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1) There is an inverse relation between debt instrument prices and nominal interest rates
in the marketplace.
2) The expected rate of return on a portfolio is the weighted average of the expected
returns of the individual assets in the portfolio.
3) The quick ratio is a stricter measure of liquidity compared to the current ratio.
4) A higher-risk project needs to be evaluated using a lower required rate of return.
5) The expectations theory contends that the shape of the yield curve reflects investor
expectations about future GDP growth rates.
6) Intervention by central banks in the flexible exchange rate system is called a dirty
float.
7) The cash conversion cycle measures a firms financing gap in terms of time.
8) Global bonds are generally denominated in euros and are marketed globally.
9) One of the important reasons corporations can accumulate large sums of capital is
that they are allowed to sell capital stock.
10) In an efficient market, investors cannot consistently earn above average profits.
11) The goal of the firm is the maximization of profits and market share.
12) Privately held corporations register shares with the Securities and Exchange
Commission before selling them to shareholders.
13) Break-even analysis is used to estimate how many units of products must be sold in
order for the firm to have a reasonable profit.
14) Three theories commonly used to explain the term structure of interest rates are the
expectations theory, the liquidity preference theory, and the market segmentation
theory.
15) The break-even quantity is inversely related to the level of a firms variable costs.
16) While the Federal Reserve strongly influences the supply of funds, the Treasurys
major influence is on the demand for funds, as it borrows heavily to finance federal
deficits.
17) If the average payment period is longer, then the cash conversion cycle will be
longer.
18) The Export-Import Bank is a corporation owned by the Federal Reserve Banks.
19) If a firm has current earnings before interest and taxes of $100,000 and interest
expense of $10,000, its degree of financial leverage would be:
a.10
b.1.11
c..10
d.cannot tell from this information
20) A receipt that represents foreign shares owned and traded by U.S. investors is called
a (n):
a.global depository receipt
b.American depository receipt
c.representative depository receipt
d.none of the above
21) Direct payments to individuals from the Federal government do not include:
a.Social Security payments
b.Medicare payments
c.health expenditures
d.all the above are included
22) Private placements:
a.are sold to the general public
b.have expedited SEC scrutiny
c.require public disclosure of the firms financial information
d.none of the above
23) All of the following statements are correct except:
a.MIRR solves some of the problems presented by IRR in that MIRR rankings of
mutually exclusive projects with comparably-sized initial investments will agree with
the NPV rankings of those projects
b.MIRR always gives a single answerit will not give us multiple answers as the IRR
approach sometimes does
c.MIRR is most useful in the case of mutually exclusive investments and in cases where
project cash flows change sign more than once
d.MIRR is always greater than the regular IRR if the cost of capital is less than the
regular IRR
e.all of the above are correct
24) Which of the following statements is most correct?
a.The federal government has produced annual budget deficits for all years but four,
when it ran consecutive budget surpluses that began in 1986 during the Reagan
administration
b.The federal government has produced annual budget deficits for all years but four,
when it ran consecutive budget surpluses that began in 1990 during the George H.W.
Bush administration
c.The federal government has produced annual budget deficits for all years but four,
when it ran consecutive budget surpluses that began in 2002 during the George W. Bush
administration
d.The federal government has produced annual budget deficits for all years but four,
when it ran consecutive budget surpluses that began in 1998 during the Clinton
administration
e.none of the above
25) The value of a share of stock currently selling for $100 after a 1 for 5 split is:
a.$20
b.$40
c.$500
d.$1000
e.none of the above
26) The _______ includes ALL international transactions.
a.balance of trade
b.balance of payments
c.current account balance
d.capital account balance
27) 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
28) Several factors will be considered by the board of directors and management as
they consider the level of dividend payout. Some of these factors include:
a.the ability of the firm to generate cash to sustain the level of dividends.
b.legal and contractual considerations
c.growth opportunities
d.all of the above
e.none of the above
29) If the initial margin requirement is 50% and you have $5,000 in your brokerage
account, you may purchase an additional __________ worth of securities on margin.
