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
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
Bank holding companies are supervised and examined by:
a. the Comptroller of the Currency
b. the FDIC
c. the Federal Reserve
d. internal auditors only
The regulation of new security sales by individual states is referred to as:
a. the registration process
b. a truth-in-securities requirement
c. the rating of security quality
d. Blue-sky laws
If we will receive $100 per year beginning one year from now for a period of three
years with a 12% discount rate, what would be the value of our investment today?
a. $230
b. $240
c. $250
d. $260
The process whereby an underwriting syndicate steps in to buy back securities to
prevent a larger price drop than that which has already occurred is called.
a. market stabilization
b. price normalization
c. dollar cost averaging
d. all the above
e. none of the above
The velocity of money measures the rate of circulation of the money supply and can be
eXpressed by the following equation (note: GDP = gross domestic product and MS =
money supply):
a. VM = GDP/MS
b. VM = MS/GDP
c. VM = MS X GDP
d. all of the above
e. none of the above
Which of the following is NOT a determinant of market interest rates?
a. the inflation premium
b. the maturity risk premium
c. the volatility risk premium
d. the real rate of interest
Which of the following statements is false?
a. A major determinant in the long run of the volume of savings is the level of taxes.
b. The money market involves obtaining and trading of credit and debt instruments with
maturity of one year or less.
c. ond risk premiums follow changes in investor optimism/pessimism about expected
economic activity.
d. A high interest rate level but downward sloping yield curve is generally perceived as
being conductive to future economic expansion.
Which of the following statements about L is not true?
a. L is the broadest measure of money available to the public
b. L includes commercial paper
c. L includes mortgages
d. All of the above statements are correct.
Under a ______________, if any additional shares of common stock, or any security
that may be converted into common stock, are to be issued, the securities must be
offered for sale first to the existing common stockholders.
a. red herring
b. rights offering
c. seasoned offering
d. shelf registration
If a market has “price pressure” this is a sign of
a. good liquidity in the market.
b. low liquidity in the market.
c. high listing fees.
d. high brokerage commissions
The time value concept/calculation used in amortizing a loan is
a. future value of a dollar
b. future value of an annuity
c. present value of a dollar
d. present value of an annuity
Capital formation refers to the:
a. total accumulation of monetary savings in the nation
b. distribution of savings among thrift institutions
c. total of equity accounts with business corporations
d. creation of physical productive facilities
11. Savings surplus occurs when an economic unit has current income that exceeds its
direct investment in real assets.
Incremental cash flows represents a project’s cash flows summed together with the
firm’s other cash flows to get a total firm view of the project.
Tax reform in the form of lower personal income tax rates in the mid-1960s and in the
1970s may have contributed to a higher personal savings rate.
Some classes of common equity may have superior voting rights.
The Economic Stabilization Act of 2008 was passed in response to the financial crisis.
Global bonds are generally denominated in euros and are marketed globally.
Business finance is the study of financial planning, asset management and fund raising
by businesses and financial institutions.
The required return, the cost of capital, and the discount rate are actually three
distinctively different concepts.