All of the following statements are correct except:
a. The NPV and IRR methods will always agree on whether a project enhances or
harms shareholder wealth.
b. If a project has a positive NPV, its IRR will always be greater than the cost of capital.
c. If a project has a negative NPV, its IRR will always be less than the cost of capital.
d. There is never a conflict between NPV and IRR in the case of mutually exclusive
projects.
e. all of the above are correct
When solving for the future value of an amount deposited now, which one of the
following factors would not be part of the calculation?
a. present value amount
b. 1 plus the interest rate
c. 1 divided by the sum of 1 plus the interest rate
d. number of periods to compound over
How much would you be willing to pay for a preferred stock that pays $6.50 to
perpetuity if the appropriate discount rate is 9%?
a. $65.00
b. $72.22
c. $81.25
d. $722.20
Approximately __________ of the nation€s commercial banks are members of the Fed.
a. three-fourths
b. two-thirds.
c. one-third.
d. one-half.
e. none of the above
The Sarbanes-Oxley Act established this entity. .
a. Auditing Commission
b. Accounting Accuracy Board
c. FASB
d. SEC
e. Public Company Accounting Oversight Board
The total risk of a well-diversified portfolio of U.S. stocks appears to be about what
proportion of the risk of an average one-stock portfolio?
a. one-third
b. one-half
c. two-thirds
d. three-fourths
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 Cecilia’s annual rate of return on her investment?
a. 10%
b. 10.6%
c. 11%
d. 11.2%
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
Loans by an exporter’s bank based on the security of a documentary draft:
a. are supported entirely by the strength of the importer
b. are subject to the approval of the importer’s bank
c. are available only to exporters with strong credit ratings
d. have not only the financial strength of the exporter to support them, but also that of
the importer
Today the responsibilities of the Fed may be described as:
a. those relating to monetary policy, to supervision and regulation, and to services
provided for depository institutions and the government.
b. those relating to fiscal policy, to supervision and regulation, and to services provided
for depository institutions and the government.
c. those relating to monetary policy, to deregulation, and to services provided for
depository institutions and the government.
d. those relating to monetary policy, to supervision and regulation, and to services
provided for homeowners and the government.
e. none of the above
The payback period concept is best explained by which of the following?
a. marginal cost of capital
b. point where initial investment has been returned
c. rate where NPV is equal to zero
d. accounting rate of return
The ___________________ shows the flow of income into and out of the United States
during a specified period.
a. Balance of payments
b. Capital Account balance
c. Current Account balance
d. Merchandise Trade balance
e. Balance of trade
A trade in the multiple of 100 shares is called a (n):
a. round lot
b. odd lot
c. block trade
d. none of the above
The Federal Reserve System cannot directly control:
a. Treasury security purchases by the public
b. monetary base
c. the size of the money supply
d. all the above
The prime rate is the interest rate the bank charges its most creditworthy customers.
Financial analysis using ratios is not useful in the firm’s financial planning process.
The two basic components of the U.S. money supply are physical money and deposit
money.
Diversification occurs when we invest in several different assets rather than just a single
one.
Over the counter markets are organized exchanges for trading securities such as the
New York Stock Exchange.
Open market operations are similar to discount operations in that they increase or
decrease bank reserves at the initiative of the Fed.
The federal government relies primarily on income taxes and social insurance taxes for
its revenues.
Two basic tools that can be used to reduce the consequences of managers making
self-serving decisions include offering managers stock options and offering managers
restricted stock.
The fiscal policy effects of a tax cut occur more slowly than an increase in government
spending.