1) As the number of periods increases, present value increases.
2) A firms business risk is measured by its variability in EBIT over time.
3) The operating profit margin is calculated as the firms net income divided by net
sales.
4) One advantage of preferred is that it increases a firms equity without diluting the
ownership and control of the common shareholders.
5) Churning happens when a broker constantly buys and sells securities from a clients
portfolio in an effort to generate commissions.
6) The historical percentage return for a single financial asset is equal to any dividends
received minus the difference between the selling price and the purchase price, all
divided by the purchase price.
7) Advance factoring is where the firm selling its accounts receivable is paid on the
normal collection date or net due date of the account.
8) A stock that went from $40 per share at the beginning of the year to $45 at the end of
the year and paid a $2 dividend provided an investor with a 14% return.
9) An annuity due may also be referred to as a deferred annuity.
10) Foreign capital did not play a significant role in the development of the United
States.
11) The Board of Governors of the Federal Reserve System authorizes member banks to
accept drafts that arise in the course of certain types of international transactions.
12) If a Microsoft January 20 put option with a strike price of $20 were about to expire
and the market price of the underlying Microsoft stock was $15.00, the price of the put
option would have to be __________ to eliminate arbitrage opportunities.
a.$5.00
b.$10.00
c.$15.00
d.$25.00
e. none of the above
13) An unrated bond:
a.is perceived as having lower than average risk
b.are termed as debentures
c.generally has a lower than rated bonds
d.none of the above
14) Assume that a banking system must keep reserves of 20% against deposits. The
bank receives a primary deposit of $20,000. What would be the maximum amount of
loan that could be made by the system?
a.$16,000
b.$40,000
c.$80,000
d.$100,000
15) An annuity with an infinite life is called a (n)
a.perpetuity
b.infinity
c.effective annual rate
d.continuous annuity
16) Examples of regular cash outflows would not include:
a.materials purchases
b.rent
c.utility bills
d.all the above are regular cash outflows
17) Ithaca Iron has annual operating outlays of $1,800,000 and a cash conversion cycle
of 60 days. If the firm currently pays 12 percent for negotiated financing and reduces its
cash conversion cycle to 50 days, the annual savings is
a.$60,000
b.$10,000
c.$6,000
d.$16,000
e. none of above are correct
18) The effective annual interest rate on a one-year, $1,000,000, 12% discount loan that
requires a 10% compensating balance is
a.16.0%
b.13.3%
c.13.6%
d.12.0%
e.none of the above
19) ____________________ provide the record-keeping mechanism for showing
ownership of the financial instruments used in the flow of financial funds between
savers and borrowers and record revenues, expenses, and profitability of organizations
that produce and exchange goods and services.
a.Financial Managers
b.Accountants
c.Operations Managers
d.Statisticians
e.none of the above
20) ___________________ is the maximum purchase price or minimum selling price
specified by an investor.
a.A short sale
b.A stop-loss order
c.A limit order
d.Buying on margin
21) The U.S. Treasury, under the leadership of Treasury Secretary _____________,
played an important role in helping the U.S. survive the 2007-09 financial crisis by
assisting with the acquisition of Bear Sterns by JP Morgan Chase in March 2008 and by
trying to help other financial institutions on the brink of collapse find help through
mergers with financially stronger institutions.
a.Henry Paulson
b.Timothy Geithner
c.Alan Greenspan
d.Ben Bernanke
e.none of the above
22) The effect of arbitrage activities in foreign exchange markets is to:
a.create disparity among the rates of various currencies
b.eliminate or reduce exchange rate quotation differentials
c.hinder the otherwise smooth functioning of the exchange markets
d.create wide swings in quotations from period to period
23) Which of the following business organizations limit the liability of some or all of
their owners to the extent of their investment in the company?
