1) Specialists are assigned dealers who have the responsibility of making a market in an
assigned security.
2) Shareholder wealth may be defined as the price of a companys stock times the
number of shares outstanding.
3) Capital consumption allowances are estimates of the using up of plant equipment
assets for businesses.
4) The degree of combined leverage is measured by adding the degree of operating
leverage and degree of financial leverage.
5) ADRs are created are traded in dollars and represent share of foreign companies not
traded on U.S. exchanges.
6) The current ratio is computed by dividing the sum of cash, marketable securities, and
accounts receivable by the current liabilities.
7) In a financial context, due diligence refers to the detailed study of a corporation.
8) The future value of a $100 annuity deposited for 10 years at 10% is $614.46.
9) The risk-free rate of interest is equal to the real rate of interest plus a premium for
inflation.
10) Existing securities are traded in the primary market.
11) A bankers acceptance is used to finance international trade, represents an
unconditional obligation of an accepting bank, and has a yield that closely follows the
yield on commercial paper.
12) A financial technique that involves dividing various financial statement numbers
into one another is called:
a.trend analysis
b.cross sectional analysis
c.ratio analysis
d.percent of sales analysis
13) The nominal interest rate can be expressed as:
a.r = MR + IP + DRP + MRP + LP
b.r = RR + IP + GRP + MRP + LP
c.r = RR + IP + DRP + TRP + LP
d.r = RR + IP + DRP + MRP + LP
e. none of the above
14) Which of the following statements about liquidity ratios is true?
a.the lower the quick ratio relative to the current ratio, the safer a firm is in terms of
liquidity
b.the higher the current ratio, the more likely a firm is able to pay its short-term
obligations
c.the quick ratio is always between 0 and 1
d.all the above statements are true
15) Which of the following is not considered to be a basic theory used to explain the
term structure of interest rates?
a.expectations theory
b.loanable funds theory
c.liquidity premium theory
d.market segmentation theory
e. all of the above are theories used to explain the term structure of interest rates
16) The stage in the capital budgeting process in which implemented projects are
periodically reviewed is called the _____________ stage.
a.follow-up
b.selection
c.identification
d.implementation
e.none of the above are included
17) The Board of Governors of the Federal Reserve System considers bankers
acceptances used in international trade to be:
a.advantageous, but does not enter in bankers acceptance financing
b.outside the Feds realm of influence, neither encouraging nor discouraging their use
c.a hindrance to domestic monetary control efforts
d.very desirable and actually purchases and holds them in supporting the
market for such securities
18) A negative cash conversion cycle indicates that the
a.operating cycle exceeds the average payment period
b.average payment period is less than the operating cycle
c.firm is shortening its average payment period and lengthening its average collection
period
d.lengthening its average collection period and lengthening its inventory period
e. none of above are correct
19) What is the real rate of interest if the nominal rate of interest is 15%, the IP is 3%,
the DRP is 3%, the MRP is 3%, and the LP is 2%?
a.3%
b.4%
c.5%
d.none of the above
20) Which statement best describes the six principles of finance?
a.Money has a time value; Higher returns are expected for taking on more risk;
Diversification of investments does not impact risk; Financial markets are efficient in
pricing securities; Manager and stockholder objectives may differ; Reputation matters
b.Money has a time value; Higher returns are expected for taking on more risk;
Diversification of investments can reduce risk; Financial markets are efficient in pricing
securities; Manager and stockholder objectives may differ; Reputation matters
c.Money has a time value; Higher returns are expected for taking on more risk;
Diversification of investments can reduce risk; Financial markets are inefficient in
pricing securities; Manager and stockholder objectives may differ; Reputation matters
d.Money has a time value; Higher returns are expected for taking on more risk;
Diversification of investments can reduce risk; Financial markets are efficient in pricing
securities; Manager and stockholder objectives may differ; Reputation doesnt matter
21) In an inflationary period, interest rates have a tendency to:
a.rise
b.fall
c.stay the same
d.act erratically
22) Interest rate differentials at a certain point in time may be expressed by comparing
the interest rates on:
a.a Treasury bill and a Treasury bond
b.a Treasury bill and a long-term corporate bond
c.a Treasury bill and the commercial paper rate
d.a risky security and a comparable maturity U.S. Treasury security
23) Shanghai Shipping is considering investing in a project that requires an after-tax
initial investment of 156 million and is expected to produce after-tax cash inflows of
$40 million for each of the next five years. The firms cost of capital is 10%. Based on
this information, the IRR of the project is _________ percent and the firm should
