A firm is evaluating a proposal which has an initial investment of $50,000 and has cash
flows of $15,000 per year for five years. If the firm’s required return or cost of capital is
15%, should it accept the project using the IRR as a decision criteria?
a. yes
b. no
c. can’t tell
d. none of the above
If an investor feels the price of a stock will decline in the future, which trade should the
investor undertake?
a. market order
b. buy on margin
c. limit order
d. short sale
The federal government pays for the services it provides primarily through:
a. taxation
b. creating money
c. borrowing
d. selling assets owned by the government
The principal assets of savings banks are:
a. securities
b. vault cash and deposits at other banks
c. real estate mortgages
d. all the above
The Federal Deposit Insurance Corporation Improvement Act of 1991:
a. transferred the reserves and functions of the Federal Savings and Loan Insurance
Corporation to the FDIC
b. required that failed banks be handled in such a way as to provide the lowest cost to
the FDIC
c. increased federal deposit insurance from $40,000 to $100,000 for each account
d. extended federal deposit insurance to S&L depositors
Anders owns stock in a company which has consistently paid a growing dividend over
the last 10 years. The first year Alexis owned the stock, he received $4.50 per share and
in the 10th year, he received $4.92 per share. What is the growth rate of the dividends
during this time?
a. 8%
b. 4%
c. 2%
d. 1%
The price that an individual must pay when purchasing claims to foreign exchange:
a. is always higher than the basic quotation rate
b. is readily available in financial publications
c. is relatively constant from day to day
d. all of the above are true
An area of finance that involves the study of government institutions and their
involvement in rescuing private firms is called:
a. financial management
b. investments
c. financial institutions
d. financial markets
e. none of the above
For corporations, the principal-agent relationship usually refers to the relationship
between:
a. buyers-sellers
b. owners-managers
c. manager-customer
d. owner-bankers
Which of the following marketable securities is sold at a discount throughout
competitive bidding in a weekly auction?
a. U.S. Treasury bills
b. federal funds
c. commercial paper
d. negotiable certificates of deposit
Programs passed by the federal government in response to the financial crisis of
2007-2009 include all of the following except:
a. Economic Stabilization Act
b. Troubled Asset Relief Program
c. American Recovery and Reinvestment Act
d. only a and b were passed
e. a, b, and c were all passed
The percentage of deposits that must be held as reserves is called
a. excess reserves
b. required reserves
c. required reserve ratio
d. none of the above
In general, a firm that secures a bank line of credit pays interest on:
a. the full line of credit.
b. only the amount actually borrowed.
c. on the unused portion of the line of credit.
d. on the amount borrowed as well as on the unused portion of the line of credit.
e. none of the above
Which of the following statements is most correct?
a. A monetary base of $5 million and a money multiplier of 5 means that the money
supply will be $1 million.
b. The magnitude of the money multiplier today is in the 8 to 9 range.
c. The money multiplier is influenced by the public€s switching between checkable and
noncheckable deposits at their banks.
d. The monetary base multiplied by the money multiplier produces the M3 definition of
the money supply.
The selection stage involves applying the appropriate capital budgeting techniques to
help make a final decision.
Preferred stock pays a dividend that is equal to its par value.
If I earn 3% on my deposit of $500, it will take 9 years before I have $550.
Net exports are exports of goods and services minus imports of goods and services.
The total asset turnover is computed as net sales divided by total assets.