Which of the following can be described as involving direct finance?______________
A corporation’s stocks are traded in an over-the-counter market
B. A corporation buys commercial paper issued by another corporation
C. A pension fund manager buys commercial paper from the issuing corporation
D. Both A and B of the above
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A corporation acquires new funds only when its securities are sold in the _________________.
A. secondary market by an investment bank
B. primary market by an investment bank
C. secondary market by a stock exchange broker
D. secondary market by a commercial bank
Which of the following statements about the characteristics of debts and equities are true?
A. They both can be long-term financial instruments
B. They both involve a claim on the issuer’s income
C. They both enable a corporation to raise funds
D. All of the above
The primary reason that individuals and firms choose to borrow for a long term is to reduce the risk that interest rates will _________before they pay off their debts.
A. raise
B. fall
C. become more volatile
D. become more stable
A firm chooses to finance a new plant by issuing money market securities ___________.
A. must incur the cost of issuing new securities to roll over its debt
B. runs the risk of having to pay higher interest rates when it rolls over its debt
C. incurs both the cost of reissuing securities and the risk of having to pay higher interest rates on the new debt
D. is more likely to profit if interest rates rise while the plant is being constructed
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