1) U.S. Treasury bills are sold at a discount through competitive bidding in an annual
auction.
2) The Federal Reserve System was not able to regulate money and credit until after
World War II.
3) The selection stage involves applying the appropriate capital budgeting techniques to
help make a final decision.
4) A cash budget is a tool the treasurer uses to forecast future cash flows and estimate
future short-term borrowing needs.
5) Limited partners must take an active role in the operations of the firm.
6) If the expected return is 10%, the standard deviation is 3%, about 68% of the time
returns will be expected to fall between 10% and 13%.
7) The maturity risk premium is the compensation expected by investors due to interest
rate risk on debt instruments with longer maturity.
8) Financial leverage ratios indicate the extent to which borrowed funds are used to
finance assets.
9) If the imports of goods and services exceed exports, GDP will be higher.
10) With generally accepted accounting practices, there is one right way of accounting
for business transactions.
11) Treasury notes are intermediate-term Federal debt obligations.
12) Bank reserves are increased when the Treasury:
a.sells government bonds to individuals
b.decreases its holding of cash
c.increases its account at a Federal Reserve bank
d.increases its holding of cash
13) Successful businesses typically progress through a series of life-cycle stagesfrom
the idea stage to exiting the business; these five stages include the:
a.development stage, startup stage, survival stage, rapid growth stage, and maturity
stage
b.idea stage, design stage, operating stage, rebuilding stage, and decline stage
c.development stage, operating stage, rebuilding stage, rapid growth stage, and maturity
stage
d.idea stage, startup stage, rapid growth stage, survival stage, and decline stage
14) Holding all other factors constant, if a firm increases its current assets relative to
total assets,
a.it increases return and reduces risk
b.it increases return and increases risk
c.has no effect on return and reduces risk
d.it reduces return and increases risk
e. none of above are correct
15) The personal savings rate is calculated as:
a.personal savings divided by personal outlays
b.personal savings multiplied by disposable personal income
c.disposable personal income divided by personal outlays
d.personal income divided by personal outlays
e.none of the above
16) Top finance officers in a corporation may include:
a.treasurer
b.chief financial officer
c.controller
d.all the above
e.none of the above
17) Which of the following statements is correct?
a.Capital budgeting analysis is not a framework for evaluating all business decisions; it
is only a tool for the financial types
b.Proper analysis will identify irrelevant cash flows and an appropriate discount rate to
reflect the risk of the strategy and will compare the benefits and costs of the project
without considering the time value of money
c.Whether the investment is one in a business strategy, building a new warehouse,
seeking fuel efficient methods of doing business, upgrading information technology
systems, or investing in human resources, we should not try to quantify the benefits and
cost of these choices in order to evaluate them properly
d.To achieve success over time, a firms managers must identify and invest in projects
that provide positive net present values to maximize shareholder wealth
e.all of the above statements are correct
18) Which of the following is a different concept from the other three?
a.required rate of return
b.cost of capital
c.discount rate
d.net profit margin
19) A mercantile credit bureau serves primarily as a (n):
a.collection agency for delinquent accounts
b.common meeting place where credit managers may exchange information
c.organization through which accounts receivable may be sold to other businesses
d.central record-keeping organization for credit information on business firms
20) Which of the following would not be a characteristic of commercial paper?
a.issued by well-known business firms
b.debt is secured
c.short-term debt
d.all are characteristics of commercial paper
21) When the United States Treasury makes a payment to an individual or business, it
usually takes the form of a:
a.check drawn on a Federal Reserve Bank
b.check drawn directly against the U.S. Treasury
c.special Treasury voucher
d.check drawn against a bank in which tax balances are held
22) Maximizing _____________________ is accomplished through effective financial
planning and analysis, asset management, and the acquisition of financial capital.
a.the value of perquisites
b.the owners wealth
c.the firm’s profits
d.the firm’s earnings
e. none of the above
23) For positive interest rates, the future value interest factor is
a.always greater than 1.0
b.sometimes negative
c.always less than 0
d.never greater than 25
24) The goal of a companys cash management policy is to
a.increase the cash conversion cycle
b.increase the payment period
c.minimize the cash requirement
d.maximize cash outflows
e. none of above are correct
25) The first step in the capital budgeting process is
a.implementation
b.selection
c.follow-up
d.identification
26) One factor that decreases the volume of bank reserves is a decrease in:
a.bank holdings of loans and securities
b.time and savings deposits
c.life insurance company reserves
d.the level of cash holdings
e. none of the above
27) For most of the remainder of the decade after the September 11th terrorist attacks
the Fed maintained a high liquidity, low interest rate environment, which was
accompanied by:
a.very little borrowing by business firms, financial institutions, and individuals
b.large amounts of borrowing by business firms, financial institutions, and individuals
c.a massive divestment of assets by business firms, financial institutions, and
individuals
d.a massive reduction of inventory levels by business firms
e.none of the above
28) Newly created securities are sold in the:
a.primary market
b.secondary market
c.third market
d.fourth market
29) Which of the following statements is false?
