The monetary base:
a. equals the money supply
b. consists of checkable and noncheckable deposits
c. consists of bank reserves, plus currency
d. equals the money multiplier, plus bank reserves
The _______________ ratio is computed as earnings before interest and taxes divided
by interest expense:
a. net profit margin
b. fixed charge coverage
c. total asset turnover
d. interest coverage
Angelina has planned to start her college education four years from now. To pay for her
college education, she has decided to save $1,000 each quarter for the next four years in
a bank account paying 12 percent interest. How much will she have at the end of the
fourth year?
a. $1,574
b. $19,116
c. $20,157
d. $16,000
Of the four options listed below and encountered in project evaluation, which one is
likely to make a project seem less attractive?
a. underestimating negative cash flows
b. overestimating positive cash flows
c. using a higher cost of capital
d. ignoring the time value of money
A basic requirement for an effective financial system is a monetary system that
performs which of the following financial functions?
a. formation and transferring of money
b. storing gold and silver to back up money
c. creating jobs
d. transferring real assets
In future value or present value problems, unless stated otherwise, cash flows are
assumed to be
a. at the end of a time period.
b. at the beginning of a time period.
c. in the middle of a time period.
d. spread out evenly over a time period.
The approximate effective cost (EC) of financing the discount price of trade credit
under terms 2/10, net/30 using a 360 day year is:
a. 25%
b. 30.1%
c. 37.2%
d. 42.5%
Systematic risk is rewarded with higher returns in the market because:
a. it is associated with market movements which cannot be eliminated through
diversification
b. it is a microeconomic risk
c. that risk is unique to a firm or an industry
d. none of the above
Legislation that permits depository institutions to compete with money market mutual
funds on an equal basis with respect to interest rates offered to investors is the:
a. Garn€St. Germain Depository Institutions Act
b. National Banking Act
c. Hunt Commission legislation
d. Depository Institutions Deregulation and Monetary Control Act
All of the following statements is correct EXCEPT
a. The financial crisis and recession of 2007-2009 had strong effects on the ability of
borrower firms to obtain short-term financing and for firms with surplus funds to invest
in short-term instruments.
b. During the 2007-2009 financial crisis and recession, major spikes in the risk
premium between commercial paper and T-bills indicate major stresses to the financial
system-both for issuers and investors.
c. During the 2007-2009 financial crisis and recession, major spikes in the risk premium
between commercial paper and T-bills indicate periods of investors fleeing investments
of perceived risk (commercial paper) and placing funds in the safest assets (T-Bills).
d. During the 2007-2009 financial crisis and recession, major spikes in the risk
premium between commercial paper and T-bills indicate periods of investors fleeing
investments of perceived risk (T-Bills) and placing funds in the safest assets (corporate
bonds).
e. all of the above are correct
Government financing of large budgetary deficits:
a. absorbs savings and decreases interest rates
b. may crowd out private borrowers
c. is known as monetizing the deficit
d. reduces total consumer spending and demand
A draft requiring immediate payment is called a (n)
a. bill of exchange
b. sight draft
c. time draft
d. documentary draft
Debt management of the federal government includes:
a. determining which types of refunding to implement
b. determining the types of securities to sell
c. deciding which interest rate patterns to use
d. two of the above
e. answers a, b and c are correct
Which of the following short-term sources of funds is available only to the financially
strongest concerns?
a. trade credit
b. commercial bank loans
c. finance company loans
d. commercial paper
15. 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
___________________ has the lowest claim on the assets and cash flow of the firm.
a. A bond
b. A subordinated debenture
c. Preferred stock
d. Common stock
Which of the following is not true of Treasury bonds?
a. long-lived
b. noncallable
c. stated interest rate
d. all the above are false
Major participants in the secondary mortgage markets include all of the following
except:
a. mortgage companies
b. depository institutions such as banks and credit unions
c. Ginnie Mae
d. Fannie Mae
e. all of the above are participants
Which of the following is a correct way to calculate degree of combined leverage?
a. divide DFL by DOL
b. multiply DOL by DFL
c. divide DOL by DFL
d. add DOL and DFL
An examination of a firm’s opportunities, strengths, threats and weaknesses is often
referred to by the following acronym:
a. WOTS
b. OSTW
c. SWOT
d. TWOS
e. none of the above statements are correct
Short-term financing may come in the form of trade credit extended between
businesses.
According to the Bretton Woods agreement, one ounce of gold is set equal to US $35,
and each participating country pegs its currency to gold or the U.S. dollar.
If the Fed changes discount policies it may affect the supply of loanable funds.
The par value of a common stock is meaningful in that it is often used to determine the
fixed annual dividend.
Government purchases include only expenditures for goods and services by the federal
government.
A firm’s choice of financing strategy depends on a number of factors including its
operating characteristics, cost, flexibility, and the ease of obtaining future financing.