Question: The cumulative probability for the entire binomial distribution does not have to sum to 1.
Answer Options:
True, False
Answer: False
Question: You recently sold 100 shares of Microsoft stock 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 best describes this transaction?
Answer Options:
a. This is an example of a money market transaction.
b. This is an example of an exchange of physical assets.
c. This is an example of a primary market transaction.
d. This is an example of a direct transfer of capital.
e. This is an example of a derivative market transaction.
Answer: d. This is an example of a direct transfer of capital.
Question: Which of the following hypothetical scenarios best describes a scenario where approximation by the binomial distribution is most acceptable?
Answer Options:
Find the probability of selecting a red ball from a vase containing red, green, and yellow balls after selecting two yellow balls without replacement.
The probability of rolling two six-sided die, and getting a 7.
Flipping a coin six times, and getting 4 heads.
Rolling three doubles in a game of monopoly and going straight to jail.
Answer: Flipping a coin six times, and getting 4 heads.
Question: Jessica invests money with a friend who is purchasing a small food truck, in return for a share of the business. What type of transaction is this?
Answer Options:
a. a primary market transaction
b. a direct transfer of capital
c. a financial intermediary transaction
d. a money market transaction
e. an exchange of physical assets: cash for a share of the business
Answer: b. a direct transfer of capital
Question: What is the firm’s equity multiplier?
Answer Options:
a. 5.72
b. 2.61
c. 2.79
d. 3.35
e. 4.35
Answer: e. 4.35
Question: Which of the following statements is CORRECT?
Answer Options:
a. Proprietorships and partnerships generally have a tax advantage over corporations.
b. Corporations of all types are subject to the corporate income tax.
c. In any partnership, every partner has the same rights, privileges, and liability exposure as every other partner.
d. One of the disadvantages of incorporating your business is that you could become subject to the firm’s liabilities in the event of bankruptcy.
e. Proprietorships are subject to more regulations than corporations.
Answer: a. Proprietorships and partnerships generally have a tax advantage over corporations.
Question: The binomial probability mass function may not require the assumption of independence between events if those events occur in the instance of replacement.
Answer Options:
True, False
Answer: False
Question: Which of the following statements is CORRECT?
Answer Options:
a. Corporations face fewer regulations than proprietorships.
b. It is generally less expensive to form a corporation than a proprietorship because, with a proprietorship, extensive legal documents are required.
c. One disadvantage of operating a business as a proprietor is that the firm is subject to double taxation, because taxes are levied at both the firm level and the owner level.
d. One advantage of forming a corporation is that equity investors are usually exposed to less liability than they would be in a partnership.
e. If a partnership goes bankrupt, each partner is exposed to liabilities only up to the amount of his or her investment in the business.
Answer: d. One advantage of forming a corporation is that equity investors are usually exposed to less liability than they would be in a partnership.
Question: How many ways can a set of 12 medication prescriptions be organized into a 7 day calendar pill box?
Answer Options:
12, 84, 396, 792
Answer: 792
Question: The annual report contains four basic financial statements: the income statement, the balance sheet, the cash flow statement, and the statement of stockholders’ equity.
Answer Options:
a. True
b. False
Answer: a. True
Question: The probability of success, p, can change in repeated trials of a binomial distribution.
Answer Options:
True, False
Answer: False
Question: Which of the following statements is CORRECT?
Answer Options:
a. The annual report is an internal document prepared by a firm’s managers solely for the use of its creditors/lenders.
b. Prior to the Enron scandal in the early 2000s, companies would put verbal information in their annual reports along with the financial statements. That verbal information was often misleading, so today annual reports can contain only quantitative information—audited financial statements.
c. Assets other than cash are expected to produce cash over time, and the amounts of cash they eventually produce should be exactly the same as the amounts at which the assets are carried on the books.
d. The primary reason the annual report is important in finance is that it is used by investors when they form expectations about the firm’s future earnings and dividends and the riskiness of those cash flows.
e. The four most important financial statements provided in the annual report are the balance sheet, income statement, cash budget, and the statement of stockholders’ equity.
Answer: d. The primary reason the annual report is important in finance is that it is used by investors when they form expectations about the firm’s future earnings and dividends and the riskiness of those cash flows.