Corporations and financial markets

Corporations and financial markets

1. 1. Which feature of the corporate form is most directly responsible for the existence of a public stock market?

   Limited liabilityPerpetual existenceTransferable sharesDouble taxation
2. 2. Which of the following are examples of agency costs in large public corporations?

   A CEO pursues an acquisition that grows the firm but lowers shareholder valueManagers refuse a positive-NPV project because it could fail and cost them their jobsThe firm pays a regular dividendExecutive perks (jets, lavish offices) funded out of shareholder profits
3. 3. An investor buys 100 shares of Apple from another investor on Nasdaq. Which of the following is true?

   Apple receives the purchase priceThis is a primary-market transactionNo money flows to Apple; this is a secondary-market tradeApple's share count increases by 100
4. 4. Why does the secondary market matter to a firm even though no money flows to the firm there?

   Because the SEC requires itBecause liquidity in the secondary market is what makes the primary market work; investors will only buy if they can sell laterBecause the secondary-market price funds dividendsBecause pension funds only trade in the secondary market