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1) In general, large company stocks are less risky than small company stocks.
2) The branch of government primarily responsible for the formulation of fiscal policy
is the President and his Council of Economic Advisors.
3) By multiplying the average sales per day times the inventory conversion period, the
inventories investment amount can be determined.
4) Discounting has the effect of reducing the available funds received by the borrower
while raising the effective interest rate.
5) Administrative inflation is the tendency of prices, aided by union-corporation
contracts, to rise during economic expansion and to resist declines during recessions.
6) An economy with a large share of young people will have more total savings than
one with more late middle-aged people.
7) A discounted loan is one in which the borrower receives a discount on the interest
rate.
8) A limited liability company can have an unlimited number of shareholders, including
other corporations.
9) The corporate retention rate is simply another term for the corporate savings rate.
10) The benefits of diversification are greatest when asset returns have positive
correlations.
11) Field warehouses are in operation throughout the United States but are concentrated
in the central and East coast regions.
12) The bylaws are the rules established to govern the corporation and include how the
firm will be managed.
13) Opportunity costs reflect the cost of passing up the next best alternative and are
irrelevant in capital budgeting analysis.
14) Holding supply constant, an increase in the demand for loanable funds will result in
a decrease in interest rates.
15) If a financial asset has a historical variance of 16%, then its standard deviation must
be 4%.
16) The term Big Board is another name for the NASDAQ market.
17) Financial analysis using ratios is not useful in the firms financial planning process.
18) The velocity of money measures the rate at which wire transfers can be transmitted
to overseas banks.
19) The federal government relies primarily on borrowing to support its various
expenditure programs.
20) What should be the relation between the target capital structure for a firm and the
firms optimum capital structure?
a.Target and optimum capital structures should be the same
b.Target capital structure is more conservative overall
c.Target capital structure contains more debt
d.Target capital structure excludes preferred stock
21) In the field of foreign trade, the most common form of credit instrument is the:
a.bankers acceptance
b.trust receipt
c.sight draft
d.none of the above
22) Information generation develops three types of data: internal financial data, external
economic and political data, and non-financial data.
23) The _________ value of a savings or investment is its amount or value at the
present time.
a.present
b.future
c.book
d.none of the above
24) Factoring accounts receivable has all of the following characteristics except:
a.the borrower sells the receivable
b.accounts receivable balances are removed from the balance sheet
c.the customer payment is made to the factor
d.all of the above are characteristics of pledging
25) Which of the following are considered to be major financial management functions?
a.financial planning and analysis
b.asset management
c.raising funds
d.all of the above
26) Suppose you receive $3,000 a year in years one through four, $4,000 a year in years
five through nine, and $2,000 in year 10, with all the money to be received at the end of
the year. If your discount rate is 12%, what is the present value of these cash flows?
a.18,926.12
b.19,560.80
c.20,651.24
d.24,175.00
27) The present value of an annuity of $5,000 to be received at the end of each of the
next six months for 6 years at a 4% annual rate would be:
a.$26,210
b.$52,875
c.$3,950
d.none of the above
28) Angelina has planned to start her college education four years from now. To pay for
her college education, she has decided to save $1,000 each quarter for the next four
years in a bank account paying 12 percent interest. How much will she have at the end
of the fourth year?
a.$1,574
b.$19,116
c.$20,157
d.$16,000
29) Which of the following statements is most correct?
a.Importers may use sight or time drafts in billing foreign customers when they have no
confidence in the purchasers ability and willingness to pay
b.A time draft becomes a bankers acceptance when the customer receives, signs, and
returns the draft to the exporter
c.The currency rate is the rate at which a given unit of a foreign currency is quoted in
terms of gold
d.All of the above statements are correct
e.none of the above statements is correct
30) Most income for the Federal Government comes from:
a.corporate income taxes
b.individual income taxes
c.social insurance receipts
d.none of the above
31) The stage in the capital budgeting process that involves finding potential capital
investment opportunities and determining whether a project involves a replacement
decision and/or revenue expansion is called the _____________ stage.