a.proprietorships and partnerships
b.corporations and proprietorships
c.limited partnerships and proprietorships
d.corporations and limited partnerships
24) On the income statement, gross profit is defined as:
a.operating profits minus operating expenses
b.gross profit minus cost of goods sold
c.sales revenue minus cost of goods sold
d.sales revenue minus operating expenses
e.none of the above
25) Investment banks engage in all of the following activities EXCEPT:
a.underwrite corporate securities
b.buy and sell commercial paper
c.mergers and acquisitions
d.all of the above
e.none of the above
26) Programs passed by the federal government in response to the financial crisis of
2007-2009 include all of the following except:
a.Economic Security Act
b.Toxic Asset Response Program
c.American Real Estate Reinvestment Act
d.only a and b were passed
e.none of the above were passed
27) Which of the following statements is most correct?
a.Bank reserves are not affected by transactions involving the Treasury
b.Derivative deposits occur when reserves created from primary deposits are made
available through bank loans to borrowers who leave them on deposit in order to write
checks against the funds
c.Total bank reserves in the banking system consist of banks member bank deposits
held in Federal Reserve Banks, plus non-member banks vault cash
d.Federal Reserve notes have been increasingly backed by gold certificates and eligible
paper in recent years
28) All of the following statements regarding capital structure weights in the WACC
equation are correct except:
a.The weights represent a specific intended financing mix
b.These target weights represent a mix of debt and equity that the firm will try to
achieve or maintain over the planning horizon
c.As much as possible, the target weights should reflect the combination of debt and
equity that management believes will maximize the firms weighted average cost of
capital
d.The firm should make an effort over time to move toward and maintain its target
capital structure mix of debt and equity
e.All of the above statements are correct
29) When we speak of ex-ante returns, we are referring to historical information or data.
30) An importer will generally try to avoid making payment for a purchase before the
goods are actually shipped by:
a.purchasing a letter of credit
b.having payment sent to a bank in the exporters country to be held until proper
shipment is made
c.post-dating a check
d.insisting on payment only upon delivery
31) Rico bought 100 shares of Banana Republic stock for $24.00 per share on January
1, 2010. He received a dividend of $2.00 per share at the end of 2010 and $3.00 per
share at the end of 2011. At the end of 2012, Rico collected a dividend of $4.00 per
share and sold his stock for $18.00 per share. What was Ricos realized holding period
return?
a.-15.5%
b.15.5%
c.-16.7%
d. 16.7%
e. none of the above
32) The level of investment in accounts receivable depends on:
a.credit analysis
b.credit terms
c.collection efforts
d.all the above
e.none of the above
33) The benefits of specialization of effort among nations depend primarily upon:
a.geographical locations
b.market research
c.the existence of adequate financial facilities
d.accommodating laws and regulations
34) The ________ is the lowest rate of interest charged on business loans to the best
business borrowers by the nation’s leading banks.
a.premium rate
b.commercial paper rate
c.federal funds rate
d.treasury bill rate
e.none of the above
35) The future value of a dollar ________ as the interest rate increases and ________
the farther in the future an initial deposit is to be received.
a.decreases; decreases
b.decreases; increases
c.increases; increases
d.increases; decreases
36) Implicit agency costs:
a.may harm shareholders
b.do not have a direct expense associated with them
c.may include restrictive covenants
d.all the above
e.none of the above
37) In recent years, the United States has been running large trade surpluses with both
Japan and China.
38) _________ individuals exhibit sound ethical behavior in their personal and business
dealings and practices.
a.Few
b.Most
c.About half of all
d.Fewer than half of all
39) Which of the following statements is most correct?
a.The par value of a common stock or preferred stock is not important
b.A convertible preferred stock gives the corporation the right to retire the preferred
stock at its option
c.The U.S. security markets are the only public financial markets in which preferred
stock can be sold
d.Similar to bonds, the fixed preferred stock dividend is a tax-deductible expense
40) The stand-alone principle means that:
a.projects should not be evaluated against one another
b.projects must operate independently of the firms other projects
c.analysts should focus on the projects cash flows, uncontaminated by cash flows from
the firms other activities
d.none of the above
41) The prime rate offered by commercial banks is their _____________ rate to their
______________ quality business customers.
a.highest, highest
b.lowest, lowest
c.lowest, highest
d.highest, lowest
42) If the _____________ of a stock is known, an investor can use the security market
line to determine the expected return on that stock.
a.standard deviation
b.beta
c.coefficient of variation
d.unsystematic risk