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1) In general, short-term interest rates are more stable than long-term interest rates.
2) Although gold is a risky investment by itself, including gold in a stock portfolio can
make the portfolio less risky.
3) Transactions motives for holding cash include holding funds to meet unexpected
demands.
4) The net working capital of a firm would be cash and other assets that are expected to
be converted into cash within a year.
5) Operating leverage is affected by such items as rental payments, contractual
employee salaries, and general and administrative overhead expenses.
6) The deposit of a check drawn on the Fed is a derivative deposit because it adds new
reserves to the bank where deposited and to the banking system.
7) Shareholder wealth is the market value of a firms common stock.
8) Some classes of common equity may have superior voting rights.
9) Capital formation is the process of constructing real property, manufacturing
producers durable equipment, and increasing business inventories.
10) The bankers sight draft provides an exchange rate that is lower than either the
bankers time draft or cable rate.
11) The cash conversion cycle can be reduced by lengthening the accounts payable
period.
12) Because commercial paper rates are typically below U.S. Treasury bill rates, they
are a valuable short-term financing source for high quality business firms.
13) Direct financing involves the use of securities that represent specific contracts
between savers and borrowers.
14) The firms optimum debt/equity mix maximizes the firms cost of capital, which in
turn will help the firm to maximize shareholder wealth.
15) Financial analysis using ratios can assist managers in the firms financial planning
process.
16) The ____________ the coefficient of variation, the ____________ the risk.
a.lower, lower
b.higher, lower
c.lower, higher
d. more stable, higher
e. none of the above
17) Motivations for individuals to deposit money into a savings account include:
a.safety of principal
b.return on investment
c.liquidity
d.all the above
e.none of the above
18) If a firm's variable cost per unit increases, the firm's operating breakeven point will
a.decrease
b.increase
c.remain unchanged
d.change in an undetermined direction
19) If the stated or nominal interest rate is 10 percent and the inflation rate is 5 percent,
the differential compounding rate would be ________ percent
a.ten
b.five
c.two
d.fifteen
20) Variations in a firms tax rate and tax-related charges over time due to changing tax
laws and regulations is called:
a.interest rate risk
b.business risk
c.tax risk
d. purchasing power risk
e. none of the above
21) If the total asset turnover of a firm is 1.5, total assets are $500,000, and net income
is $50,000, what is the profit margin?
a.1%
b.5%
c.6.7%
d.not enough information available
22) Which of the following is not a variable cost?
a.direct materials
b.direct labor
c.delivery costs
d.commissions
e.all of the above are variable costs
23) Direct securities:
a.are contracts between savers and institutions
b.are deposited directly into an investor's account
c.represent the financial asset of the borrower and the claim on the saver
d.represent the claim on the institution
e.none of the above
24) When a bank takes a business inventory as collateral for additional loans, it:
a.places the inventory under bond
b.transports the inventory to a warehouse not necessarily on bank property
c.requires insurance and weekly audits of the inventory
d.usually establishes a field warehouse
25) If a firms inventories on hand are $200,000 and its cost of goods sold is $600,000,
what is the inventory turnover?
a.2 times
b.3 times
c.4 times
d.5 times
26) Which of the following affects a firms choice of capital structures?
a.flexibility
b.timing
c.corporate control
d.all of the above
27) Which of the following is not a characteristic of a commercial finance company?
a.advances funds to business concerns by discounting accounts receivable
b.makes loans secured by chattel mortgages on machinery
c.finances deferred-payment sales of commercial and industrial equipment
holds a bank charter
28) An increase in the demand for loanable funds, holding supply constant, will cause
interest rates to:
a.increase
b.decrease
c. stay the same
d.not enough information to tell
29) A trust receipt as used in financing international transactions:
a.is issued by bonded warehouses for merchandise stored therein
b.allows the release of merchandise on a consignment basis by the bank that issued the
letter of credit
c.is evidence of ownership of funds held in escrow by the importers bank
d.is a negotiable instrument that trades freely in the money market
30) Of the following forms of business organization, which have stockholders with
limited liability?
a.proprietorships
b.partnerships
c.corporations
d.limited partnerships
31) All of the following are considered stages in the capital budgeting process
EXCEPT:
a.invention
b.development
c.implementation
d.selection
e.all are included
32) Which of the following statements is false?
