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An unconditional order for the payment of money from one person to another is called a
(n)
a. bill of exchange
b. sight draft
c. time draft
d. documentary draft
Any positive economic profit or positive net present value may arise from
a. market imperfections or inefficiencies such as a monopoly situation.
b. economies of scale.
c. product differentiation.
d. government policy.
e. all of the above statements are correct
The most frequently cited justification for requiring a compensating balance is:
a. for a commission; to cover the costs of loaning the money
b. to be reassured of some recovery in the event of bankruptcy of the firm
c. to make bank borrowers also be depositors
d. to pay interest for the use of the money
Which of the following bonds may be secured by home mortgages?
a. mortgage bonds
b. collateralized mortgage obligations
c. closed-end mortgage bonds
d. open-end mortgage bonds
Using the constant dividend growth model, which of the following components not be
considered?
a. current stock price
b. dividend growth rate
c. risk-free rate
d. all the above are considered in the constant dividend growth model
____________________________ prohibits discrimination in the granting of credit on
the basis of sex, marital status, race, color, religion, national origin, age, or receipt of
public assistance.
a. Truth in Lending Act
b. Equal Credit Opportunity Act
c. Federal Trade Commission Improvement Act
d. Fair Credit Billing Act
Which of the following is not a variable cost?
a. direct materials
b. direct labor
c. delivery costs
d. rent
e. all of the above are variable costs
Assume that a borrower is willing to pay you $2,000 at the end of three years in return
for a sum of money now. To receive a return of 10%, how much are you willing to lend
now?
a. $1,502
b. $1,786
c. $1,802
d. $1,818
On the balance sheet, retained earnings represents
a. net profits for the current year
b. net profits for the current year minus preferred stock dividends
c. cash reinvested in fixed assets to support growth
d. the total of earnings reinvested in the firm for the current year
e. none of the above
Under which one of the following business organizations do the owners have unlimited
liability for all debts of the firm?
a. partnership
b. limited partnership
c. corporation
d. subchapter S corporation
Assume a firm is developing, manufacturing, and selling a basic software package at
$300 per copy. Raw material and direct labor total $100 per unit. Fixed costs are
$150,000. If unit sales are 3,000 per year, what will be the break-even point in units?
a. 375 units
b. 500 units
c. 750 units
d. 800 units
A firm with total asset turnover lower than the industry average may have
a. excessive debt.
b. excessive cost of goods sold.
c. excessive sales.
d. insufficient fixed assets.
e. none of the above
Creating and transferring money are integral parts of the:
a. investment process
b. capital formation process
c. savings process
d. none of the above
The profitability index measures the present value of benefits received for each dollar
invested.
One weakness of the payback period method is that all cash flows beyond the payback
period are ignored.
Financial leverage ratios indicate the extent to which borrowed funds are used to
finance assets.
A line of credit is a legal obligation of the bank to provide funds up to the agreed-upon
borrowing limit for a period of time.
The higher the risk of a project, the higher its risk-adjusted discount rate and thus the
lower the net present value for a given stream of cash inflows.
Banks with large transaction account balances hold the same percentage of reserves as
all other banks.
