Examen 1

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NAME____________________________________ FINA 503
1. The form of organization for a business is not an important issue, asthis decision has very little effect on the income and wealth of the firm's owners.

2. The major advantage of a regular partnership or a corporation as a form of business organization is thefact that both offer their owners limited liability, whereas proprietorships do not.

3. There are three primary disadvantages of a regular partnership: (1) unlimited liability, (2) limited lifeof the organization, and (3) difficulty of transferring ownership. These combine to make it difficult for partnerships to attract large amounts of capital and thus to grow to a very large size.4. If a firm's goal is to maximize its earnings per share, this is the best way to maximize the price of the common stock and thus shareholders' wealth.

5. One potential benefit from starting toinvest early for retirement is that the investor can expect greater benefits from the compounding of interest.

6. If the discount (or interest) rate is positive, the present value of anexpected series of payments will always exceed the future value of the same series.

7. Disregarding risk, if money has time value, it is impossible for the present value of a given sum to exceed itsfuture value.

8. All other factors held constant, the present value of a given annual annuity decreases as the number of discounting periods per year increases.

9. As a result ofcompounding, the effective annual rate on a bank deposit (or a loan) is always equal to or greater than the nominal rate on the deposit (or loan).

10. The payment made each period on an amortized loan isconstant, and it consists of some interest and some principal. The closer we are to the end of the loan's life, the greater the percentage of the payment that will be a repayment of principal.

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