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Finance 300 (CSULB Yulong Ma) Exam
1Chpt 1, 4, 5 | actual questions with
correct answers 2025
What are agency problems, and how do they arise? What are agency costs?-
correct-answer-Suppose you hire someone to sell your car and you agree to pay
her a flat fee when she sells the car. The agent's incentive, in this case, is to make
the sale, not necessarily to get you the best price.
However, If you paid a commission of say 10 percent of the sales price instead of a
flat fee, then this problem might exist. the salesperson might want to sell the car
as high as possible to get a higher %.
This example illustrates that the way an agent is compensated is one factor that
affects agency problems because the agent is to benefit the principle.
Managerial Compensation-correct-answer-Incentives can be used to align
management and stockholder interests
The incentives need to be structured carefully to make sure that they achieve
their goal.
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What incentives do managers in large corporations have to maximize share value
(agency cost)?*-correct-answer-It is sometimes argued that, left to themselves,
managers would tend to maximize the amount of resources over which they have
control, or, more generally, business power or wealth. This goal could lead to an
overemphasis on business size or growth.
What is a dealer market?-correct-answer-markets in which traders specializing in
particular assets buy and sell for their own accounts.
One of the most prominent dealer markets is NASDAQ.
NASDAQ (National Association of Securities Dealers Automated Quotations
exchange), the first ELECTRONIC exchange that allowed investors to buy and sell
stock on a computerized, speedy and transparent system, without the need for
physical trading.
How do dealer and auction markets differ?-correct-answer-Auction markets differ
firm dealer markets in two ways. First, an auction market or exchange has a
physical location (like wall street). Second, in a dealer market, most of the buying
and selling is done by the dealer (first person). The primary purpose of an auction
market, on the other hand, is to match those who wish to sell with those who
wish to buy. Dealers play a limited role.
auction market-correct-answer-the NYSE, for example, where buyers and sellers
simultaneously enter competitive prices, Sometimes called a "double auction"
Finance 300 (CSULB Yulong Ma) Exam
1Chpt 1, 4, 5 | actual questions with
correct answers 2025
What are agency problems, and how do they arise? What are agency costs?-
correct-answer-Suppose you hire someone to sell your car and you agree to pay
her a flat fee when she sells the car. The agent's incentive, in this case, is to make
the sale, not necessarily to get you the best price.
However, If you paid a commission of say 10 percent of the sales price instead of a
flat fee, then this problem might exist. the salesperson might want to sell the car
as high as possible to get a higher %.
This example illustrates that the way an agent is compensated is one factor that
affects agency problems because the agent is to benefit the principle.
Managerial Compensation-correct-answer-Incentives can be used to align
management and stockholder interests
The incentives need to be structured carefully to make sure that they achieve
their goal.
, 2|Page
What incentives do managers in large corporations have to maximize share value
(agency cost)?*-correct-answer-It is sometimes argued that, left to themselves,
managers would tend to maximize the amount of resources over which they have
control, or, more generally, business power or wealth. This goal could lead to an
overemphasis on business size or growth.
What is a dealer market?-correct-answer-markets in which traders specializing in
particular assets buy and sell for their own accounts.
One of the most prominent dealer markets is NASDAQ.
NASDAQ (National Association of Securities Dealers Automated Quotations
exchange), the first ELECTRONIC exchange that allowed investors to buy and sell
stock on a computerized, speedy and transparent system, without the need for
physical trading.
How do dealer and auction markets differ?-correct-answer-Auction markets differ
firm dealer markets in two ways. First, an auction market or exchange has a
physical location (like wall street). Second, in a dealer market, most of the buying
and selling is done by the dealer (first person). The primary purpose of an auction
market, on the other hand, is to match those who wish to sell with those who
wish to buy. Dealers play a limited role.
auction market-correct-answer-the NYSE, for example, where buyers and sellers
simultaneously enter competitive prices, Sometimes called a "double auction"