a.Combined leverage is the effect on earnings produced by the operating and financial
leverage
b.There is strong empirical evidence that firms adjust their degrees of operating
leverage and degrees of financial leverage to match some standard degree of combined
leverage
c.Financial risk is the additional risk, above business risk, resulting from substituting
debt into the capital structure
d.All the above statements are true
33) Of the components shown below, which is least likely to be of value in calculating
the cost of preferred stock?
a.flotation costs per share
b.book value of a preferred share
c.dividends per share
d.initial market price per share
34) Owners equity may include:
a.common stock
b.retained earnings
c.surplus account
d.all the above
e.none of the above
35) Which of the following statements is most correct?
a.Marketable government securities are those securities that cannot be transferred to
other persons or institutions and can be redeemed only by being turned in to the U.S.
government; the United States must rely on the willingness of foreign and international
investors to hold a substantial portion of the outstanding interest-bearing public debt
securities issued to finance the national debt
b.Nonmarketable government securities are those securities that can be transferred to
other persons or institutions and can be redeemed only by being turned in to the U.S.
government; the United States must rely on the willingness of foreign and international
investors to hold a substantial portion of the outstanding interest-bearing public debt
securities issued to finance the national debt
c.Nonmarketable government securities are those securities that cannot be transferred to
other persons or institutions and can be redeemed only by being turned in to the U.S.
government; the United States must rely on the willingness of foreign and international
investors to hold a substantial portion of the outstanding interest-bearing public debt
securities issued to finance the national debt
d.Nonmarketable government securities are those securities that cannot be transferred to
other persons or institutions and can be redeemed only by being sold in the secondary
market; the United States must rely on the willingness of foreign and international
investors to hold a substantial portion of the outstanding interest-bearing public debt
securities issued to finance the national debt
e. none of the above
36) An area of finance that involves the sale or marketing of securities, the analysis of
securities, and the management of investment risk through portfolio diversification is
referred to as:
a.financial management
b.investments
c.financial institutions
d.financial markets
e.none of the above
37) Bank loans on which interest is paid up front in advance are called:
a.front loaders
b.build-up loans
c.advance interest loans
d.revolving credit agreements
e.none of the above
38) Various programs of the federal government help stabilize disposable income, and
in turn, economic activity in general. In so doing:
a.income tax rates may be lowered during periods of prosperity and increased during
slack economic periods
b.these programs waste valuable resources
c.the timing of sale of U.S. savings bonds is instrumental in accomplishing this
objective
d.these programs seldom attain their goals
e. none of the above
39) If a Microsoft January 20 call option with a strike price of $20 were about to expire
and the market price of the underlying Microsoft stock was $25.62, the price of the call
option would have to be __________ to eliminate arbitrage opportunities.
a.$5.00
b.$10.00
c.$15.00
d.$25.00
e. none of the above
40) To accurately compare the rate of return on one investment with another, they
should be:
a.equal in size or dollar amount
b.measured over different time periods
c.measured over equal time periods
d.held for more than one year
41) In general, a firm that secures a bank line of credit pays interest on:
a.the full line of credit
b.only half of the amount actually borrowed
c.on the unused portion of the line of credit
d.on the amount borrowed as well as on the unused portion of the line of credit
e.none of the above
42) Which of the following is not considered to be one of the five Cs of credit analysis?
a.character
b.capacity
c.capital
d.collateral
e.caution
43) Which of the following statements is most correct?
a.mutual fund shares are traded either on an organized exchange or in the
over-the-counter market
b.mutual funds continually sell shares to investors, and shareholders may sell their
shares back to the mutual fund at any time
c.mutual funds can only invest in equity
d.all of the above statements are correct
44) The future value of $200 received today and deposited for three years in an account
which pays semiannual interest of 8 percent is ________.
a.$253
b.$252
c.$158
d.$135
45) Which one of the following balance sheet accounts would not be considered to be a
current liability?
a.account payable
b.bank notes payable
c.accrued liabilities
d.mortgage debt
46) A ski chalet in Vail now costs $250,000 to rent for a week during February. Inflation
is expected to cause this price to increase at 5 percent per year over the next 10 years
before Curly Howard and his wife retire from successful investment banking careers.
How large an equal annual end-of-year deposit must be made into an account paying an
annual rate of interest of 13 percent in order to buy the ski chalet upon retirement?
a.$8,333
b.$13,572
c.$25,005
d.$22,109
