Choose wisely. There is only one correct answer to each question.
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1.
A stock analyst might interview a companys customers to get a sense of whether the company would be a good investment.
True. An analyst might interview customers, typically larger institutional ones.
2.
Should an investor look with suspicion on companies whose employees do not have a clear separation between business and personal relationships?
Yes. Lack of a boundary can be very bad for business.
3.
In terms of financial transparency, investors should prefer companies that _______.
Disclose the minimum information, plus useful information that helps investors understand the business. Certainly every company should disclose all the information required by the SEC and other regulators. Above and beyond that, we think investors should favor companies that are forthright about their businesses, in good times and bad, and provide information that helps investors understand operations.
4.
A great way to reward managers for building a successful business is to _______.
Pay them a reasonable salary and a bonus tied to company profits. We like to see executive pay, in any form, tied to the operating and financial performance of the company. The best way to motivate executives is to pay them a reasonable salary (maybe even a "low" salary) and give them the opportunity to earn a significantly higher amount in the form of a bonus. Tying executive compensation to the stock price creates a perverse, short-term incentive for managers to say good things in public about the company rather than focus on making the company run better.
5.
Whom does the board of directors of a company represent?
The shareholders. The board is elected by the shareholders and technically represents them.