a.$2,000
b.$2,500
c.$10,000
d.none of the above
30) The U.S. Treasury is primarily responsible for:
a.monetary policy
b.debt management
c.fiscal policy
d.the money supply
31) If the expected return on Stock 1 is 6%, and the expected return on Stock 2 is 20%,
the expected return on a two-asset portfolio that holds 10% of its funds in Stock 1 and
90% in Stock 2 is:
a.11.52%
b.13%
c.18.6%
d.19.14%
32) The basic motives for holding money rather than investments are the:
a.transactions motive and the precautionary motive
b.transactions motive and the liquidity preference motive
c.transactions motive, the precautionary motive, and the speculative motive
d.transactions motive, the precautionary motive, and the liquidity preference motive
33) The strong-form efficient market implies that:
a.no investors can consistently beat the market
b.stock prices reflect all public and private knowledge
c.even corporate officers and insiders cannot earn above-average, risk-adjusted profits
d.more than one of the above
34) _________________________________________ are crucial elements of the
financial environment and well-developed financial systems.
a.Businesses and the federal government
b.International organizations such as the World Bank and International Monetary Fund
c.Well-developed barter systems
d.Financial institutions, financial markets, and investment and financial management
35) Research on the weak-form efficient market suggests that:
a.past trends cannot be used to predict the future
b.technical analysis has limited value
c.stock prices follow a random walk
d.more than one of the above
36) During the onset between 2007 and 2008, the returns on stocks and treasury bonds
a.converged
b.diverged
c.were about the same
d. were unrelated
e. none of the above
37) Find the average payment period if accounts payable is $20,000, cost of goods sold
is $200,000, and sales are $500,000.
a.10
b.36.5
c.25
d.14.6
38) Between 1928 and 2008, the average annual return on common stocks averaged
_____%, while the average annual return on Treasury bonds averaged _____%.
a.11.1, 5.4
b.11.1, 3.8
c.11.1, 3.2
d. none of the above
39) Ningbo Steel had year end 2010 and 2011 retained earnings balances of $5,000,000
and $6,000,000 respectively. The firm paid $100,000 of dividends in 2011. Based on
this information, Ningbo Steels net profit after taxes in 2011 was:
a.$100,000
b.$900,000
c.$1,000,000
d.$1,200,000
e.none of the above
40) If the nominal rate of interest is 10%, the real rate of interest is 3%, the default
premium is 3%, the liquidity premium is 0.5%, and the maturity premium is 1.5%, then
the inflation premium must be ______.
a.2.0%
b.2.5%
c.3.0%
d.none of the above
41) All of the following statements are correct except:
a.The pecking order hypothesis is a theory that states managers prefer to use additions
to retained earnings to finance the firm, then debt, 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
42) Which of the following bonds has the greatest interest rate risk?
a.a 5 year, 10% coupon bond
b.a 10 year, 10% coupon bond
c.a 5 year, 5% coupon bond
d.a 10 year, 5% coupon bond
43) Financial assets include all except which of the following:
a.productive facilities
b.time deposits
c.business loans
d.consumer loans
44) 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
45) A firm has fixed operating costs of $25,000, a per unit sales price of $5, and a
variable cost per unit of $3. What is its operating breakeven point if it desires net
operating income of $10,000, not $0 (zero)?
a.12,500 units
b.15,000 units
c.17,500 units
d.25,000 units
46) Which of the following is not used in the weighted average cost of capital equation?
a.cost of retained earnings
b.weight of debt
c.corporate income tax rate
d.marginal tax rate
47) A bond that can be changed into a specified number of shares of the issuers
common stock is called a:
a.retractable bond
b.convertible bond
c.callable bond
d.collateralized bond
48) The Federal Reserve System cannot directly control:
a.Treasury security purchases
b.monetary base
c.the size of the money supply
d.all the above
49) The portfolio that contains all risky assets is known as the:
a.market portfolio
b.efficient portfolio
c.efficient frontier
d.value-weighted portfolio
50) Federal Reserve open market operations, setting reserve requirement, and lending to
depositories are:
a.usually conducted simultaneously
b.designed to improve the federal deficit
c.of equal importance in their effort
d.functions shared with the U.S. Treasury
e.none of the above
51) When the market interest rate rises for a particular quality of bond, the price of the
bond falls, which gives investors a new:
a.coupon rate
b.interest payment amount
c.yield to maturity
d.maturity
