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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
The _____________ is the difference in return earned by investing in a corporate bond
that has the same maturity as a government bond.
a. purchasing power spread
b.credit risk premium
c. yield slope premium
d. two of the above
e. none of the above
The financial statement that provides a snapshot view of the financial condition of a
business at a point in time is the:
a. balance sheet
b. income statement
c. statement of cash flows
d. statement of retained earnings
The most important reason for directly issuing or using commercial paper dealers is:
a. the cost of borrowing is generally less than regular bank rates
b. it's a profitable alternative to the purchase of Treasury bills
c. the avoidance of compensating balances
d. the convenience and profitability
All of the following statements are correct except:
a. The internal growth rate measures how quickly a firm can increase its asset base over
the next year without raising outside funds.
b. The retention rate represents the proportion of every $1 of earnings per share that is
retained by the firm; in other words, it is equal to one minus the dividend payout ratio.
c. The sustainable growth rate measures how quickly the firm can grow when it uses
only debt financing to keep its capital structure constant over time.
d. The internal and sustainable growth rate relationships suggest that there are three
measurable influences on growth: dividend policy (as reflected in the retention rate),
profitability (as measured by ROA), and the firm's capital structure (as measured by the
equity multiplier).
e. All of the above statements are correct.
An increase in the supply for loanable funds accompanied by an increase in demand
will cause interest rates to:
a. increase
b. decrease
c. stay the same
d. not enough information to tell
Because of the financial crisis that began in 2008, by the end of 2009:
a. unemployment was in excess of 15 percent
b. many homeowners owed more money on their mortgage loans than the their homes
were worth
c. home mortgage foreclosure rates and personal and business bankruptcies were
rapidly declining as the recovery accelerated and strengthened
d. over 500 banks in the U.S. had already failed with over 2,000 more being considered
financially weak
e. all of the above are true
Which of the following statements factors contributed to the 2007-2009 financial crisis?
a. The cultural shift that allowed the public to 'spend now and pay later"€rather than
their parents' or grandparents' philosophy of 'save now, spend later" led to increases in
consumer debt levels.
b. U.S. government officials engaged in efforts to expand home ownership by
encouraging lenders to make mortgage loans available to a broader spectrum of
individuals.
c. Federal fiscal policy also became simulative, with increased government spending
and the passage of tax cuts in 2002.
d. The Federal Reserve adopted an expansionary monetary policy characterized by very
low interest rates.
e. all of the above.
A draft that is accompanied by an order bill of lading and other documents is called a
(n)
a. bill of exchange
b. sight draft
c. time draft
d. documentary draft
In comparing the deviations of returns, which one of the following assets has
historically had the largest standard deviation of annual returns?
a. large company stocks
b. long-term corporate bonds
c. long-term government bonds
d. U.S. Treasury bills
Federal obligations usually issued for maturities of two to ten years are called:
a. Treasury bonds
b. Treasury notes
c. Treasury bills
d. Agency issues
e. none of the above
Holding supply constant, a decrease in the demand of loanable funds will result in a (n)
___________ in interest rates.
a. increase
b. decrease
c. increase or decrease
d. none of the above
Floor brokers:
a. act as agents to execute customers' orders for securities purchases and sales
b. assist specialists in executing orders
c. trade for their own accounts
d. all the above
e. none of the above
Which of the following is not an advantage of shelf registration?
a. saving time on issuing securities
b. allows issuer to determine which investment bank offers the best service
c. eliminates filing fees
d. all the above
e. none of the above
Which form of business organization has a basic weakness of raising capital?
a. proprietorship
b. partnership
c. limited partnership
d. all of the above
5. Which one the following four basic economic units consistently represents a savings
surplus unit?
a. individuals
b. business firms
c. financial intermediaries
d. governments
In cost-volume-profit analysis, a firm "breaks even" when its total revenues:
a. equal variable costs
b. equal total costs
c. equal fixed costs
d. are less than the sum of variable and fixed costs
Ithaca Iron has annual operating outlays of $3,800,000 and a cash conversion cycle of
50 days. If the firm currently pays 10 percent for negotiated financing and reduces its
cash conversion cycle to 45 days, the annual savings is closest to
a. $5,000.
b. $10,000.
c. $26,000.
d. $16,000.
e. none of above are correct
The risk-free interest rate is composed of:
a. an inflation premium and a default risk premium
b. a default risk premium and a maturity risk premium
c. a real rate of interest and a liquidity premium
d. a real rate of interest and an inflation premium
One of the important reasons corporations can accumulate large sums of capital is that
they are allowed to sell capital stock.
The pecking order hypothesis implies that firm's have no optimal debt/equity ratios.
A firm's cost of capital is discount rate used in the evaluation of capital budgeting
projects using NPV and IRR.
The sustainable growth rate measures how quickly a firm can increase its asset base
over the next year without raising outside funds.
In estimating the cost of equity, the rate of return on U.S. Treasury bills is often used as
a proxy for the risk free rate of return.
The net present value of an investment is the present value of a project's future cash
flows minus its initial cost.
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.
Contractual savings are savings accumulated on a regular schedule for a specified
length of time by prior agreement.
A debt holder may force the firm to abide by the terms of the debt contract even if the
result is reorganization or dissolution of the firm.
