SOLVED

6.3  How Firms Raise Funds 1) How can a proprietorship or partnership raise funds for expansion? A) borrow from someone or an institution willing to lend the funds B) reinvest profit back into the business C) take on a partner or more partners D) Any of these would generate funds for expansion. 2) The central role of ________ in a market economy is bringing together savers and borrowers. A) corporations B) sole proprietors C) financial intermediaries D) stock exchanges 3) What takes place in the indirect finance market? A) Part ownership of corporations is sold in the form of stocks. B) Corporate and government bonds are sold to savers. C) Deposits of savers are accepted and loans made to borrowers. D) Government purchases of buildings and equipment are sold to the highest bidder. 4) Which of the following takes place in the direct finance market? A) Firms borrow funds from banks. B) Deposits from savers are accumulated and loans made to borrowers. C) Ownership in corporations is sold in the form of preferred stock. D) Banks offer savings accounts to customers. 5) If Southwest Airlines borrows $20 million from a bank to finance the renovation of their corporate offices, this is an example of A) a bond market transaction. B) indirect finance. C) a stock market transaction. D) direct finance. 6) Southwest Airlines wants to raise $20 million to finance the renovation of their corporate offices, and the company wishes to raise the funds through direct finance. Which of the following methods could it use? A) It could issue $20 million in stocks. B) It could sell $20 million in bonds. C) It could borrow $20 million from a bank. D) It could choose either A or B. 7) A bond is a financial security that represents A) ownership in a corporation. B) the portion of profits paid to shareholders. C) the interest rate paid on a share of stock. D) a promise to repay a fixed amount of funds. 8) What is different about buying stocks and buying bonds? A) A stock can possibly pay dividends forever, but bonds have a fixed number of payments. B) Differences of opinion about a stock’s future may vary considerably but there is less difference about a bond’s future. C) The future growth of a stock is more uncertain than the payments of a bond. D) All these are differences between stocks and bonds. 9) Which of the following is a characteristic of stock? A) Stock represents a promise to repay a fixed amount of funds. B) The face value or principal plus interest is repaid at a specified period of time. C) The length of coupon payments is fixed by the stated maturity period. D) Stock represents ownership in a firm 10) Payments by a corporation to its shareholders are known as A) stocks. B) bonds. C) coupons. D) dividends.