The financial crisis of 2007-2009 resulted from a number of negative economic and
financial trends including:
a. a decline in housing prices
b. a decline in stock prices
c. mortgage defaults
d. high debt levels
e. all of the above
The financial environment:
a. encompasses the financial markets and global interactions that contribute to an
efficiently operating economy.
b. encompasses the financial institutions and financial markets that contribute to an
efficiently operating economy.
c. encompasses the financial system, financial institutions, financial markets, business
firms, individuals, and global interactions that contribute to an efficiently operating
economy.
d. none of the above.
The IRR
a. shows the graphical relationship between a project’s NPV and cost of capital.
b. is the return that causes the NPV to be zero.
c. is the return that causes the NPV to be positive.
d. measures the firm and project’s required rate of return.
e. none of the above
If firms select the proportion of debt in their capital structures in order to balance the
benefits of tax-deducible interest payments with opportunity costs, this would support
the notion of:
a. the static trade-off hypothesis
b. pecking order theory
c. efficient markets hypothesis
d. none of the above
Checks may be cleared by:
a. the Federal Reserve
b. banks in the banking system
c. both the above
d. neither the above
Which of the following terms best describes an annuity due?
a. a perpetuity
b. unequal payments
c. payment at beginning of year
d. payment at the end of the year
67. During the 2007 – 2009 financial crisis, some of the very largest financial
institutions were deemed as being “too big to fail” because their failure would cause
cascading negative repercussions throughout the U.S. and many foreign economies. As
a result, the Federal Reserve
a. moved to increase liquidity in the monetary system and reduced its target federal
funds rate to below .25 percent.
b. worked with the U.S. Treasury to help facilitate the merging of financially weak
institutions with institutions that were financially stronger.
c. both a and b are true
d. none of the above are true
If the money supply and total demand increase faster than output, prices will:
a. fall
b. stay the same
c. rise
d. reflect lower inflation
The present value of $1,000 received at the end of year 1, $1,200 received at the end of
year 2, and $1,300 received at the end of year 3, assuming an opportunity cost of 7
percent, is
a. $2,500.
b. $3,043.
c. $6,516.
d. $2,856.
You need to have $35,000 on hand to buy a new Lexus five years from today. To
achieve that goal, you want to know how much you must invest today in a certificate of
deposit guaranteed to return you 3% per year. To help determine how much to
investment today, you will use:
a. present value factors
b. annuity value factors
c. present value factors of an annuity
d. future value factors of an annuity
Managerial lines of authority, legal responsibility and the allocation of income and risk
are directly related to the form the organization takes.
Credit risk is the chance of nonpayment or delayed payment of interest or principal.
External financing needs can be calculated by subtracting the addition to retained
earnings and an increase in spontaneous financing from a firm’s change in assets.
A prime mortgage is a home loan to a borrower with a credit score above 300.
Mortgage banking firms provide loans directly to consumers and businesses or aid
individuals in obtaining financing of durable goods and homes.