_________ the project.
a.9.9; accept
b.-9.9, reject
c.8.9, accept
d.-8.9, reject
e.none of the above
24) The corporate planning tool that develops project plans that fit well with the firms
plans is often referred to by the following acronym:
a.SWOT
b.MOGS
c.STOW
d.GOMS
e.none of the above statements are correct
25) The primary factors that influence the amount of savings in any given period
include all of the following EXCEPT:
a.levels of income
b.economic expectations
c.cyclical influences
d.all of the above are factors that influence savings
26) During the onset of the Financial Crisis between 2007 and 2008, an investor would
have earned the lowest return if he or she had invested in
a.only stocks
b.only Treasury bonds
c.a portfolio consisting of 50% stocks and 50% Treasury bonds
d. a non-interest bearing cash account
e. none of the above
27) George Bush makes annual end-of-year payments of $5,043.71 on a four-year loan
with an interest rate of 13 percent. The original principal amount was
a.$24,462
b.$15,000
c.$3,092
d.$20,175
28) Debt management by the federal government includes:
a.determining the types of securities to sell and the interest rate pattern to use
b.determining the types of securities to sell, the interest rate pattern to use, and the types
of refunding to do
c.determining the types of securities to sell, the interest rate pattern to use, and making
discussions on Treasury borrowing
d.determining the types of securities to sell, the interest rate pattern to use, the types of
refunding to do, and making decisions on callable issues
29) The ratio between the present value of a projects cash inflows and the present value
of its initial investment is called the:
a.MIRR
b.IRR
c.PM
d.NPV
e.none of the above are correct
30) All of the following statements regarding capital structure weights in the WACC
equation are correct except:
a.The weights represent a firms most recent financing mix
b.These target weights represent a mix of debt and equity that the firm will try to
achieve or maintain for a period of at least 5 years
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 current liabilities, debt and equity
e.All of the above statements are correct
31) The 2002 Sarbanes-Oxley Act was designed to:
a.limit the compensation that could be paid to CEOs.
b.exacerbate the many disclosure and conflict of interest problems of corporations
c.provide uniform international accounting standards
d.two of the above
e.none of the above
32) A firms excess cash balance during a particular month could be best deployed if it
were
a.financed with short term investments
b.financed with long term investments
c.invested in short term investments
d.invested in long term investments
e.none of the above
33) The maximum buying price or the minimum selling price specified by the investor
is called a:
a.stop-loss order
b.market order
c.short sale
d.limit order
34) Which of the following statements is most correct?
a.Speculative grade bonds have ratings of Baa or higher and meet financial institution
(banks, pension funds, insurance companies, etc.) investment standards
b.Investment grade bonds have ratings of Baa or higher and meet financial institution
(banks, pension funds, insurance companies, etc.) investment standards
c.Speculative grade bonds have ratings of Caa or lower and meet financial institution
(banks, pension funds, insurance companies, etc.) investment standards
d.Investment grade bonds have ratings of Aaa or higher and meet financial institution
(banks, pension funds, insurance companies, etc.) investment standards
e. none of the above
35) In calculation of a payback period, what use is made of cash flows occurring after
the end of the payback period?
