1) The aftermarket is the market where securities are subsequently bought and sold after
they are initially issued.
2) An acceptance is a receivable from the sale of merchandise on the basis of a draft or
bill of exchange drawn against the buyer or the buyers bank.
3) Real assets include indirect ownership of land, buildings, machinery, inventory,
commodities, and precious metals.
4) Ratio analysis is a financial technique that involves dividing various financial
statements numbers into one another.
5) Eurodollar bonds are dollar-denominated bonds that are sold outside the United
States.
6) The accounts payable period is the time between a firm pays its suppliers for
inventory and collecting cash from inventories.
7) In the fractional reserve system, banks must hold, with the Fed, reserves equal to a
certain percentage of their deposits.
8) A discounted loan is one in which the borrower receives the principal plus the
interest at the time the loan is made.
9) Theoretically, the transactions demand for cash could be reduced to zero.
10) A portfolio is any combination of financial assets or investments.
11) During the past 75 years, small company stocks have provided investors with higher
average annual returns than large company stocks.
12) Trend or time series analysis is used to compare the performance of different firms
at the same point in time.
13) Callable bonds can be redeemed prior to maturity by the firm.
14) Trade credit is the single most important form of short-term business financing.
15) If someone needs to make a payment in the currency of another country, they must
have actual possession of that currency.
16) Managerial lines of authority, legal responsibility and the allocation of income and
risk are directly related to the form the organization takes.
17) The future value of a $100 deposit in 10 years at 10% is $38.55.
18) The effective annual rate is determined by multiplying the interest rate charged per
period by the number of periods in a year.
19) Projects with negative net present values will lead to a decrease in the value of the
firm.
20) 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
21) Which of the following statements is most correct?
a.Combining positively correlated assets having the same expected return results in a
portfolio with the same level of expected return and a lower level of risk
b.Combining negatively correlated assets having the same expected return results in a
portfolio with the same level of expected return and a higher level of risk
c.Combining positively correlated assets having the same expected return results in a
portfolio with a lower level of expected return and a lower level of risk
d. Combining negatively correlated assets having the same expected return results in a
portfolio with a lower level of expected return and a lower level of risk
e. none of the above
22) _______________ is the study of how growth-driven, performance-focused,
early-stage (from development through early rapid growth) firms raise financial capital
and manage their operations and assets.
a.Personal finance
b.Corporate finance
c.Entrepreneurial finance
d.Investment banking
e.none of the above
23) Which of the following statements is most correct?
a.Advance refunding is one of the new debt-management techniques used to extend the
average maturity of the marketable debt without disturbing the financial markets and
occurs when the Treasury offers the owners of a given issue the opportunity to
exchange their holdings well in advance of the holdings regular maturity for new
securities of longer maturity
b.Reverse refunding is one of the new debt-management techniques used to extend the
average maturity of the marketable debt without disturbing the financial markets and
occurs when the Treasury offers the owners of a given issue the opportunity to
exchange their holdings well in advance of the holdings regular maturity for new
securities of longer maturity
c.Extended refunding is one of the new debt-management techniques used to extend the
average maturity of the marketable debt without disturbing the financial markets and
occurs when the Treasury offers the owners of a given issue the opportunity to
exchange their holdings well in advance of the holdings regular maturity for new
securities of longer maturity
d.Laddered refunding is one of the new debt-management techniques used to extend the
average maturity of the marketable debt without disturbing the financial markets and
occurs when the Treasury offers the owners of a given issue the opportunity to
exchange their holdings well in advance of the holdings regular maturity for new
securities of longer maturity
e. none of the above
24) Of the following, the most sensitive interest rate in the money market is the:
a.bankers acceptance rate
b.prime rate
c.Federal Reserves discount rate
d.federal funds rate
25) The major factors which influence the level of savings are the level of:
a.income and the life stage of the individual saver
b.income, economic expectations, cyclical influence, and the life stage of the individual
saver
c.income, interest rates, and the life stage cycle of the individual saver
d.income and interest rates
26) _________________________ was created to promote world trade through
monitoring and maintaining fixed exchange rates and by making loans to countries with
payments problems.
a.The World Bank
b.The International Monetary Fund
c.The International Bank for Reconstruction and Development
d.none of the above
27) The risk cause by variations in income before taxes over time because fixed interest
expenses do not change when operating income rises or falls is called:
a.interest rate risk
b.business risk
c.tax risk
d. purchasing power risk
e. none of the above
28) What yield curve shape is depicted if intermediate-term Treasury securities yield 10
percent, short-term Treasuries yield 10.5 percent, and long-term Treasuries yield 9.5
percent?
a.downward sloping
b.flat or level
c.upward sloping
d.U shaped
29) One item that does not affect the cash conversion cycle is:
a.inventory period
b.accounts receivable
c.accounts payable period
d.all the above affect the cash conversion cycle
30) Joe Biden plans to fund his individual retirement account (IRA) with the maximum
contribution of $2,500 at the end of each year for the next 30 years. If Joe can earn 10
percent on his contributions, how much will he have at the end of the tenth year?
