FC 740 Test

subject Type Homework Help
subject Pages 9
subject Words 1111
subject Authors Edgar A. Norton, Ronald W. Melicher

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The percentage of deposits that must be held as reserves is called
a. the bank reserve percentage
b. the required reserve ratio
c. the excess reserve ratio
d. the fractional reserve percentage
For bank loans, the effective interest rate is generally
a. not affected by whether or not the loan is a discount loan or a traditional loan.
b. higher if the loan is a discount loan.
c. lower if the loan is a discount loan.
d. higher if the interest is paid at maturity.
e. none of the above
Permanent current assets are:
a. accounts receivable that have become bad debts
b. inventories that have become obsolete
c. the level of current assets equal to fixed assets
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d. the level of current assets needed to support sales
A basic source of loanable funds is:
a. current savings that flow through financial institutions
b. future savings and investment by the Federal Reserve
c. current and future savings
d. investment by the Federal Reserve and expansion of deposits by insurance companies
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, regular dividend
b. regular dividend, constant payout ratio
c. constant dividend, variable payout ratio
d. variable payout ratio, constant dividend
e. none of the above
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All of the following methods are correct except:
a. Like debt and preferred stock, cash flows from common equity are fixed.
b. Firms have two sources of common equity, retained earnings and new stock issues,
and thus two costs of common equity.
c. From the shareholders' perspective, the opportunity cost of retained earnings is the
return the shareholders could earn by investing the funds in assets whose risk is similar
to that of the firm.
d. If the firm cannot invest its retained earnings to achieve a sufficient risk-adjusted
return, shareholders would be better off receiving 100 percent of its net income as
dividends.
e. All of the above statements are correct.
Ningbo Steel was extended credit terms of 3/15 net 30. If the firm were able to stretch
its accounts payable to 50 days without damaging its credit rating, the cost of giving up
the cash discount would only be
a. 56.4%
b. 32.3%
c. 23.90%
d. 22.6%%
e. none of the above
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When current savings of an economic unit exceed its direct investment in real assets,
this is referred to as:
a. savings surplus
b. savings deficit
c. savings neutral
d. savings inflation
Credit money is backed by:
a. gold
b. silver
c. creditworthiness of the issuer
d. creditworthiness of the depository institution
e. none of the above
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Several factors will be considered by the board of directors and management as they
consider the level of dividend payout. Some of these factors include:
a. the ability of the firm to generate cash to sustain the level of dividends.
b. legal and contractual considerations
c. growth opportunities
d. all of the above
e. none of the above
If the exchange rate in New York for British pounds sterling is quoted at 1 pound = $60,
and in London the rate is quoted at 1 pound = $62, financial arbitragers might:
a. buy pounds in New York
b. sell dollars in London
c. simultaneously sell pounds in New York and buy dollars in London
d. simultaneously buy pounds in New York and sell dollars in London
If $1,000 were invested now at a 12% interest rate compounded annually, what would
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be the value of the investment in two years?
a. $1,254
b. $1,210
c. $1,188
d. $1,160
Which of the following statements is most correct?
a. More firms fail or suffer financial distress during periods of economic expansion than
during periods of economic recession. Thus, investors tend to require higher premiums
to compensate for default risk when the economy is in a recession or is expected to
enter one.
b. More firms fail or suffer financial distress during periods of recession than during
periods of economic expansion. Thus, investors tend to require lower premiums to
compensate for default risk when the economy is in a recession or is expected to enter
one.
c. Fewer firms fail or suffer financial distress during periods of recession than during
periods of economic expansion. Thus, investors tend to require higher premiums to
compensate for default risk when the economy is in a recession or is expected to enter
one.
d. More firms fail or suffer financial distress during periods of recession than during
periods of economic expansion. Thus, investors tend to require higher premiums to
compensate for default risk when the economy is in a recession or is expected to enter
one.
e. none of the above
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Profitability ratios indicate the extent to which assets are used to support sales.
Holding demand constant, a decrease in the supply of loanable funds will result in an
increase in interest rates.
A bond will sell at a discount if its required return or discount rate is greater than its
coupon rate.
Estimates of revenues and costs should take the business unit view, rather than the
corporate view.
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The interest rate is the basic price that equates the demand for supply of loanable funds
in the financial markets.
If the interest rate is 0% for 10 years, then the present value will be less than the future
value.
The Capital Asset Pricing Model states that the expected return on an asset depends on
its level of unsystematic risk.
Existing securities are traded in the primary market.
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Net exports are exports of goods and services plus imports of goods and services.
The values of stocks and bonds are not affected by time value of money concepts.

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