a.follow-up
b.selection
c.identification
d.development
e.none of the above are included
32) The extent to which assets are financed by borrowed funds and other liabilities is
indicated by:
a.liquidity ratios
b.asset utilization ratios
c.financial leverage ratios
d.profitability ratios
33) Examples of external economic data required for project analysis include all of the
following except:
a.business cycle stages
b.inflation trends
c.labor-management relations
d.exchange rate trends
e.all of the above are included
34) In 1976, the average price of a domestic car was $5,100. Twenty years later, in
1996, the average price was $16,600. What was the annual growth rate in the car price
over the 20-year period?
a.5%
b.6%
c.7%
d.8%
35) _________________________ was created to promote world trade through
monitoring and maintaining fixed exchange rates and by making loans to countries with
payments problems.
a.The World Bank
b.The International Monetary Fund
c.The International Bank for Reconstruction and Development
d.none of the above
36) Which of the following organizations are involved in accounts receivable financing
for businesses?
a.consumer finance companies
b.commercial finance companies
c.factors
d.commercial finance companies and factors
37) In terms of dollar amounts, which of the following represents the single most
important debt instrument bought and sold in the money market?
a.U.S. Treasury bills
b.commercial paper
c.negotiable certificates of deposit
d.Eurodollar time deposits
38) The basic future and present value equations contain four variables. Which one of
the following is not included?
a.present value (PV)
b.future value (FV)
c.interest rate (r)
d.inflation rate (I)
e.number of periods (n)
39) _________________________ was an international monetary system in which the
U.S. dollar was valued in gold and other exchange rates were pegged to the dollar.
a.The gold standard
b.The flexible exchange rate system
c.The Bretton Woods System
d.none of the above
40) Cecilia bought 100 shares of Minnesota Mining and Manufacturing in June, 1987
for $38 a share for a total investment of $3,800. She sold the shares in June, 1996 for
$8,960. What is Cecilias annual rate of return on her investment?
a.10%
b.10.6%
c.11%
d.11.2%
41) Under a ______________, if any additional shares of common stock, or any
security that may be converted into common stock, are to be issued, the securities must
be offered for sale first to the existing common stockholders.
a.red herring
b.rights offering
c.red herring
d.shelf registration
42) One type of investment that would not be suitable for marketable securities would
be:
a.bankers acceptances
b.short-term notes of U.S. government agencies
c.negotiable CDs
d.mortgages
43) All of the following statements are correct except:
a.The pecking order hypothesis is a theory that states managers prefer to use new debt
to finance the firm, then retained earnings, and (as a final resort) new equity
b.The market timing hypothesis states that firms try to time the equity market by issuing
stock when their stock prices are high and repurchasing shares when stock values are
low
c.The static tradeoff hypothesis states that firms will balance the advantages of debt (its
lower cost and tax-deductibility of interest) with its disadvantages (greater possibility of
bankruptcy and the value of explicit and implicit bankruptcy costs)
d.Agency costs reduce the optimal level of debt financing for a firm below the level that
would be appropriate if agency costs were zero
e.All of the above statements are correct
44) To protect against loss as a result of adverse currency fluctuations, an export firm
may:
a.demand cash settlement
b.sell a millennial contract as a hedge
c.require the customer to make payment in the exporters currency
d.require a government guarantee against currency loss of value
e.none of the above
45) 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
46) _____________ costs are a function of time (not sales) and are generally
contractual.
