvantage, even if it is very small.
‏____ 18. Which of the following could explain why a business might choose to operate as a corporation rather than as a sole proprietorship or a partnership?
a. Corporations generally find it relatively difficult to raise large amounts of capital.
b. Less of a corporation's income is generally subjected to taxes than would be true if the firm were a partnership.
c. Corporate shareholders escape liability for the firm's debts, but this factor may be offset by the tax disadvantages of the corporate form of organization.
d. Corporate investors are exposed to unlimited liability.
e. Corporations generally face relatively few regulations.
‏____ 19. You recently sold 100 shares of your new company, XYZ Corporation, to your brother at a family reunion. At the reunion your brother gave you a check for the stock and you gave your brother the stock certificates. Which of the following statements best describes this transaction?
a. This is an example of an exchange of physical assets.
b. This is an example of a primary market transaction.
c. This is an example of a direct transfer of capital.
d. This is an example of a money market transaction.
e. This is an example of a derivatives market transaction.
‏____ 20. Which of the following statements is CORRECT?
a. If expected inflation increases, interest rates are likely to increase.
b. If individuals in general increase the percentage of their income that they save, interest rates are likely to increase.
c. If companies have fewer good investment opportunities, interest rates are likely to increase.
d. Interest rates on all debt securities tend to rise during recessions because recessions increase the possibility of bankruptcy, hence the riskiness of all debt securities.
e. Interest rates on long-term bonds are more volatile than rates on short-term debt securities like T-bills.

Homework Answers

Answer #1

Q17:

option A:  Usually it is easier to transfer ownership in a corporation than it is to transfer ownership in a sole proprietorship. This can be done through secondary market by selling of shares.

Q18:

option C:

Corporate shareholders escape liability for the firm's debts, but this factor may be offset by the tax disadvantages of the corporate form of organization

Q19:

option C:

This is an example of a direct transfer of capital. ----since the transfer is directly between the owner of the shares and the buyer.

Q20:

option A:

If expected inflation increases, interest rates are likely to increase. ---- if inflation increases, the market demand more premium to lend the money and hence interest increases.

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