MBA 620 MIDTERM EXAM 2026 FINAL
ASSESSMENT PAPER BUSINESS POLICY AND
STRATEGY COMPREHENSIVE QUESTIONS AND
ANSWERS VERIFIED A+
◉ Open outcry auction. Answer: A method where traders meet face
to face at particular location at an agreed price and quantity. These
traders communicate with each other through hand signals and
shouts.
◉ Dealer market. Answer: A dealer holds an inventory of the
security and makes a market by offering to buy or sell. Others who
wish to buy or sell can see the offers made by the dealers, and can
contact the dealer of their choice to arrange a transaction.
◉ Automated trading platform. Answer: A computer system in
which buyers and sellers post orders and in which trades are
automatically executed for matching orders.
◉ Production opportunities. Answer: The cash generating activity
that require cash in the present but have the ability to generate more
cash in future. The higher the opportunities, the more cash will be
demanded now.
,◉ Time preferences for consumption. Answer: Refer to the preferred
pattern of consumption. Establishes how much consumption
consumers are willing to save or consume at different levels of
interest. It majorly impacts required rate of return.
◉ Foreign trade deficit. Answer: Occurs when businesses and
individuals in the United States import more goods from foreign
countries compared to exports. This causes an increase in an
interest rate. Must be financed, and the main source of financing is
debt. Surplus occurs when exports are more than imports. As the
trade deficit increases, the debt financing increases, driving up
interest rates. U.S. interest rates must be competitive with foreign
interest rates; if the Federal Reserve attempts to set interest rates
lower than foreign rates, foreigners will sell U.S. bonds, decreasing
bond prices, resulting in higher U.S. rates.
◉ Algorithmic trading. Answer: Occurs when computers are
programed to buy or sell stocks on behalf of stockholders if a
particular event or sequence of events happens.
◉ High-frequency trading. Answer: A type of algorithmic trading in
which HFT traders, which are computers, buy and sell hundreds or
thousands of times a day. Most is done by firms that are created for
this purpose because this requires expensive computer systems and
highly paid programmers.
,◉ What are the three principal forms of business organization?
What are the advantages and disadvantages of each?. Answer: Sole
proprietorship, partnership, and corporation are the three principal
forms of business organization.
The advantages of the Sole proprietorship and partnership includes
ease and low cost of formation.
The advantages of the corporation include limited liability, indefinite
life, ease of ownership transfer, and access to capital markets.
The disadvantages of a sole proprietorship are (1) difficulty in
obtaining large sums of capital, (2) unlimited personal liability for
business debts, and (3) limited life.
The disadvantages of a partnership are (1) unlimited liability, (2)
limited life, (3) difficulty of transferring ownership, and (4) difficulty
of raising large amounts of capital.
The disadvantages of a corporation are (1) double taxation of
earnings and (2) requirements to file state and federal reports for
registration, which are expensive, complex,
and time-consuming.
, ◉ What is a firm's fundamental value (which is also called its
intrinsic value) What might cause a firm's intrinsic value to be
different from its actual market value?. Answer: A firm's
fundamental, or intrinsic, value is the present value of its free cash
flows when discounted at the weighted average cost of capital. If the
market price reflects all relevant information, then the observed
price is also the intrinsic price. Intrinsic value depends on all of its
expected future cash flows.
◉ Edmund Corporation recently made a large investment to
upgrade its technology. Although these improvements won't have
much of an impact on performance in the short run, they are
expected to reduce
future costs significantly. What impact will this investment have on
Edmund's earnings per share this year? What impact might this
investment have on the company's intrinsic value and stock price?.
Answer: Earnings per share in the current year will decline due to
cost of the investment made in the current year and no significant
performance impact in the short run. However, the company's stock
price should increase due to the significant cost savings expected in
the future.
