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
The risk of having a bond issuer request the bond back from the bondholder thus
forcing the bondholder to reinvest the proceeds at a lower interest rate is called:
a. call risk
b. reinvestment rate risk
c. interest rate risk
d. none of the above
A receivable from the sale of merchandise on the basis of a draft or bill of exchange
drawn against the buyer or the buyer’s bank is termed a (n):
a. acceptance
b. assignment
c. comaker loan
d. warehouse loan
If the money supply for an economy is $3 trillion and the velocity of money is 4.5, then
GDP is:
a. $0.67 trillion
b. $1.5 trillion
c. $7.5 trillion
d. $13.5 trillion
Reasons for stock repurchases include all of the following EXCEPT:
a. to acquire shares used in management stock option incentive programs, in which
managers can purchase shares of stock at pre-specified prices.
b.to use in stock-based acquisitions of other firms.
c. the firm has the cash and sees its own stock as one of its most attractive investment
alternatives.
d. all of the above
e. none of the above
The annual rate of return is often referred to as the
a. discount rate.
b. usury rate.
c. government rate.
d. all of the above.
Reasons to invest in marketable securities would not include:
a. transactions motives
b. precautionary motives
c. speculative motives
d. all the above are reasons to invest in marketable securities
e. none of the above
Which of the following business organizations limit the liability of some or all of their
owners to the extent of their investment in the company?
a. proprietorships and partnerships
b. corporations and proprietorships
c. limited partnerships and proprietorships
d. corporations and limited partnerships
The principle examining activity of the Federal Reserve System is directed to:
a. all state-chartered banks
b. state-chartered member banks
c. all national banks
d. all state-chartered and national banks
Which one of the following is not considered to be a generally recognized type of
market efficiency?
a. strong-form
b. semi-strong form
c. weak-form
d. insider-information form
The holding-company device to control two or more commercial banks:
a. has diminished in importance in recent years
b. has increased in importance in recent years
c. is limited to state chartered banks
d. is sometimes described as chain banking
The adequacy of capital for commercial banks as measured by regulatory authorities is:
a. a composite of various asset risk categories
b. a measure of investment success
c. based on the total amount of deposits of a bank
d. based on the ratio of federal government obligations to deposits
Assume that these current yields exist: long-term government securities yield 9 percent,
five-year Treasury securities yield 8.5 percent, and one-year Treasury bills yield 8
percent. What type of yield curve is depicted?
a. downward sloping
b. flat or level
c. upward sloping
d. U shaped
Which of the following statements is false?
a. Foreign banks, in addition to having correspondent relation with United States banks,
are permitted to set up subsidiaries in this country.
b. The trust receipt is used by a bank in releasing shipping documents to a customer
when the bank wishes to retain title to the merchandise.
c. A nation with relatively lower interest rate levels will have a relatively stronger
currency.
d. A nation with a relatively lower inflation rate will have a relatively stronger currency.
The estimate of how quickly a firm may grow by maintaining a constant mix of debt
and equity is called:
a. the retention growth rate
b. dividend growth rate
c. sustainable growth rate
d. the internal growth rate
Among the six principles of finance, all are included except:
a. All decisions are ultimately financial decisions.
b. Higher returns are expected for taking on more risk
c. Diversification of investments can reduce risk
d. Financial markets are efficient in pricing securities
e. all of the above are included
All other things being equal, an increase in the amount fixed operating costs for a firm
would:
a. increase the degree of financial leverage
b. decrease the degree of financial leverage
c. have no impact on degree of financial leverage
d. not enough information given
When the net present value for a project is negative, the internal rate of return is
_________ the cost of capital.
a. greater than
b. greater than or equal to
c. less than
d. equal to
A trust receipt as used in financing international transactions:
a. is issued by bonded warehouses for merchandise stored therein
b. allows the release of merchandise on a consignment basis by the bank that issued the
letter of credit
c. is evidence of ownership of funds held in escrow by the importer’s bank
d. is a negotiable instrument that trades freely in the money market
As a general rule, the capital structure that maximizes stock price also:
a. minimizes the weighted average cost of capital
b. maximizes the weighted average cost of capital
c. minimizes the required rate of return on equity
d. maximizes the cost of debt
Internally generated funds for financing new asset investments come from common
stock issues.
Compounding means that interest earned each year, plus the principal, will be
reinvested at the stated rate.
The majority of capital budgeting projects are short-lived projects.
Individuals and businesses hold money for purchases or payments they expect to make
in the near future.
Bank solvency reflects the ability to keep the value of a bank’s assets greater than its
liabilities.
The present value of a $100 annuity deposited for 10 years at 10% is $614.46.
The internal growth rate measures how quickly a firm can increase its asset base over
the next year without raising outside funds.
Compensating balances decrease the effective cost of borrowing.
Capital consumption adjustments are estimates of the “using up” of plant equipment
assets for businesses.