1. Discuss the three forms of business organization in the United States.


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1. Discuss the three forms of business organization in the United States.

2. Suppose the real risk-free rate, r*, is 2% and investors expect inflation to be 4% next year, 5% the following year, and 7% per year thereafter. Assume the MRP is zero for Year 1 and increases by 0.1% each year. Compute the quoted, or risk-free, rate of return for Year 8.

3. What is a firm’s fundamental or intrinsic value? What might cause a firm’s intrinsic value to be different than its actual market value?

4. Which of the following would be most likely to lead to higher interest rates on all debt securities in the economy?

a. Households start saving a larger percentage of their income.

b. The economy moves from a boom to a recession.

c. The level of inflation begins to decline.

d. Corporations step up their expansion plans and thus increase their demand for capital.

e. The Federal Reserve uses monetary policy in an attempt to stimulate the economy.

5. The most widely accepted objective of the firm is to

a. minimize risk

b. maximize profits

c. maximize shareholder wealth

d. maximize earnings per share

6. Who was responsible for the financial crisis of 2007-2009?

a. The U.S. Federal Reserve, for its policy of easy money.

b. The U.S. government, for pushing banks to expand credit for low-income housing

c. Bankers, who aggressively promoted and resold subprime mortgages

d. All of these

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