1) Research suggests that a portfolio of 20 or 30 different stocks has eliminated most of
the portfolios systematic risk.
2) The operating cycle measures the time between when a firm pays its suppliers for
inventory and when it collects cash from customers on a sale of the finished product.
3) An increase in the cash conversion cycle would lead to an increase in the firms
short-term needs and financing costs.
4) Business risk is measured by the degree of financial leverage.
5) Under a floating exchange rate system, the value of one currency relative to another
is determined by the forces of supply and demand.
6) In a capital budgeting context, a projects required rate of return is called the yield to
maturity.
7) For a given discount rate, an ordinary annuity and an annuity due have the same
present value.
8) When applied to the analysis of independent projects, NPV and IRR never provide
conflicting results.
9) The risk of a portfolio is simply equal to the weighted average return of the securities
that comprise it.
10) The total asset turnover is computed as total assets divided by net sales.
11) Monetizing the deficit occurs when the Fed increases the money supply by
purchasing government securities.
12) The demand for loanable funds comes from all sectors of the economy.
13) The majority of capital budgeting projects are short-lived projects.
14) The government body primarily responsible for monetary policy is Congress.
15) Which of the following is not a reason to use factoring services?
a.it is a form of credit insurance
b.it eliminates overhead
c.management is freed from concern with financial matters
d.lower cost
16) Two risk assets can be combined to lower the overall risk of a portfolio. This
principle is commonly referred to as
a.blending
b.asset allocation
c.diversification
d.portfolio segmentation
e.none of the above
17) The major factor that determines the volume of savings, corporate as well as
individual, is the:
a.volume of spending
b.level of national income
c.amount of private pension plans
d.amount of life insurance policies
18) Commercial paper issued by large U.S. corporations is backed by:
a.accounts receivable
b.inventories
c.credit quality of the issuer
d.fixed assets
19) The accrued liabilities of a firm are:
a.retained earnings from past years
b.reflect the prepayment of certain expenses
c.owners equity in the firm
d.amounts owed but not yet due
20) Examples of automatic stabilizers are:
a.open market operations
b.changes in the discount rate
c.unemployment insurance
d.issuance of currency
21) The U.S. banking system has the ability to alter the size of the money supply
because of the use of:
a.a 100% reserve system
b.a fractional reserve system
c.the Federal Reserve Systems excess reserves
d.Federal Reserve notes issued by the U.S. Treasury
22) A bonds value is the same as its principal amount when the coupon rate is:
a.the same as the required rate of return
b.higher than the required rate of return
c.lower than the required rate of return
d.lower than the inflation rate
23) Anders was given a gold coin originally purchased for $1 by his great-grandfather
50 years ago. Today the coin is worth $450. The rate of return realized on the sale of
this coin is approximately equal to
a.8%
b.13%
c.50%
d.cannot be determined with the given information
24) A basic source of loanable funds is:
a.current savings that flow through financial institutions
b.future savings and investment by the Federal Reserve
c.current and future savings
d.investment by the Federal Reserve and expansion of deposits by insurance companies
25) Market value added would equal:
a.assets plus liabilities
b.assets minus liabilities
c.common stock price times number of shares outstanding
d.none of the above
26) The degree of financial leverage measures the sensitivity of __________ to changes
in __________.
a.net sales, EBIT
b.EBIT, net sales
c.EBIT, EPS
d.EPS, EBIT
27) All of the following methods can be used to estimate the cost of debt except:
a.If the firm targets an A rating (or any other bond rating), a review of the yields to
maturity on A-rated bonds in Standard & Poors Bond Guide can provide an estimate of
the firms current borrowing costs
b.The firm can solicit the advice of personal financial planners on the cost of issuing
new debt
c.If the firm has debt currently trading, it can use public market prices and yields to
estimate its current cost of debt
d.A firm can seek long-term debt financing from a bank or a consortium of banks;
preliminary discussions with the bankers will indicate a ballpark interest rate the firm
can expect to pay on its borrowing
e.All of the above statements are correct
28) Commercial finance companies obtain loanable funds:
a.to a lesser extent than commercial banks through equity capital
b.through both long- and short-term borrowing
c.from the Small Business Administration
d.primarily from the sale of preferred stock
29) Foreign exchange hedging by a multinational corporation is:
a.a normal responsibility of foreign exchange specialists
b.not ordinarily considered to be prudent business
c.usually described in speculative terms
d.permitted only for defensive purposes
30) Which of the following is not required to compute the standard deviation of a
two-stock portfolio?
a.the variance in returns on each stock
b.the amount invested in each stock
c.the correlation between the returns on each stock
d.the expected return on a risk-free asset
31) 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
32) Which of the following statements is most correct?
