Question 1. Which of the following statements is correct?

1. Which of the following statements is correct?

A. a. It is generally more expensive to form a proprietorship than a corporation because, with a proprietorship, extensive legal documents are required.
B. b. Corporations face fewer regulations than sole proprietorships.
C. c. One disadvantage of operating a business as a sole proprietorship is that the firm is subject to double taxation, at both the firm level and the owner level.
D. d. One advantage of forming a corporation is that equity investors are usually exposed to less liability than a regular partnership.
E. e. If a regular partnership goes bankrupt, each partner is exposed to liabilities only up to the amount of his or her investment in the business.

Question 2 of 20
Cheers Inc. operates as a partnership. Now the parents have decided to convert the business into a regular corporation. Which of the following statements is correct?

A. a. Assuming Cheers is profitable, less of its income will be subject to federal income taxes.
B. b. Cheers will now be subject to fewer regulations.
C. c. Cheers’ shareholders (the ex-partners) will now be exposed to less liability.
D. d. Cheers’ investors will be exposed to less liability, but they will find it more difficult to transfer their ownership.
E. e. Cheers will find it more difficult to raise additional capital.

Question 3 of 20
Which of the following statements is correct?

A. a. It is usually easier to transfer ownership in a corporation than it is to transfer ownership in a sole proprietorship.
B. b. Corporate shareholders are exposed to unlimited liability.
C. c. Corporations generally face fewer regulations than sole proprietorships.
D. d. Corporate shareholders are exposed to unlimited liability, and this factor may be compounded by the tax advantage of incorporation.
E. e. There is a tax disadvantage to incorporation, and there is no way any corporation can escape this disadvantage, even if it is very small.

Question 4 of 20
Which of the following statements is correct?

A. a. Hedge funds are legal in Europe and Asia, but they are not permitted to operate in the United States.
B. b. Hedge funds have more in common with commercial banks than with any other type of financial institution.
C. c. Hedge funds have more in common with investment banks than with any other type of financial institution.
D. d. Hedge funds are not permitted to operate in the United States, Europe, and Asia.
E. e. The justification for the “light” regulation of hedge funds is that only “sophisticated” investors with high net worth and high income are permitted to invest in these funds, and such investors supposedly can do the necessary “due diligence” on their own rather than have it done by the SEC or some other regulator.

Question 5 of 20
Money markets are markets for:

A. a. Foreign stocks.
B. b. Consumer automobile loans.
C. c. U.S. stocks.
D. d. Short-term debt securities.
E. e. Long-term bonds.

Question 6 of 20

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