a.semi-fixed
b.semi-variable
c.operating
d.variable
e.none of the above
47) For most lines of business the basic source of short-term loan financing is:
a.commercial banks
b.finance companies
c.the commercial paper market
d.factors
48) The price/earnings ratio (P/E) is calculated as:
a.stock price divided by earnings per share
b.stock price times earnings per share
c.earnings per share divided by stock price
d.stock price divided by the difference between earnings per share and cash dividends
per share
49) A statement by a bank guaranteeing acceptance and payment of a draft up to a
stated amount is called a (n)
a.bill of exchange
b.commercial letter of credit
c.time draft
d.documentary draft
50) If the present-value interest factor for i percent and n periods is 0.270, the
future-value interest factor for the same i and n is
a.0.730
b.3.797
c.3.704
d.cannot be determined
51) Assume that a bank receives a primary deposit of $1,000, and the reserve
requirement is 15%. Which of the following would reflect the asset side of the balance
sheet after a maximum loan amount has just been made?
a.reserves of $1,000
b.deposits of $1,000
c.reserves of $1,000 and loans of $150
d.reserves of $1,000 and loans of $850
52) Consolidated Freightways is financing a new truck with a loan of $60,000 to be
repaid in six annual end-of-year installments of $13,375. What annual interest rate is
Consolidated Freightways paying?
a.7%
b.8%
c.9%
d.10%
53) As interest rates rise, the prices of existing bonds will:
a.rise
b.stay the same
c.fall
d.either a or b, depending on the state of the economy
54) All of the following accounts are considered to be current assets on the balance
sheet except:
a.cash
b.accruals
c.accounts receivable
d.inventory
e.none of the above
55) Which of the following statements is most correct?
a.Inverse refunding is one of the new debt-management techniques used to extend the
average maturity of the marketable debt without disturbing the financial markets and
occurs when the Treasury offers the owners of a given issue the opportunity to
exchange their holdings well in advance of the holdings regular maturity for new
securities of longer maturity
b.Reverse refunding is one of the new debt-management techniques used to extend the
average maturity of the marketable debt without disturbing the financial markets and
occurs when the Treasury offers the owners of a given issue the opportunity to
exchange their holdings well in advance of the holdings regular maturity for new
securities of longer maturity
c.Extended refunding is one of the new debt-management techniques used to extend the
average maturity of the marketable debt without disturbing the financial markets and
occurs when the Treasury offers the owners of a given issue the opportunity to
exchange their holdings well in advance of the holdings regular maturity for new
securities of longer maturity
d.Laddered refunding is one of the new debt-management techniques used to extend the
average maturity of the marketable debt without disturbing the financial markets and
occurs when the Treasury offers the owners of a given issue the opportunity to
exchange their holdings well in advance of the holdings regular maturity for new
securities of longer maturity
e. none of the above
56) Sources of loanable funds do not include:
a.current savings
b.the expansion of deposits by depository institutions
c.federal deficits
d.all the above are sources of loanable funds
57) In reaction to the then developing 2007-2009 financial crisis, short-term interest
rates _______ sharply and were ______ than ______ percent by October, 2008.
a.rose, less, 0.5
b.rose, more, 10
c.declined, more, 6
d.declined, less, 20
e. none of the above
58) The Economic Stabilization Act of 2008 was passed in response to the financial
crisis.
59) A prime mortgage is a home loan to a borrower with relatively high credit
worthiness indicating a relatively high likelihood that mortgage payments will be made
when due; scores above 300 reflect the highest credit quality classification.
60) Finance is the study of how individuals, institutions, and businesses acquire, spend
and manage money and other financial resources.
61) While the financial press chooses to highlight examples of unethical behavior, most
individuals exhibit sound ethical behavior in their personal and business dealings and
practices.
62) The principle of finance that "money has a time value" implies Money in hand
today is worth less than the promise of receiving the same amount in the future because
a sum of money today could be invested and grow over time.
63) An adjustable-rate mortgage (ARM) has an interest rate that is usually adjusted
every five years to reflect changes in Treasury bill rates (or other benchmark); ARMs
typically have variable interest rates over the 30 year life of the loan.
64) Capital markets are markets where equity securities and debt securities with
maturities of greater than one year are traded.
65) Entrepreneurial finance is the study of how individuals prepare for financial
emergencies, protect against premature death and property losses, and accumulate
wealth.
