The most basic functions of depository institutions are:
a. safekeeping for depositors
b. record keeping for depositors
c. efficient and economical transfer of payments
d. accepting deposits and granting loans
When the market interest rate rises above the coupon rate for a particular quality of
bond, the “current yield:”
a. will be below the coupon rate
b. will be the same as the coupon rate
c. will be above the coupon rate
d. cannot be determined
The Bank of North America:
a. was the first incorporated bank in the United States
b. was patterned after the Central Bank of England
c. was established to assist in financing the Civil War
d. all the above
e. none of the above
On the income statement, gross profit is defined as:
a. operating profits minus operating expenses
b. gross profit minus operating expenses
c. sales revenue minus cost of goods sold
d. sales revenue minus operating expenses
e. none of the above
The goal of a company’s cash management policy is to
a. increase the cash conversion cycle.
b. increase the payment period.
c. maximize the cash requirement.
d. maximize cash outflows.
e. none of above are correct
Estimates of “using up” plant and equipment for business purposes are called
a. accelerated depreciation estimates
b. gross capital formations
c. capital consumption adjustments
d. none of the above
13. A loan that is repaid in equal payments over a specified time period is referred to as
a (n):
a. discounted loan
b. amortized loan
c. simple interest-free loan
d. inflation-indexed loan
As a general rule, the capital structure that:
a. minimizes the cost of equity also maximizes the stock price
b. maximizes the stock price also minimizes the weighted average cost of capital
c. minimizes the cost of debt also maximizes the expected earnings per share
d. none of the above is a true statement
A weaker U.S. dollar generally
a. helps U.S. exporting firms
b. reduces an existing U.S. trade deficit
c. leads to higher inflation in the U.S.
d. all of the above
e. none of the above
The stage in the capital budgeting process in which projects that are accepted must be
executed in a timely fashion is called the _____________ stage.
a. follow-up.
b. selection.
c. identification.
d. implementation.
e. none of the above are included
History generally supports the contention that under the guidance of Paul Volcker, a (n)
____________ Fed policy brought down the double-digit inflation of the 1970s and the
early 1980s, and the Federal Open Market Committee consistently responded to his
leadership.
a. loosening of
b. easing of
c. expansionary
d. two of the above
e. none of the above
During the 2007 – 2009 financial crisis, ___________ and __________, who were
major participants in the secondary mortgage markets, were on the verge of financial
insolvency and possible collapse in mid-2008.
a. Fannie Mae and Freddie Mac
b. the Federal Treasury and the Federal Reserve
c. Morgan Stanley and Smith Barney
d. Washington Mutual and Lehman Brothers
e. none of the above
The multiplying capacity of primary deposits is reduced if:
a. no additional cash is withdrawn for hand-to-hand circulation
b. businesses increase their petty cash funds in U.S. banks
c. foreign countries deposit funds in U.S. banks
d. the U.S. Treasury deposits funds
If the variance for Stock A is greater than the variance for Stock B, then the standard
deviation for Stock A:
a. is greater than the standard deviation for Stock B
b. is less than the standard deviation for Stock B
c. is the same as the standard deviation for stock b
d. cannot be determined by this information
You have just won a lottery! You will receive $50,000 a year beginning one year from
now for 20 years. If your required rate of return is 10%, what is the present value of
your winning lottery ticket?
a. $418,250
b. $425,700
c. $444,640
d. $453,850
If a Microsoft January 20 call option with a strike price of $20 were about to expire and
the market price of the underlying Microsoft stock was $25.62, the price of the call
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.
For any firm’s given growth strategy, its dividend decision directly affects its capital
structure decision.
The coefficient of variation measures the risk per unit of return.
Using the percentage of sales technique, the remaining dollar amount of asset
investments determines the external financing needs (EFN).
The Fed Board of Governors is composed of seven members who are appointed for a
term of 12 years.
Financial markets encourage investment by:
1. providing capital at lower rates than provided by banks
2. providing electronic execution of transactions which are faster and cheaper than
other methods
3. providing the means for savers to easily and quickly convert financial assets into
cash when needed
4. none of the above
5.
An effective financial system is a complex mix of government and policy makers, a
monetary system, financial institutions, and financial markets that interact to expedite
the flow of financial capital from savings into investment.
Market value added can be written as: the market value of stock plus the market value
of debt minus the book value of stock minus the book value of debt.
The success of a business in raising funds for operations depends upon the extent that
profits can be produced from operations.
Savings and loans were first known as building societies.