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
Which of the following statements is most correct?
a. An inefficient portfolio maximizes return for a given level of risk, or minimizes risk
for a given level of return.
b. A single asset is called a portfolio
c. The goal of an inefficient portfolio is to minimize risk for a given level of return.
d. Combining negatively correlated assets having the same expected return results in a
portfolio with the same level of expected return and a lower level of risk.
e. all of the above
Agency problems may result from a manager’s concerns about any of the following
except
a. maximizing long-term shareholder wealth
b. personal wealth
c. embezzlement
d. company provided perquisites
e. none of the above
Budgetary deficits always have the effect of:
a. creating inflationary pressures
b. crowding out private lenders
c. forcing the Federal Reserve to buy government securities
d. creating governmental competition for private investment funds
The stand-alone principle means that:
a. projects should not be evaluated against one another
b. projects must operate independently of the firm’s other projects
c. analysts should focus on the project’s cash flows, uncontaminated by cash flows from
the firm’s other activities
d. none of the above
$100 is received at the beginning of year 1, $200 is received at the beginning of year 2,
and $300 is received at the beginning of year 3. If these cash flows are deposited at 12
percent, their combined future value at the end of year 3 is ________.
a. $1,536.
b. $672.
c. $727.
d. $1,245.
Deposits placed in foreign banks that remain denominated in U.S. dollars are called:
a. bankers’ acceptances
b. Eurodollars
c. federal funds
d. commercial paper
All of the following accounts are considered to be current liabilities on the balance
sheet except:
a. accounts receivable
b. accounts payable
c. accruals
d. notes payable
e. all of the above are current liabilities
The _______________________ established the U.S. central banking system and
increased the effectiveness of commercial banking in general.
a. Glass Steagall Act
b. National Banking Act
c. Garn-Saint Germain Act
d. Federal Reserve Act
The average tax rate on a corporation with $75,000 in income and a tax liability of
$15,000 is:
a. 15%
b. 20%
c. 25%
d. 39%
Pledging accounts receivable has all of the following characteristics except:
a. money is advanced to the borrower as a loan against accounts receivable
b. accounts receivable balances are removed from the balance sheet
c. the customer payment is made to the firm, which then submits the payment to the
bank
d. all of the above are characteristics of pledging
An economy€s _____________________ is the interaction of policy makers, a
monetary system, financial institutions, and financial markets to expedite the flow of
financial capital from savings into investment:
a. banking system
b. stock market
c. capital market
d. financial system
Unit banking means:
a. a bank may have only one full-service office
b. the bank is owned by a unit trust
c. all branch offices are controlled by a central unit
d. none of the above
Debt management of the federal government includes:
a. determining which types of refunding to implement
b. determining the types of securities to sell
c. deciding which interest rate patterns to use
d. all the above
The need for current funds increases when there is an upswing in the business cycle or
the sales cycle of an industry.
Nations that export more than they import will have a trade deficit.
The principle of finance that “lower returns are expected for taking on less risk” implies
that rational investors would choose a risky investment only if they feel the expected
return is high enough to justify the greater risk.
Using the conservative approach for financing a firm’s assets, long term financing
would be used only to finance fixed assets, while short term financing would be used to
finance current assets including seasonal fluctuations.
Most nondiversifiable risk can be eliminated by creating a portfolio of around 30
stocks.
A clean draft is accompanied by an order bill of lading along with other papers such as
insurance receipts, certificates of sanitation, and consular invoices.
The effective rate of interest is generally lower on a standard loan than an otherwise
equivalent discount loan.
Trend or time series analysis is used to compare the performance of different firms at
the same point in time.
GDP includes personal consumption expenditures, government purchases of goods and
services, gross private domestic investment, and net exports of goods and services.