Version A - KEY - Midterm 2 Version A (WHITE) EC370 - Fall...

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Midterm 2 – Version A (WHITE) EC370 - Fall 2008 1) C 2) A 3) B 4) D 5) B 6) A 7) C 8) A 9) B 10) D 11) C 12) A 13) A 14) C (D) 15) A 16) D 17) C 18) B 19) A 20) D 21) D 22) B 23) B 24) C 25) A 26) The principals are the stockholders who own most of the equity. The agents are the managers of the firm who generally own only a small portion of the firm. The problem occurs because the agents may not have as much incentive to profit maximize as the stockholders. (For this question, it is important to recognize the distinction b/w principals (stockholders/owners) and the agents (managers/employees) 27) This is question #14 at the end of Chapter 7 with a slight adjustment to avoid a VERY small ambiguity: No, if a person has no better information than the rest of the market. An expected price rise of 10% over the next month corresponds to an annual return of about 214% on Google stock. This certainly exceeds the equilibrium return. This would mean that there is an unexploited profit opportunity in the market, which would have been eliminated in an
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This note was uploaded on 10/17/2009 for the course EC 370 taught by Professor Staff during the Spring '08 term at University of Oregon.

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Version A - KEY - Midterm 2 Version A (WHITE) EC370 - Fall...

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