A Typical Company Has Many Types of Shareholders, from Individuals

question 17

Multiple Choice

A typical company has many types of shareholders, from individuals holding a few shares, to large institutions that hold very large numbers of shares. How does a financial manager ensure that the priorities and concerns of such disparate stockholders are met?

• A) The financial manager should seek to make investments that do not harm the interests of the stockholders.
• B) The decisions taken by the financial manager should be solely influenced by the benefit to the company since, by maximizing its fitness, he or she will also maximize the benefits of that company to the shareholders.
• C) The financial manager should consider the interests and concerns of large shareholders a priority so the needs of those who hold a controlling interest in the company are met.
• D) In general, all shareholders will agree that they are better off if the financial manager works to maximize the value of their investment.

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Definitions:

Inflation Rate

The speed at which the average price level of goods and services increases, leading to a decrease in buying power.

Long-Run Aggregate Supply

The total output of goods and services that an economy can produce when both labor and capital are fully employed, at full capacity.

Long-Run Phillips Curve

A macroeconomic concept that suggests there is no long-term trade-off between inflation and unemployment, implying that in the long run, the economy reaches a natural rate of unemployment regardless of inflation.

Natural Rate

The natural rate often refers to the natural rate of unemployment, which is the level of unemployment consistent with a stable inflation rate over time.