a.Factors affecting the amount of savings include: levels of income, economic
expectations, cyclical influences, and the life stage of the individual saver
b.Gross savings are the profits remaining after tax, and in the case of corporations, after
the payment of cash dividends to stockholders
c.Voluntary savings are financial assets set aside for use in the future
d.After the Civil War, the United States enjoyed an autonomous capital formation
process
30) Economists who believe that long-run inflationary bias will continue base their
belief on the following factors:
a.Prices and wages tend to rise during periods of boom in a competitive economy; this
tendency is reinforced by wage contracts that provide escalator clauses to keep wages in
line with prices and by wage increases that are sometimes greater than increases in
productivity
b.During recessions, prices tend to remain stable rather than decrease because major
unions have long-run contracts calling for annual wage increases no matter what
economic conditions are at the time
c.The tendency of large corporations to rely on non-price competition (advertising, and
style and color changes) and to reduce output rather than cut prices also keeps prices
stable
d.If prices decline drastically in a field, the government is likely to step in with
programs to help take excess supplies off the market
e. all of the above are correct
31) Factors that affect the selection of a short-term financing strategy include:
a.cost
b.flexibility
c.qualitative factors
d.all the above
32) Most income for the Federal Government comes from:
a.corporate income taxes
b.individual income taxes
c.social insurance receipts
d.all of the above
33) When old short-term debt is replaced by new short-term debt as the old debt comes
due, the process is known as:
a.compensating balance
b.rolling the debt
c.fluctuating financing
d.none of the above
34) Working capital does not include:
a.cash
b.accounts receivable
c.marketable securities
d.property, plant, and equipment
35) The operating break-even sales level is sensitive to all of the following variables
except:
a.fixed operating costs
b.sales price per unit
c.variable operating cost per unit
d.interest expense
e.it is sensitive to all of the above variables
36) Which of the following statements is most correct?
a.The probability of an event occurring is the percentage of a given outcome
b.A continuous probability distribution shows all possible outcomes and associated
probabilities for a given event
c.The standard deviation measures the dispersion around the expected value
d. The coefficient of variation is a measure of relative dispersion used in comparing the
risk of assets with differing expected returns
e. all of the above
37) Which of the following statements is most correct?
a.Because global depository receipts are listed on the London Stock Exchange, U.S.
investors cannot buy GDRs through a broker in the United States
b.Foreign stocks can be traded in the United States if they are registered with the
Securities and Exchange Commission
c.The fourth market is a market for large blocks of listed stocks that operates outside the
confines of the organized exchanges
d.All the above statements are correct
38) Ningbo Shipping has prepared the coming year’s pro forma balance sheet and has
estimated that external financing required would be -$230,000. The firm should prepare
to
a.repurchase common stock totaling $230,000
b.pay off an existing loan in the amount of $230,000
c.accumulate an additional $230,000 of cash on its books
d.invest in marketable securities totaling $230,000
e.all of the above
39) An individual or organization that represents the bondholders to ensure the
indentures provisions are respected by the bond issuer is called a (n):
a.trust indenture
b.trustee
c.investment banker
d.trust organization
40) Which of the following is not an advantage of short-term borrowing?
a.flexibility
b.establishing continuous relationships with a bank or financial institution
c.frequent renewals
d.lower cost
41) If the market rate of return is 12%, and the beta on Consolidated Edison is .8, the
return on Con Ed is:
a.greater than 12%
b.less than 12%
c.greater or less than 12%, depending on the risk-free rate of return
d.dependent on some other factors
42) Tom Vu deposited $5,000 in a savings account that paid 8% interest compounded
quarterly. What is the effective rate of interest?
a.8.00%
b.8.24%
c.8.33%
d.8.46%
43) If you expect the inflation premium to be 2%, the default risk premium to be 1%
and the real interest rate to be 4%, what interest would you expect to observe in the
marketplace under the simplest form of market interest rates?
a.4%
b.7%
c.2%
d.1%
44) If a firm has no debt and pays no taxes, then the firms operating profit margin will
be ___________ the firms net profit margin.
a.greater than
b.less than
c.the same as
d.we cant tell
45) The most important form of short-term business financing is:
a.a revolving credit agreement
b.accounts-receivable financing
c.inventory loans
d.trade credit
46) The extent to which assets are used to support sales is indicated by which of the
following ratios:
a.liquidity ratios
b.asset utilization ratios
c.financial leverage ratios
d.profitability ratios
47) 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