a.Capital formation was $1.6 trillion in 2009 up from $2.2 billion for 2006 largely due
to the steep rise in home prices; in addition, the change in private inventories for 2009
was -$125 billion reflecting the severity of the financial crisis of 2007-09
b.Capital formation was $1.6 billion in 2009 down from $2.2 trillion for 2006 largely
due to the steep decline in home prices; in addition, the change in private inventories
for 2009 was +$125 billion reflecting the severity of the financial crisis of 2007-09
c.Capital formation was $1.6 trillion in 2009 down from $2.2 trillion for 2006 largely
due to the steep decline in home prices; in addition, the change in private inventories
for 2009 was -$125 billion reflecting the severity of the financial crisis of 2007-09
d.Capital formation was $1.6 million in 2009 down from $2.2 million for 2006 largely
due to the steep decline in home prices; in addition, the change in private inventories
for 2009 was -$125 million reflecting the severity of the financial crisis of 2007-09
e.none of the above
33) Funding for some government agencies that is not included in the federal budget is
called
a.off-budget outlays
b.non-discretionary outlays
c.non-negotiable expense items
d.none of the above
34) The default risk premiums on _______ corporate bonds are generally better
indicators of investor pessimism or optimism about economic expectations than are
those on ______ bonds.
a.Aaa, Baa
b.Baa, Daa
c.Daa, Gaa
d.Gaa, Kaa
e. none of the above
35) You need to have $35,000 on hand to buy a new Lexus five years from today. To
achieve that goal, you want to know how much you must invest today in a certificate of
deposit guaranteed to return you 9% per year. To help determine what today investment
is sum must be, you will use:
a.present value factors
b.future value factors
c.present value factors of an annuity
d.future value factors of an annuity
36) Assume a lender offers you a $25,000, 10%, three-year loan that is to be fully
amortized with three annual payments. The first payment will be due one year from the
loan date. How much will you have to pay each year?
a.$8,042
b.$9,026
c.$10,053
d.$11,120
37) 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 a premium basis and mature at par
d.issued on a discount basis and pay a fixed annual interest rate
e. none of the above
38) When a projects net present value exceeds zero, then:
a.the project should be accepted
b.the project will be acceptable using the payback period method
c.the IRR should be calculated to ensure that the projects IRR exceeds the cost of
capital
d.both a and c are true
39) ___________________________________ has the goal of a creating a single
market for investment services across the European Union as well as creating a single
set of regulations for financial services firms.
a.European Securities Services (ESS)
b.Markets in Financial Instruments Directive (MiFID)
c.Continental Brokerage Services (CBS)
d.Money Market Clearing House (MMCH)
e. none of the above
40) All of the following statements are correct except:
a.Capital budgeting is the process of identifying, evaluating, and implementing a firms
investment opportunities
b.Capital budgeting seeks to identify projects that will enhance a firms competitive
advantage and by so doing increase shareholders wealth
c.By its nature, capital budgeting involves long-term projects, although capital
budgeting techniques also can be applied to working capital decisions
d.Capital budgeting projects usually require large initial investments and may involve
acquiring or constructing plant and equipment
e.all of the above statements are correct
41) One way a firm can reduce the amount of cash it needs in any one month is to
a.slow down the payment of receivables
b.speed up the payment of payables
c.speed up the payment of taxes
d.speed up the payment of wages
e.none of the above
42) Foreign exporters are usually quite willing to accept Chinese Yuan in payment for
goods and services because:
a.of the importance of the Chinese Yuan in international trade
b.the value of the dollar does not fluctuate
c.they have little alternative
d.it is customary to receive payment denominated in the currency of the importers
country
e. none of the above
43) A company experienced a 12 % increase in earnings before interest and taxes and a
3 % increase in sales. What is the degree of operating leverage for this company?
a.36
b.6
c.4
d.none of the above
44) Which one of the following is not a basic component of the DuPont method of ratio
analysis?
a.profit margin
b.total asset turnover
c.equity multiplier
d.liquidity margin
45) Which of the following statements is most correct?
a.larger values of the equity multiplier imply a greater use of leverage by the firm
b.the receivables turnover is computed by dividing annual sales by the year-end
accounts receivables
c.the operating return on assets is computed as the earnings before interest and taxes
divided by total assets
d.all the above statements are correct
46) The degree of operating leverage (DOL) can be measured by the percent change in
operating income (EBIT) divided by percent change in:
a.fixed costs
b.variable costs
c.unit sales
total costs
47) An organization without a bank charter that advances funds to businesses is called a
(n):
a.credit union
b.financial services firm
c.commercial financing company
d.none of the above
48) Which group of ratios might be most interesting to potential creditors of a firm?
a.asset utilization ratios
b.profitability ratios
c.leverage ratios
d.market value ratios
49) The goal of a companys cash management policy is to
a.increase the cash conversion cycle
b.increase the payment period
c.maximize the cash requirement
d.maximize cash outflows
e. none of above are correct