The interest rate determined by multiplying the interest rate charged per period by the
number of periods in a year is called the:
a. annual percentage rate
b. compound rate of interest
c. stated rate of interest
d. effective annual rate
When current savings of an economic unit exceed its direct investment in real assets,
a. more funds are needed by the economic unit
b. funds can be made available to a savings deficit unit
c. interest rates will rise
the firm has undistributed profits
Legislation that provided for the separation of commercial banking and investment
banking activities in the United States is called
a. Garn€St. Germain Depository Institutions Act
b. Glass-Steagall Act
c. Hunt Commission legislation
d. Depository Institutions Deregulation and Monetary Control Act
A current yield on a corporate bond is calculated as:
a. coupon interest amount divided by par value
b. coupon interest rate times the par value
c. coupon interest amount divided by the current price
d. coupon interest rate times the current price
If annual GDP is $100 billion and the MS is $20 billion, the velocity of money (VM) is
________.
a. 2
b. 5
c. 20
d. 50
e. none of the above
A firm with an inventory period of 30 days, an accounts receivable period of 30 days,
and an accounts payable period of 90 days has a cash conversion cycle of _____ days.
a. 150
b. -60
c. 30
d. -30
All of the following methods can be used to estimate the cost of debt except:
a. If the firm targets an “A” rating (or any other bond rating), a review of the yields to
maturity on A-rated bonds in Standard & Poor’s Bond Guide can provide an estimate of
the firm’s current borrowing costs.
b. The firm can solicit the advice of personal financial planners on the cost of issuing
new debt.
c. If the firm has debt currently trading, it can use public market prices and yields to
estimate its current cost of debt.
d. A firm can seek long-term debt financing from a bank or a consortium of banks;
preliminary discussions with the bankers will indicate a ballpark interest rate the firm
can expect to pay on its borrowing.
e. All of the above statements are correct.
If a firm’s inventories on hand are $200,000, its cost of goods sold is $600,000, and its
sales are $800,000, what is the inventory turnover?
a. 2 times
b. 3 times
c. 4 times
d. 5 times
BP has an average age of inventory of 60 days, an average collection period of 45 days,
and an average payment period of 30 days. Based on this information, BPs cash
conversion cycle is ________ days.
a. 55
b. 65
c. 75
d. 85
e. none of the above
Ameritech has just issued a $1,000 par value bond that will mature in 10 years. This
bond pays interest of $45 every six months. If the annual yield to maturity of this bond
is 8%, what is the price of the Ameritech bond if the market is in equilibrium?
a. $991.50
b. $1,067.96
c. $1,112.82
d. none of the above
Which of the following is not an important source of short-term funds to small
businesses?
a. commercial banks
b. commercial paper
c. accounts receivable secured loans and/or use of factors
d. the Small Business Administration
The purchaser may deduct 2% from the purchase price if payment is made within 10
days; but if not paid within 10 days, the net amount of the purchase is due within 30
days. The sale is made on what terms?
a. 10/30, net/2
b. 2/10, net/30
c. 2/30, net/10
d. 10/2, net/30
The banking system of the United States is a ___________ reserve system because
banks are required by the Fed to hold reserves equal to a specified percentage of their
deposits.
a. required
b. fractional
c. proportional
d. multiplicative
e. none of the above
____________________ in business involves making decisions relating to the efficient
use of financial resources in the production and sale of goods and services.
a. Financial management
b. Financial economics
c. Investment management
d. Asset allocation
e. none of the above
In June, Erie Plastics had an ending cash balance of $55,000. In July, the firm had total
cash receipts of $70,000 and total cash disbursements of $10,000. The minimum cash
balance required by the firm is $25,000. At the end of July, Erie Plastics had
a. an excess cash balance of $90,000
b. an excess cash balance of $0
c. an excess cash balance of $115,000
d. required financing of $25,000
e. none of the above
Sacramento Sandals (SS) has fixed annual operating costs of $75,000. SS retails each
pair of sandals for $14.99 each and the variable cost per pair is $4.99. Based on this
information, the breakeven sales level in dollars is
a. $125,495
b. $112,425
c. $108,995
d. none of the above
Which of the following may accumulate savings?
a. individuals
b. corporations
c. governmental units
d. all the above may have savings
Stocks and bonds are rarely used as collateral for short-term loans.
The federal debt is the same thing as the budget deficit.
If Stock A has a higher standard deviation than Stock B, it will also have a greater
coefficient of variation.
All commercial banks are members of the Fed.
A cross-sectional analysis would be used to evaluate a firm’s performance over time.
The only bank asset that can be counted as reserve is deposits with the Reserve Banks.