◉ Describe the ways in which capital can be transferred from
suppliers of capital to those who are demanding capital.. Answer: In
a well-functioning economy, capital will flow efficiently from those
who supply capital to those who demand it. This transfer of capital
can take place in three different ways:
ASSESSMENT PAPER BUSINESS POLICY AND
STRATEGY COMPREHENSIVE QUESTIONS AND
ANSWERS VERIFIED A+
◉ Open outcry auction. Answer: A method where traders meet face
to face at particular location at an agreed price and quantity. These
traders communicate with each other through hand signals and
shouts.
◉ Dealer market. Answer: A dealer holds an inventory of the
security and makes a market by offering to buy or sell. Others who
wish to buy or sell can see the offers made by the dealers, and can
contact the dealer of their choice to arrange a transaction.
◉ Automated trading platform. Answer: A computer system in
which buyers and sellers post orders and in which trades are
automatically executed for matching orders.
◉ Production opportunities. Answer: The cash generating activity
that require cash in the present but have the ability to generate more
cash in future. The higher the opportunities, the more cash will be
demanded now.
,◉ Time preferences for consumption. Answer: Refer to the preferred
pattern of consumption. Establishes how much consumption
consumers are willing to save or consume at different levels of
interest. It majorly impacts required rate of return.
◉ Foreign trade deficit. Answer: Occurs when businesses and
individuals in the United States import more goods from foreign
countries compared to exports. This causes an increase in an
interest rate. Must be financed, and the main source of financing is
debt. Surplus occurs when exports are more than imports. As the
trade deficit increases, the debt financing increases, driving up
interest rates. U.S. interest rates must be competitive with foreign
interest rates; if the Federal Reserve attempts to set interest rates
lower than foreign rates, foreigners will sell U.S. bonds, decreasing
bond prices, resulting in higher U.S. rates.
◉ Algorithmic trading. Answer: Occurs when computers are
programed to buy or sell stocks on behalf of stockholders if a
particular event or sequence of events happens.
◉ High-frequency trading. Answer: A type of algorithmic trading in
which HFT traders, which are computers, buy and sell hundreds or
thousands of times a day. Most is done by firms that are created for
this purpose because this requires expensive computer systems and
highly paid programmers.
,◉ What are the three principal forms of business organization?
What are the advantages and disadvantages of each?. Answer: Sole
proprietorship, partnership, and corporation are the three principal
forms of business organization.
The advantages of the Sole proprietorship and partnership includes
ease and low cost of formation.
The advantages of the corporation include limited liability, indefinite
life, ease of ownership transfer, and access to capital markets.
The disadvantages of a sole proprietorship are (1) difficulty in
obtaining large sums of capital, (2) unlimited personal liability for
business debts, and (3) limited life.
The disadvantages of a partnership are (1) unlimited liability, (2)
limited life, (3) difficulty of transferring ownership, and (4) difficulty
of raising large amounts of capital.
The disadvantages of a corporation are (1) double taxation of
earnings and (2) requirements to file state and federal reports for
registration, which are expensive, complex,
and time-consuming.
, ◉ What is a firm's fundamental value (which is also called its
intrinsic value) What might cause a firm's intrinsic value to be
different from its actual market value?. Answer: A firm's
fundamental, or intrinsic, value is the present value of its free cash
flows when discounted at the weighted average cost of capital. If the
market price reflects all relevant information, then the observed
price is also the intrinsic price. Intrinsic value depends on all of its
expected future cash flows.
◉ Edmund Corporation recently made a large investment to
upgrade its technology. Although these improvements won't have
much of an impact on performance in the short run, they are
expected to reduce
future costs significantly. What impact will this investment have on
Edmund's earnings per share this year? What impact might this
investment have on the company's intrinsic value and stock price?.
Answer: Earnings per share in the current year will decline due to
cost of the investment made in the current year and no significant
performance impact in the short run. However, the company's stock
price should increase due to the significant cost savings expected in
the future.
◉ Describe the ways in which capital can be transferred from
suppliers of capital to those who are demanding capital.. Answer: In
a well-functioning economy, capital will flow efficiently from those
who supply capital to those who demand it. This transfer of capital
can take place in three different ways:
