Introduction To Finance: Markets Investments And Financial Management 15th Edition

The portfolio that contains all risky assets is known as the: a. market portfolio b. efficient portfolio c. efficient frontier d. value-weighted portfolio Answer: a Answer: a Answer: a In reality, an option's value will equal its intrinsic value only at expiration. At all other times, the option's premium or price will exceed its intrinsic value. A major

The payment mechanism of the Reserve Bank includes: a. processing and clearing checks b. issuing currency and coins c. wire transfers d. all the above Answer: d Answer: d Answer: d The relevant measure of risk for a diversified portfolio of assets is the portfolio's level of: a. systematic risk b. unsystematic risk c. diversifiable risk d. company specific risk Answer: a Answer: a Answer:

An unrated bond: a. is perceived as having lower than average risk b. are termed as "debentures" c. generally has a lower yield than rated bonds d. none of the above Answer: d Answer: d Answer: d The risk of having a bond issuer request the bond back from the bondholder thus forcing the bondholder to reinvest the

____________ is anything generally accepted as a means of paying for goods and services and for paying off debts. It must be easily divisible, so that eXchanges can take place in small or large quantities; relatively ineXpensive to store and transfer; and reasonably stable in value over time. a. A financial asset b.

What yield curve shape is depicted if intermediate-term Treasury securities yield 10 percent, short-term Treasuries yield 10.5 percent, and long-term Treasuries yield 9.5 percent? a. downward sloping b. flat or level c. upward sloping d. U shaped Answer: a Answer: a Answer: a Working capital does not include: a. cash b. accounts receivable c. marketable securities d. property, plant, and equipment Answer: d Answer:

As a rule, independent projects are accepted if the internal rate of return is greater than or equal to: a. 1.0 b. zero c. marginal cost of capital d. expected rate of return Answer: c Answer: c Answer: c The capital budgeting process consists of all of the following stages except: a. follow-up. b. selection. c. refurbishing. d. development. e. all of the

Interest rate risk results from possible price fluctuations in fixed-rate debt instruments associated with changes in market interest rates. Answer: T Answer: T Answer: T The present value of a $100 annuity deposited for 10 years at 10% is $1,593.74. Answer: F Answer: F Answer: F Holding supply constant, a decrease in the demand for loanable funds will

If a check is written for the full amount of a derivative deposit created by a bank loan and then is sent to a bank in another city for deposit: a. the lending bank would lose all of its excess reserves b. the lending bank would still have reserves to lend c. the

Capital budgeting is a. the process of identifying, evaluating, and implementing a firm's working capital requirements. b. the process of identifying, evaluating, and implementing a firm's management objectives. c. the process of identifying, evaluating, and implementing a firm's strategic plans. d. the process of identifying, evaluating, and implementing a firm's financing requirements. e. none of

If a Microsoft January 20 put option with a strike price of $20 were about to expire and the market price of the underlying Microsoft stock was $15.00, the price of the put option would have to be __________ to eliminate arbitrage opportunities. a. $1.00 b. $2.00 c. $4.00 d. $6.00 e. none of the

When retained earnings are used up and new common stock is issued, we know that the cost of: a. equity has increased b. equity has dropped c. equity is unaffected d. both common and preferred stock are affected Answer: a Answer: a Answer: a Which of the following statements is most correct? a. An inefficient portfolio maximizes return for

A firm can reduce its cash conversion cycle by a. increasing its average age of inventory b. increasing its average collection period c. decreasing its average payment period d. none of the above Answer: d Answer: d Answer: d Cash flows from operating activities might include: a. net income b. increase in equity sold to investors c. dividend payment d. all the

Find the annualized cost of a commercial paper issue the has a $1,000,000 face value, matures in 180 days, has a placement fee of 1.5% and an interest charge of 8.5% over the 6 month period it is outstanding. a. 10% b. 11.1% c. 23.5% d. none of the above Answer: c Answer: c Answer: c The interest

20. Continuing federal programs that stabilize economic activity are called a. transfer payments b. automatic stabilizers c. social insurance programs d. none of the above Answer: b Answer: b Answer: b Each member of the Fed Board of Governors is appointed for a term of: a. 8 years b. 12 years c. 14 years d. none of the above Answer: c Answer: c Answer: c The

If the quarterly rate of interest is 2.5% and interest is compounded quarterly, then the EAR is: a. 10.38% b. 10.00% c. 2.50% d. none of the above Answer: A Answer: A Answer: A Which of the following statements is most correct? a. Bank reserves are not affected by transactions involving the Treasury. b. Derivative deposits occur when reserves created

The goal of a business should be: a. maximization of the owners' wealth b. maximization of accounting profit c. maximization of sales d. maximization of assets Answer: a Answer: a Answer: a Agency costs are: a. the costs of hiring managers b. assets minus liabilities c. common stock price times number of shares outstanding d. none of the above Answer: d Answer: d Answer: d Bank

An area of finance that refers to the physical locations or electronic forums that facilitate the flow of funds among investors, businesses, and governments is called: a. financial management b. investments c. financial institutions d. financial markets e. none of the above Answer: d Answer: d Answer: d __________________ allows stock to be held in the name of a

The process of ______________ which is the process of pooling and packaging mortgage loans into debt securities resulted in the creation of ______________. a. securitization, pooled asset loans b. portfolio composition, mortgage backed securities c. issuing mortgage backed securities, securitization d. securitization, mortgage backed securities e. none of the above Answer: d Answer: d Answer: d The _____________ is

A contract for the purchase or sale of a currency where delivery will take place at a future date is called a forward exchange rate. Answer: T Answer: T Answer: T Compound interest is interest earned on interest in addition to interest earned on the principal. Answer: T Answer: T Answer: T A non-optimal capital structure may lead

A fruit company has 20% returns in periods of normal rainfall and -3% returns in droughts. The probability of normal rainfall is 60% and droughts 40%. What would the fruit company's expected returns be? a. 24% b. 10.8% c. 0 d. cannot determine from the information given Answer: b Answer: b Answer: b ____________ is money, debt instruments,

During the early years of the life stage of a typical corporation, the: a. volume of physical assets increases slowly b. firm is unable to establish a strong position with respect to its financial assets c. corporation is a heavy provider of financial assets d. need for borrowed capital is small Answer: b Answer: b Answer: b The

Should a business fail after receiving shipping documents from its bank on the basis of a trust receipt, the bank: a. becomes a preferred creditor to the extent of the amount due less cash deposits with the bank b. repossesses the merchandise on the basis of a specific lien thereon c. repossesses the

Securities that may be bought and sold through the usual market channels are called: a. Treasury bonds b. Treasury notes c. Treasury bills d. Marketable government securities e. none of the above Answer: d Answer: d Answer: d The supply of a currency in international markets depends largely on the: a. Federal Reserve System b. imports of the issuing country c. amount

The percentage of deposits that must be held as reserves is called a. the bank reserve percentage b. the required reserve ratio c. the excess reserve ratio d. the fractional reserve percentage Answer: b Answer: b Answer: b For bank loans, the effective interest rate is generally a. not affected by whether or not the loan is a discount

The future value of an annuity of $1,000 each quarter for 10 years, deposited at 12 percent compounded quarterly is a. $17,549 b. $75,401 c. $93,049 d. $11,200 Answer: B Answer: B Answer: B A (n) ________ in current assets ________ net working capital, thereby ________ the risk of technical insolvency. a. decrease; increases; increasing b. decrease; decreases; reducing c. increase;

The seven-member board of the Federal Reserve that sets monetary policy is called a. the Federal Reserve Open Market Committee b. the Federal Reserve Board of Governors c. the Federal Reserve Advisory Committee d. none of the above Answer: b Answer: b Answer: b Trades between large institutional investors that take place without the benefits of brokers or

If the variance for Stock A is greater than the variance for Stock B, then the coefficient of variation for Stock A: a. is greater than the coefficient of variation for Stock B b. is less than the coefficient of variation for Stock B c. is the same as the coefficient of variation

Which factor does not impact international trade balances? a. The exchange value of the U.S. dollar relative to other currencies b. How often the government sells treasury bills c. Relative inflation rates d. Economic growth e. The prices of goods in the U.S. Answer: b Answer: b Answer: b Which of the following is not a characteristic of a

A firm is evaluating a proposal which has an initial investment of $50,000 and has cash flows of $15,000 per year for five years. If the firm's required return or cost of capital is 15%, should it accept the project using the IRR as a decision criteria? a. yes b. no c. can't tell d.

In response to the financial crisis of 2007-2009, the yield spread between Aaa corporate bonds and treasury bonds: a. widened b. narrowed c. remained the same d. none of the above Answer: a Answer: a Answer: a Which of the following is true of sunk costs? a. not included in initial cash flow b. similar to opportunity costs c. often combined with

The equity multiplier is calculated as: a. total assets divided by owners' equity b. net income divided by owners' equity c. net income divided by total assets d. net sales divided by total assets Answer: a Answer: a Answer: a Under required reserves of 20%, the maximum to which the money supply could be expanded by the banking

The government body primarily responsible for monetary policy is Congress. Answer: F Answer: F Answer: F A line of credit is also often referred to as a revolving credit agreement. Answer: F Answer: F Answer: F Research suggests that a portfolio of 20 or 30 different stocks can eliminate most of a portfolio's systematic risk. Answer: F Answer: F Answer: F Inflation-protected

In a perfect world, a firm would prefer to have a a. positive operating cycle. b. negative operating cycle. c. positive cash conversion cycle. d. negative cash conversion cycle. e. none of above are correct Answer: d Answer: d Answer: d BP has an operating cycle of 150 days, an average collection period of 40 days, and an average

If total assets are $100,000, fixed assets are $30,000, current liabilities are $20,000, then net working capital is: a. $100,000 b. $70,000 c. $50,000 d. $0 Answer: c Answer: c Answer: c Treasury bills are: a. issued on a premium basis and pay a fixed annual interest rate. b. issued on a discount basis and mature at par. c. issued on

The most basic functions of depository institutions are: a. safekeeping for depositors b. record keeping for depositors c. efficient and economical transfer of payments d. accepting deposits and granting loans Answer: d Answer: d Answer: d When the market interest rate rises above the coupon rate for a particular quality of bond, the "current yield:" a. will be below

To equal M1 money supply, the monetary base: a. is multiplied by the money multiplier b. is added to by the money multiplier c. is subtracted from the money multiplier d. none of the above Answer: a Answer: a Answer: a One way a firm can reduce the amount of cash it needs in any one month is

Credit unions are: a. for profit organizations b. made up of individuals who possess common bonds of association c. institutions that derive funds from investment activities d. all the above Answer: b Answer: b Answer: b Direct payments to individuals from the Federal government do not include: a. Social Security payments. b. Medicare payments c. health expenditures d. all the above are

Economists have estimated that the real rate of interest in the United States and other countries has averaged in the ________________ range in recent years. a. 2 to 4 percent b. 3 to 5 percent c. 4 to 6 percent d. 5 to 7 percent e. none of the above Answer: a Answer: a Answer: a Private placements: a. are

An annuity with an infinite life is called a (n) a. perpetuity. b. infinity. c. effective annual rate. d. continuous annuity. Answer: A Answer: A Answer: A A famous athlete is awarded a $9 million contract that stipulates equal payments to be made monthly over a period of five years. To determine what lump sum has the same

6. Which of the following sources of savings is consistently the largest on an annual basis? a. personal savings b. undistributed corporate profits c. federal, state, and local government surpluses d. capital consumption allowances Answer: A Answer: A Answer: A Several factors will be considered by the board of directors and management as they consider the level of

The time it takes between when materials are ordered and cash is collected from receivables is referred to as the: a. operating cycle b. cash conversion cycle c. assets turnover cycle d. sales or revenues cycle Answer: a Answer: a Answer: a Members of the Federal Reserve System may include: a. commercial banks with a national charter b. credit unions c.

Existing securities are traded: a. in the primary markets b. in the secondary markets c. only on organized exchanges d. only over-the-counter Answer: b Answer: b Answer: b The yield curve or the term structure of interest rates is typically downward sloping when: a. short-term Treasury interest rates are lower than long-term Treasury interest rates b. short-term and long-term Treasury

If the APR is 12% and interest is compounded monthly, then the EAR is: a. 12.00% b. 1.00% c. 12.68%% d. none of the above Answer: C Answer: C Answer: C A speculative (junk) bond issue as rated under Standard & Poor's would be rated ______ or below: a. AA- b. BB+ c. CCC d. CC Answer: b Answer: b Answer: b In an efficient market

60. The effect on revenues and expenses from variations in the value of the U.S. dollar in terms of other currencies is called: a. interest rate risk b. business risk c. purchasing power risk d. financial risk e. none of the above Answer: e Answer: e Answer: e 58. Variations in operating income over time because of variations in

All of the following statements are correct except: a. The NPV and IRR methods will always agree on whether a project enhances or harms shareholder wealth. b. If a project has a positive NPV, its IRR will always be greater than the cost of capital. c. If a project has a negative NPV,

In 1983, the average tuition for one year in the MBA program at a university was $3,600. Thirty years later, in 2013, the average tuition was $27,400. What is the compound annual growth rate in tuition (rounded to the nearest whole percentage) over the 30-year period? a. 6% b. 7% c. 8% d. 10% Answer:

One item that does not affect the cash conversion cycle is: a. inventory period b. accounts receivable c. accounts payable period d. all the above affect the cash conversion cycle Answer: d Answer: d Answer: d ___________________ is an agreement by the investment banker to sell securities of the issuing corporation whereby the investment banker assumes no risk

A firm's cash receipts may include all of the following except a. dividends received from other firms b. collections of accounts receivable c. cash sales d. interest income e. all of the above Answer: d Answer: d Answer: d Part of the reason that the Banking Act of 1933 was passed was in response to the large numbers of

A market system that allows for quick execution of customers' trades is said to be informationally efficient. Answer: F Answer: F Answer: F Financial system functions include accumulating savings and lending funds. Answer: T Answer: T Answer: T A discounted loan is one in which the borrower receives a discount on the interest rate. Answer: F Answer: F Answer: F An amortized

The financial crisis of 2007-2009 resulted from a number of negative economic and financial trends including: a. a decline in housing prices b. a decline in stock prices c. mortgage defaults d. high debt levels e. all of the above Answer: e Answer: e Answer: e The financial environment: a. encompasses the financial markets and global interactions that contribute to

An unconditional order for the payment of money from one person to another is called a (n) a. bill of exchange b. sight draft c. time draft d. documentary draft Answer: a Answer: a Answer: a Any positive economic profit or positive net present value may arise from a. market imperfections or inefficiencies such as a monopoly situation. b. economies of

Which of the following is a savings surplus unit? a. businesses b. government c. individuals d. none of the above Answer: c Answer: c Answer: c A stronger U.S. dollar generally a. results in more imports of foreign merchandise b. leads to concern about worsening trade deficits c. results in lower domestic inflation d. all of the above Answer: d Answer: d Answer: d ___________________ are

A firm with a total asset turnover lower than the industry standard and a current ratio which meets the industry standard may have a. excessive fixed assets. b. excessive inventory. c. excessive accounts receivable. d. excessive debt. e. none of the above Answer: a Answer: a Answer: a Which of the following statements is false? a. An order bill of

When the market interest rate rises for a particular quality of bond, the price of the bond falls, which gives investors a new: a. coupon rate b. interest payment amount c. yield to maturity d. maturity Answer: c Answer: c Answer: c The Capital Asset Pricing Model (CAPM) states that the expected return on an asset depends upon its

Which of the following statements about greenbacks is false? a. Greenbacks were money issued by the U.S. government to help finance the Civil War. b. Greenbacks were fiat money. c. Greenbacks were not redeemable for gold or silver. d. All of the above statements are correct. Answer: d Answer: d Answer: d Which of the following statements is

The basic price that equates the demand for and supply of loanable funds in the financial markets is the __________: a. interest rate b. yield curve c. term structure d. cash price e. none of the above Answer: a Answer: a Answer: a The _______________________ was designed to reduce or eliminate interest rate limitations and increase access to various

Using the DuPont system of analysis and holding other factors constant, an increase in the net profit margin will result in ________ in the return on equity. a. an increase b. a decrease c. no change d. an undetermined change Answer: a Answer: a Answer: a Functions of money include all of the following EXCEPT: a. Money serves as

If the value of the securities that you borrowed money from your broker to purchase falls, you may receive a: a. maintenance margin call b. margin call c. limit order call d. specialist call Answer: b Answer: b Answer: b If a firm has current earnings before interest and taxes of $100,000 and interest expense of $10,000, its degree

Which of the following statements are correct? a. debit cards provide for the immediate direct transfer of deposit accounts b. debit cards may be used for cash advances, even when there is not sufficient money in the account c. debit cards may not be used to make cash withdrawals from automatic teller machines d.

While the Chicago Board Options Exchange remains the main market for exchange traded options, the ______________ exchange also deals in option contracts. a. New York b. American c. Pacific d. Philadelphia e. all of the above. Answer: e Answer: e Answer: e The Federal Reserve System consists of all of the following components EXCEPT: a. Federal Reserve District Banks b. Board

Holding all other factors constant, if a firm increases its current assets relative to total assets, a. it increases return and reduces risk. b. it increases return and increases risk. c. it reduces return and reduces risk. d. it reduces return and increases risk. e. none of above are correct Answer: c Answer: c Answer: c If we assume

Which of the following is not considered to be one of the three major forms of business ownership in the United States? a. proprietorship b. partnership c. public limited company d. corporation Answer: c Answer: c Answer: c Which of the following would not be part of primary bank capital? a. bank premises b. common stock of the bank c. loan

The interest rate determined by multiplying the interest rate charged per period by the number of periods in a year is called the: a. annual percentage rate b. compound rate of interest c. stated rate of interest d. effective annual rate Answer: A Answer: A Answer: A When current savings of an economic unit exceed its direct investment

Savings are the accumulation of cash and other financial assets and are generally classified into which of the following two categories? a. voluntary and contractual savings b. primary and secondary savings c. personal and governmental savings d. voluntary and corporate savings Answer: a Answer: a Answer: a A firm with a total asset turnover lower than the industry

The monetary base: a. equals the money supply b. consists of checkable and noncheckable deposits c. consists of bank reserves, plus currency d. equals the money multiplier, plus bank reserves Answer: c Answer: c Answer: c The _______________ ratio is computed as earnings before interest and taxes divided by interest expense: a. net profit margin b. fixed charge coverage c. total

Eurodollars are included in a. M1 b. M2 c. both the above d. neither the above Answer: d Answer: d Answer: d Firms issue more equities than bonds for the following reason(s). a. it is cheaper to raise equity than to borrow b. bonds have a maturity date making them pricier c. both a and b are true d. none of the

Because interest compounds, the annual percentage rate formula will overstate the true interest cost of a loan. Answer: F Answer: F Answer: F roprietorships are the most widely used form although they are generally the smallest organizations in terms of assets. Answer: T Answer: T Answer: T The interest rate that is observed in the marketplace is called

If a firm actually sells its accounts receivable, the process is known as: a. wholesale financing b. pledging c. field crediting d. factoring Answer: d Answer: d Answer: d 62. The risk cause by changes in inflation that affect revenues, expenses and profitability is called: a. interest rate risk b. business risk c. tax risk d. financial risk e. none of the above Answer:

The typical capital budgeting project involves a large up-front cash outlay, followed by a series of smaller net cash outflows. Answer: F Answer: F Answer: F Cross-sectional analysis is used to evaluate a firm's performance over time. Answer: F Answer: F Answer: F The weighted average cost of capital represents the maximum required rate of return on a capital-budgeting

If a firm's variable cost per unit increases, the firm's operating breakeven point will a. decrease b. increase c. remain unchanged d. change in an undetermined direction Answer: b Answer: b Answer: b Bonds that have coupons that are literally clipped and presented, like a check, to the bank for payment, and where the bond issuer does not

Currently, the Chairman of the Federal Reserve is ________________________. a. Paul Volker b. Alan Greenspan c. Ben Bernanke d. None of the above Answer: c Answer: c Answer: c Which of the following are not typical of an accounts receivable loan arrangement? a. basic interest charge b. compensating balance c. fee to cover extra work need for such a loan d. all

If the expected return on Stock 1 is 6%, and the expected return on Stock 2 is 20%, the expected return on a two-asset portfolio that holds 10% of its funds in Stock 1 and 90% in Stock 2 is: a. 11.52% b. 13% c. 18.6% d. 19.14% Answer: c Answer: c Answer: c Which of the following

Functions of the monetary system include all of the following except a. creating money b. transferring money c. accumulating savings d. Lending and investing savings e. all of the above are included as functions of a monetary system Answer: e Answer: e Answer: e _____________ is a short-term debt security sold by a business firm or financial institution to

Taking advantage of unusual cash discounts or price bargains is an example of the: a. transactions motive b. precautionary motive c. speculative motive d. leverage motive Answer: c Answer: c Answer: c A document which is administered by a trustee, and includes in great detail the various provisions of the loan agreement is called the: a. trust indenture b. debenture c.

Brokerage firms do not perform which of the following functions? a. handle shares of ownership b. create money c. market existing securities d. they perform all the above functions Answer: b Answer: b Answer: b Assume that Ningbo Steel borrows $1,000,000 for one year under a line of credit with a stated interest rate of 7.5 percent and a

Marketable securities are held primarily to meet: a. transactions motives b. precautionary motives c. speculative motives d. leverage motives Answer: b Answer: b Answer: b Which of the following is not a variable cost? a. CEO Salary b. rent c. mortgage payments d. property taxes e. none of the above are variable costs Answer: e Answer: e Answer: e Which of the following statements is false? a. For

The six principles of finance include (1) Money has a time value, (2) Higher returns are expected for taking on more risk, (3) Diversification of investments can reduce risk, (4) Financial markets are efficient in pricing securities, (5) Manager and stockholder objectives may differ, and (6) Reputation matters. Answer: T Answer: T Answer:

Banking system reserves plus currency held by the nonbank public is referred to as the: a. money supply b. monetary base c. monetary multiplier d. monetary requirement Answer: b Answer: b Answer: b The price/earnings ratio (P/E) is calculated as: a. stock price divided by earnings per share b. stock price times earnings per share c. earnings per share divided by

A series of equal payments or receipts that occur at the beginning of each of a number of time periods is referred to as: a. an ordinary annuity b. a deferred annuity c. an annuity due d. an extraordinary annuity Answer: C Answer: C Answer: C If a Microsoft January 20 put option with a strike price of

Partnership income is taxed at the partnership income tax rate. Answer: F Answer: F Answer: F The dividends paid on stock issued by corporations in the United States are tax deductible to the issuing corporation. Answer: F Answer: F Answer: F Interest rate parity states that a country with a relatively higher expected inflation rate will have its

Deposit money is backed by the creditworthiness of the depository institution that issued the deposit. Answer: T Answer: T Answer: T An inverted yield curve is upward sloping. Answer: F Answer: F Answer: F An annuity is a series of equal payments that occur over a number of time periods. Answer: T Answer: T Answer: T The existence of chartists or technicians

If a Microsoft January 20 call option with a strike price of $20 were about to expire and the market price of the underlying Microsoft stock was $25.62, the price of the call option would have to be __________ to eliminate arbitrage opportunities. a. $0.62 b. $5.62 c. $15.62 d. $25.62 e. none of the above. Answer:

A firm with total liabilities and owners' equity of $100,000 and net sales of $50,000 would have a total asset turnover of: a. 100 b. .50 c. 2 d. not enough information given Answer: B Answer: B Answer: B For bank loans, the effective interest rate is generally a. not affected by whether or not the loan is a

The issuer has no price risk in a firm commitment offering once the offer price is set. Answer: T Answer: T Answer: T The lax oversight by government regulatory agencies and private debt rating agencies helped contribute to the severity of the 2007-2009 financial crisis. Answer: T Answer: T Answer: T The essential requirements of a well-functioning financial

A firm's stock is expected to pay a $3 annual dividend next year, the current stock price is $60, and the expected growth rate in dividends is 8%. Using the Gordon approach, what is the expected return? a. 5% b. 8% c. 13.4% d. 13% Answer: d Answer: d Answer: d The National Banking Acts of 1863 and

Exchange-traded options are liquid because they are standardized in terms of: a. expiration dates b. exercise prices c. quantity of the underlying asset d. quality of the underlying asset e. all of the above. Answer: e Answer: e Answer: e Deposits that add new reserves to the bank where they are deposited are called: a. primary deposits b. derivative deposits c. secondary

Which of the following usually does not influence personal choice of savings medium? a. Liquidity b. Degree of Safety c. Return d. Income e. Long-term foreseeable needs Answer: d Answer: d Answer: d Assume that a bank receives a primary deposit of $1,000. If the reserve requirement is 25%, what will be the amount of excess reserves available for

Shanghai Shipping is considering investing in a project that requires an after-tax initial investment of 156 million and is expected to produce after-tax cash inflows of $40 million for each of the next five years. The firm's cost of capital is 10%. Based on this information, the IRR of the

What is the highest effective rate attainable with a 12 percent nominal rate? a. 12.00% b. 12.55% c. 12.75% d. 12.95% Answer: C Answer: C Answer: C Price inflation: a. is relatively unimportant to individuals b. is considered to be acceptable in the nations quest for high levels of employment c. causes inequities and discourages investment by increasing the uncertainty about

In cash budgeting, the ________ seasonal and uncertain a firm's cash flows, the ________ the number of budgeting intervals it should use a. more; greater b. more; fewer c. less; greater d. less; fewer Answer: a Answer: a Answer: a An increase in the general overall prices of goods and services that is not offset by increases in

Which one of the following is a private firm that operates as a credit-reporting agency? a. National Credit Interchange Bureau b. Foreign Credit Interchange Bureau c. Dun & Bradstreet d. Merrill-Lynch Answer: c Answer: c Answer: c In effect, the commercial letter of credit enables the importer to: a. substitute the bank's financial strength for his or her own b.

The internal and sustainable growth rate relationships suggest that there are three measurable influences on growth. These include all of the following except: a. asset policy b. dividend policy c. profitability d. the firm's capital structure Answer: a Answer: a Answer: a The benefits of diversification are greatest when asset returns have: a. negative correlations b. positive correlations c. zero correlations d.

M1 money supply consists of currency, travelers' checks, demand deposits, and other checkable deposits. Answer: T Answer: T Answer: T A firm's cost of capital is the discount rate used in the evaluation of capital budgeting projects using payback and IRR. Answer: F Answer: F Answer: F The prime rate of interest has been relatively stable during the

The factor, unlike the commercial finance company: a. engages in accounts receivable financing b. purchases the accounts receivable outright c. assumes limited credit risks d. is not responsible for the collection of accounts Answer: b Answer: b Answer: b Foreign exchange markets may be described as: a. specific locations in major industrial cities b. major financial centers connected by good

Which of the following institutions is not part of the modern banking system? a. credit unions b. savings and loan associations c. mutual funds d. mutual savings banks Answer: c Answer: c Answer: c 60. Which of the following statements is most correct? a. A weaker dollar results in more imports of foreign merchandise since it requires fewer dollars

66. The risk cause by variations in income before taxes over time because fixed interest expenses do not change when operating income rises or falls is called: a. interest rate risk b. business risk c. tax risk d. purchasing power risk e. none of the above Answer: e Answer: e Answer: e An increase in the supply for loanable

Which of the following statements is false? a. The multiplying capacity of primary deposits is hindered by cash leakages from the banking system. b. The monetary base is defined as bank reserves plus currency held by the nonbank public. c. In contrast to the other transactions that affect reserves in the banking system,

What is the value of HM stock which currently has a dividend of $2 and is growing at 7%? The investor's required rate of return is 11%. a. $46 b. $50 c. $52 d. 53.50 Answer: d Answer: d Answer: d If a firm issues 10,000 shares of common stock with a par value of $5 and for

The method of calculating interest on a loan that is set by law is called the: a. negotiated legal rate (NLR) b. effective annual rate (EAR) c. annual percentage rate (APR) d. none of the above Answer: C Answer: C Answer: C Suppose a firm just issued a $1,000 par value convertible bond. Its conversion ratio is 30

Which of the following statements is false? a. The process of channeling savings into investment through the use of a financial institution or intermediary results in the creation of one type of financial asset and one type of financial liability. b. During the early years of the history of the United States,

Intermediaries that help the financial system operate efficiently and transfer funds from savers and investors to individuals, businesses, and governments that seek to spend or invest the funds are known as: a. financial markets b. financial institutions c. securities markets d. government organizations Answer: b Answer: b Answer: b If a firm chooses to take a cash discount

The Federal Reserve Act of 1913 created a system of central banks in the United States. Answer: T Answer: T Answer: T Required reserves are the minimum amount of total reserves that a depository institution must hold. Answer: T Answer: T Answer: T Financial assets are claims against the income or assets of individuals, businesses, and governments. Answer: T Answer:

______________ occurs during economic expansions when demand for goods and services is greater than supply. a. Administrative inflation b. Speculative inflation c. Cost-push inflation d. Demand-pull inflation Answer: d Answer: d Answer: d The value of a share of stock currently selling for $100 after a 1 for 5 split is: a. $20 b.$40 c. $500 d. $1000 e. none of the above Answer:

All of the following statements are correct except: a. A firm's business risk is measured by its variability in EBIT over time and is affected by several factors, including the business cycle, competitive pressures, and the firm's operating leverage or its level of fixed operating costs. b. The degree of financial leverage

Which of the following statements is most correct? a. A weaker dollar results in more imports of foreign merchandise since it requires fewer dollars for purchase. b. A stronger dollar results in fewer imports of foreign merchandise since it requires fewer dollars for purchase. c. A stronger dollar results in more imports of

For positive interest rates, the future value interest factor is a. always greater than 1.0. b. sometimes negative. c. always less than 0. d. never greater than 25. Answer: A Answer: A Answer: A During the 2007 - 2009 financial crisis, many major financial institutions and business corporations were on the verge of collapse or failure; however, some

If a company can stretch its accounts payable without damaging its credit rating, it is effectively ___________ its operating cycle. a. increasing b. reducing c. not affecting d. not able to determine. e. none of the above Answer: C Answer: C Answer: C BP has an operating cycle of 120 days, an average collection period of 40 days, and

Finance is: a. the study of how individuals, institutions, governments, and businesses acquire, spend, and manage money and other financial assets b. the study of how businesses acquire, spend, and manage money and other financial assets c. the study of how governments, and businesses acquire, spend, and manage money and other financial assets d.

If IBM has a beta of 1.2 when the risk-free rate is 6% and the expected return on the market portfolio is 18%, the expected return on IBM is: a. 17.2% b. 20.4% c. 22.1% d. 23.6% Answer: b Answer: b Answer: b One significant feature of DIDMCA was that it: a. expanded the ability of the Fed to

25. Debt management includes all of the following except: a. the types of securities to sell b. the interest rate patterns to use c. the types of refunding to carry out d. all of the above Answer: d Answer: d Answer: d The size of the cash buffer depends upon: a. the ability to easily acquire financing on short

All of the following represent bonds secured by real assets except a (n): a. closed-end mortgage bond b. equipment trust certificate c. debenture d. open-end mortgage bond Answer: c Answer: c Answer: c AT&T 10-year, $1,000 par value bond is selling at $1,158.91. Interest on this bond is paid semianually. If the annual yield to maturity is 14%,

Joe plans to fund his individual retirement account (IRA) with the maximum contribution of $2,500 at the end of each year for the next 30 years. If Joe can earn 10 percent on his contributions, how much will he have at the end of the tenth year? a. $411,235 b. -$411,235. c. $23,567. d.

The _________________ is primarily responsible for the amount of money that is created, although most of the money is actually created by depository institutions. a. Securities Exchange Commission b. Federal Treasury c. Federal Reserve System d. Financial Asset Oversight Board Answer: b Answer: b Answer: b The willingness of a credit applicant to pay her or his bills