a.they are ignored
b.they are discounted back to time zero
c.they are included in the accept/reject decision
d.they are normally canceled by initial negative cash flows
36) A document which is administered by a trustee, and includes in great detail the
various provisions of the loan agreement is called the:
a.trust indenture
b.debenture
c.bond covenant
d.bearer bond
37) The internal and sustainable growth rate relationships suggest that there are three
measurable influences on growth. These include all of the following except:
a.asset policy
b.dividend policy
c.profitability
d.the firms capital structure
38) The life stages of an individual saver include all of the following EXCEPT:
a.the formative/education developing stage
b.the career earning/family creating stage
c.the wealth building stage
d.all of the above are life stages of savers
39) The financial crisis of 2007-2009 resulted from a number of negative economic and
financial trends except:
a.a decline in housing prices
b.poor ratings assigned by credit rating agencies
c.mortgage defaults
d.high debt levels
e.a decline in stock prices
40) If a customer makes new deposits of $10,000 to a bank and the reserve requirement
is 15%, then excess reserves will be:
a.$1,500
b.$8,500
c.$10,000
d.none of the above
41) Which of the following factors directly impact the level of interest rates?
a.risk
b.marketability
c.maturity
d.all of the above
e.none of the above
42) The key input to the short-run financial planning process is easiest to estimate is
a.cash sales
b.cash receipts
c.cash disbursements
d.the amount of month to month short term borrowing
43) The cost of retained earnings is:
a.the cheapest component cost
b.zero because the firm does not have to pay interest or dividend to itself
c.always less than the cost of new common stock
d.typically cheaper than the cost of preferred stock
44) Debt management of the federal government includes:
a.determining which types of refunding to implement
b.determining the types of securities to sell
c.deciding which interest rate patterns to use
d.all the above
45) When considering the time value of money, which of the following four methods of
project evaluation would appear to be the least satisfactory?
a.internal rate of return
b.profitability index
c.net present value
d.payback period method
46) While the Chicago Board Options Exchange remains the main market for exchange
traded options, the ______________ exchange also deals in option contracts.
a.New York
b.American
c.Pacific
d.Philadelphia
e. all of the above
47) Intermediaries that help the financial system operate efficiently and transfer funds
from savers and investors to individuals, businesses, and governments that seek to
spend or invest the funds are known as:
a.financial markets
b.financial institutions
c.securities markets
d.government organizations
48) Which of the following statements is most correct?
a.The federal government has produced annual budget deficits for all years but four,
when it ran consecutive budget surpluses that began in 1986 during the Reagan
administration
b.The federal government has produced annual budget deficits for all years but four,
when it ran consecutive budget surpluses that began in 1990 during the George H.W.
Bush administration
c.The federal government has produced annual budget deficits for all years but four,
when it ran consecutive budget surpluses that began in 2002 during the George W. Bush
administration
d.The federal government has produced annual budget deficits for all years but four,
when it ran consecutive budget surpluses that began in 1978 during the Carter
administration
e.none of the above
49) Any positive economic profit or positive net present value must arise from
a.market imperfections or inefficiencies such as a monopoly situation
b.cost-saving projects that allow the firm to reduce costs below the current level such as
economies of scale and access to distribution channels
c.government contracts or preferences
d.two of the above are correct
e.all of the above statements are correct
50) Bank reserves are increased when the Treasury:
a.sells government bonds to individuals
b.doesn’t change its holding of cash
c.increases its account at a Federal Reserve bank
d.increases its holding of cash
e. none of the above
51) All of the following statements are correct except:
a.EBIT/EPS analysis allows managers to see how different capital structures affect the
earnings and risk levels of their firms
b.EBIT/EPS analysis shows the graphical relationship between a firms operating
earnings, or earnings before interest and taxes (EBIT), and earnings per share (EPS)
c.EBIT/EPS analysis suggests that at some EBIT level, a firm will be indifferent
between the two capital structures, inasmuch as they result in the same earnings per
share
d.EBIT/eps analysis shows the ranges of EBIT where a firm may prefer one capital
structure over another so that the firm may decide to increase or decrease its financial
leverage depending on whether its expected EBIT is above or below the indifference
EBIT level
e.All of the above statements are correct