During the early years of the life stage of a typical corporation, the:
a. volume of physical assets increases slowly
b. firm is unable to establish a strong position with respect to its financial assets
c. corporation is a heavy provider of financial assets
d. need for borrowed capital is small
The present value of an annuity of $5,000 to be received at the beginning of each of the
6 years at a discount rate of 4% would be:
a. $26,210
b. $27,258
c. $3,950
d. none of the above
In the case of independent projects:
a. the financial manager is responsible for choosing the average of these alternatives
since only one can be chosen; selecting one project requires the selection of the other.
b. they are to be evaluated based on their expected effect on shareholder wealth; all
such projects that enhance shareholder wealth should be included in the firm’s capital
budget.
c. the financial manager is responsible for choosing the best of these alternatives since
only one can be chosen; selecting one project precludes the other from being
undertaken.
d. they are to be evaluated based on their past effect on shareholder wealth; all such
projects that enhance shareholder wealth should be included in the firm’s capital budget.
e. none of the above statements are correct
Holding demand constant, a decrease in the supply of loanable funds will result in a (n)
___________ in interest rates.
a. increase
b. decrease
c. increase or decrease
d. none of the above
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
The average maturity of the marketable debt in the United States:
a. is of little importance, unlike that of private corporations
b. has been constant for the last two decades
c. remains unchanged unless new obligations are issued
d. decreases day by day unless new obligations are issued to offset such decreases
Which of the following statements is most correct?
a. Both gold and silver have now been completely removed from any monetary role in
the U.S. economy.
b. Savings deposits and small time deposits at depository institutions constitute part of
the M1 money supply definition.
c. Fiat money is gold coins issued by central banks under authority of the government.
d. The monetary system of the United States today is based on a dollar standard, and the
dollar can be converted into gold.
Variations in operating income over time because of variations in unit sales, price, cost
margins, and/or fixed expenses are called:
a. business risk
b. exchange rate risk
c. purchasing power risk
d. financial risk
e. none of the above
A bond’s 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
The _____________ policy states that dividends will vary based upon how much
excess funds the firm has from year-to-year, whereas under a ________________
policy the firm pays a constant percentage of earnings as dividends, so as earnings rise
and fall so does the dollar amount of dividends.
a. constant payout ratio, residual dividend
b. residual dividend, constant payout ratio
c. constant dividend, variable payout ratio
d. variable payout ratio, constant dividend
e. none of the above
96. _____________ is when a broker constantly buys and sells securities from a client’s
portfolio in an effort to generate commissions. Rather than making decisions that are in
the client’s best interest, frequent commission-generating trades may be made by
brokers with selfish motives.
a. Blending
b. Flipping
c. Swapping
d. Sale-resale
e. none of the above.
An increase in the demand for loanable funds, holding supply constant, will cause
interest rates to:
a. increase
b. decrease
c. stay the same
d. not enough information to tell
The Federal Reserve System exercises its most direct control of the money supply:
a. by the issuance of Federal Reserve notes
b. through reserve requirements
c. by setting the discount rates on loans to depository institutions
d. through open market operations
The saving-investment process involves which of the following financial functions:
a. creating and transferring money
b. accumulating savings and lending and investing money
c. marketing and transferring financial assets
d. all of the above
All of the following affect the balance of the capital account except:
a. Bank deposits
b. Purchases of government and corporate securities
c. Purchases of goods and services
d. Loans
e. Direct investment in land and buildings
When the flow of income into the United States exceeds the flow of income out of the
United States, it creates a:
a. Current account surplus
b. Curent account deficit
c. Capital account surplus
d. Capital account deficit
e. Trade deficit
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.
In calculating the cost of new common stock using the constant dividend growth model,
it is important that the __________ are subtracted from the price of the stock.
a. flotation costs
b. par value
c. cost of retained earnings
d. proceeds of the sale
A revolving credit agreement is a:
a. banker’s agreement to extend the maturity of a loan
b. banker’s standby agreement to provide a guaranteed line of credit for a specified
period of time
c. large loan supported by a group of banks on an alternating basis
d. loan arrangement with a bank whereby secured and unsecured loans are alternately
used
Which of the following statements is most correct?
a. Open-market operations always lead to an immediate increase in the volume of
lending; this is especially true when bonds are sold to restrict deposit growth.
b. Open-market operations don€t always lead to an immediate change in the volume of
deposits; this is especially true when bonds are purchased to expand deposit growth.
c. Open-market operations always lead to an immediate change in the volume of
deposits; this is especially true when bonds are sold to restrict deposit growth.
d. Increasing reserve requirements always leads to an immediate increase in the volume
of lending; this is especially true when bonds are sold to restrict deposit growth.
e. none of the above
If a financial asset has a historical variance of 25, then its standard deviation must be
12.5%.
An advantage of short-term borrowing is the need for frequent renewals.
Most market risk can be eliminated through diversification.
Derivative securities may be used to speculate on the future price direction of the
underlying financial assets or to reduce price risk associated with holding the
underlying financial assets.
Finance is the study of how individuals, institutions, and businesses acquire, spend and
manage money and other financial resources.
The effective annual rate (EAR) is sometimes called the annual effective yield.
If a corporation files for bankruptcy, creditors may try to get control of the personal
assets of the owners of the company to collect on their debts.
Maturity factoring is where the firm selling its accounts receivable is paid on the
normal collection date or net due date of the account.
Nonfinancial information plays no part in capital budgeting.
A bimetallic standard is a monetary standard based on two metals, usually silver and
gold.