a.$411,235
b.-$411,235
c.$23,567
d.-$23,567
31) If the interest rate is greater than 0%, then a dollar today is worth
a.more than a dollar tomorrow
b.the same as a dollar tomorrow
c.less than a dollar tomorrow
d.there is not sufficient information to tell
32) The corporate planning tool that develops project plans that fit well with the firms
plans is often referred to by the following acronym:
a.SWOT
b.MOSG
c.STOW
d.GOMS
e.none of the above statements are correct
33) A statement that expresses the income statement items as a percent of total sales is
called:
a.a percentage of sales income statement
b.a cross-sectional income statement
c.a common size income statement
d.a ratio based income statement
e.none of the above
34) All of the following statements are correct except:
a.Relevant cash flows are incremental after-tax cash flows, which must be discounted
using an incremental after-tax cost of capital
b.The firms relevant cost of capital is computed from after-tax financing costs.
c.A projects incremental cash flows must be discounted at a cost of capital that
represents the incremental or marginal cost to the firm of financing the project, that is,
the cost of raising one additional dollar of capital
d.In estimating the cost of capital, the firms analysts need to evaluate investors expected
returns under likely market conditions and then use these expected returns to compute
the firms marginal future cost of raising funds
e.All of the above statements are correct
35) 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
36) Which of the following are required to file annual reports with the Securities and
Exchange Commission?
a.proprietorships
b.partnerships
c.public corporations
d.all the above
37) Carly Fiorina owns stock in a company which has consistently paid a growing
dividend over the last five years. The first year Carly owned the stock, she received
$1.71 per share and in the fifth year, she received $2.89 per share. What is the growth
rate of the dividends over the last five years?
a.7 percent
b.14 percent
c.12 percent
d.5 percent
38) A purchasing agent for a domestic art gallery touring foreign countries for possible
acquisitions might find it convenient to have:
a.travelers checks
b.a commercial letter of credit
c.regular checkbook drafts
d.a great deal of cash in various currencies
e.none of the above
39) The square root of the standard deviation is called the:
a.variance
b.coefficient of variation
c.beta
d. none of the above
40) All other things being equal, an increase in the amount fixed operating costs for a
firm would:
a.increase the degree of financial leverage
b.decrease the degree of financial leverage
c.have no impact on degree of financial leverage
d.not enough information given
41) ________________ involves financial planning, asset management, and fundraising
decisions to enhance the value of businesses.
a.financial markets
b.financial institutions
c.finance
d.financial management
42) Which of the following statements most correctly describes the process of capital
formation?
a.In a highly developed economy, capital formation takes place directly
b.Capital formation takes place whenever resources are used to produce building,
machinery, and other equipment to be used in the production of goods for consumer use
The direct process of capital formation can work only if the proper legal instruments
and financial intermediaries exist
All of the above statements are correct
43) Business firms hold cash and marketable securities for which of the following
reasons or motives?
a.transactions, precautionary, and goodwill motives
b.precautionary, speculative, and goodwill motives
c.transactions, precautionary, and speculative motives
d.precautionary, goodwill, and transactions motives
44) The firm that enters into a futures contract with respect to foreign exchange does so:
a.to offset possible loss in its collection process by a gain in the delivery process of the
futures contract
b.in anticipation of an increase in the value of the currency of the country for which the
contract is established
c.to decrease the cost of their sales transactions
d.to eliminate a loss in the collection process of their accounts receivable in that country
45) Which of the following statements is false?
a.During the past couple of decades, generally high fixed-rate mortgage loan interest
rates and the desire to extend housing ownership to more individuals in the U.S., the
use of adjustable-rate mortgages grew in usage
b.An adjustable-rate mortgage (ARM) has an interest rate that changes or varies over
time with market-determined interest rates on a U.S. treasury bill or other debt security
c.The interest rate on an ARM is often adjusted annually to reflect changes in Treasury
bill rates (or other interest rate benchmark)
d.Lenders typically offer ARMs with variable interest rates for oneyear with a provision
to switch to a fixed-rate mortgage after two years
e.all of the above statements are true
46) Current liabilities would not include:
a.accounts payable
b.notes payable
c.bonds
d.accruals
47) Unlike ____________ , _____________can continually sell new shares to willing
investors.
a.open-ended funds, closed-end funds
b.closed-end funds, open-ended funds
c.closed-end funds, mutual funds
d. two of the above
48) Programs passed by the federal government in response to the financial crisis of
2007-2009 include all of the following except:
a.Economic Security Act
b.Toxic Asset Response Program
c.American Real Estate Reinvestment Act
d.only a and b were passed
e.none of the above were passed
49) If total assets are $100,000, fixed assets are $30,000, current liabilities are $20,000,
then net working capital is:
a.$100,000
b.$70,000
c.$50,000
d.$0