1) The interest rate that is observed in the marketplace is called a real interest rate.
2) The Fed plays a significant role in tax policy.
3) An order bill of lading is a document given by a transportation company that lists
goods to be transported and terms of the shipping agreement.
4) An annuity is a series of equal payments that occur over a number of time periods.
5) A level production plan has problems, such as idle plant and laid-off workers during
slow sales months and production bottlenecks during busy times.
6) Gross private domestic investment (GPDI) measures fixed investment in residential
and nonresidential structures, producers durable equipment, and changes in business
inventories.
7) The market value ratios indicate the financial markets assessment of the value of a
firms securities.
8) In general, the savings rate in the United States has decreased during the past 40
years.
9) Payback explicitly considers the time value of money.
10) A trust receipt is a claim against a customers inventory when the individual items
are indistinguishable.
11) Real assets are claims against the income or assets of individuals, businesses, and
governments.
12) The ultimate effect of large-scale arbitrage activities on exchange rates is the
elimination of the variation between the two markets.
13) An important function of the Securities and Exchange Commission is to pass
judgment on the investment merit of a security.
14) The par value of a common stock is meaningful in that it is often used to determine
the fixed annual dividend.
15) If a market is semi-strong form efficient, it also is by definition weak-form efficient.
16) All businesses can earn interest at the prime rate on funds in their checking
accounts.
17) A close estimate of market value added (MVA) is the market value of equity less the
book value of equity.
18) 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
19) The advantage of buying on margin is:
a.larger potential profit
b.using more of your own money
c.deductible loss
d.non-taxable capital gain
20) Which of the following statements factors contributed to the 2007-2009 financial
crisis?
a.The cultural shift that allowed the public to save now and spend laterrather than their
parents or grandparents philosophy of spend now, save later led to declines in consumer
debt levels
b.U.S. government officials engaged in efforts to restrict home ownership by
encouraging lenders to make mortgage loans more difficult to obtain
c.Federal fiscal policy also became restrictive, with reduced government spending and
the passage of tax increases in 2002
d.The Federal Reserve adopted a contractionary monetary policy characterized by high
interest rates
e.none of the above
21) In general, short-term self-liquidating bank loans are intended to:
a.help recapitalize a company
b.help a company finance merger & acquisitions
c.help a company finance seasonal inventory and accounts receivable requirements
d.help a company finance investment in capital assets
e.none of the above
22) The corporate form of organization is recognized in many countries. Which one of
the following does not designate a corporation?
a.Inc
b.PLC
c.AG
d.SEC
23) The flotation costs of an IPO depend on
a.the size of the offering
b.the issuing firms earnings
c.the condition of the stock market
d.all of the above
e.none of the above
24) In June, Erie Plastics had an ending cash balance of $35,000. In July, the firm had
total cash receipts of $40,000 and total cash disbursements of $50,000. 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 $25,000
b.An excess cash balance of $0
c.required financing of $10,000
d.required financing of $25,000
e.none of the above
25) The accumulation of reserves in insurance and pension funds is referred to as what
type of savings?
a.voluntary savings
b.contractual savings
c.real savings
d.all of the above
26) Assume the probability of a pessimistic, most likely and optimistic state of nature is
.25, .45 and .30, and the returns associated with those states of nature are 10%, 12%,
and 16% for asset X. Based on this information, the expected return and standard
deviation of return are:
a.12.0% and 4.0%
b.12.7% and 5.0%
c.12.7% and 4.0%
d. 12.0% and 5.0%
e. none of the above
27) Which of the following statements is false?
a.the cash conversion cycle is the time between when the firm pays its suppliers and
when it collects money from its customers
b.Because commercial paper rates are typically below the U.S. Treasury bill rates,
commercial paper is a valuable short-term financing source for high quality business
firms
c.More efficient management of working capital assets will lessen the firms need to
obtain financing
d.All of the statements above are correct
28) The three types of risk faced by investors in domestic bonds include all of the
following EXCEPT:
a.political risk
b.credit risk
c.interest rate risk
d.reinvestment rate risk
29) A loan that is repaid in equal payments over a specified time period is referred to as
a (n):
a.discounted loan
b.amortized loan
c.simple interest-free loan
d.inflation-indexed loan
30) A bankers acceptance differs from a trade draft in that:
a.it is drawn on a bank rather than on an importer
b.it is always accompanied by a bank letter of credit
c.its acceptance depends entirely on the goodwill of the importer
d.there is no difference
31) Which of the following statements is most correct?
a.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
b.Investment grade bonds have ratings of Baa or higher and meet financial institution
(banks, pension funds, insurance companies, etc.) investment standards
c.In reaction to the then developing 2007-2009 financial crisis, short-term interest rates
declined sharply and were less than 100 percent by October, 2008
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
32) The time value concept/calculation used in amortizing a loan is
a.future value of a dollar
b.future value of an annuity
c.present value of a dollar
d.present value of an annuity
33) The value of a share of stock currently selling for $100 after a 5 for 1 split is:
a.$50
b.$150
c.$200
d.$250
e.none of the above
34) Programs passed by the federal government in response to the financial crisis of
2007-2009 include all of the following except:
a.Economic Stabilization Act
b.Troubled Asset Relief Program
c.American Recovery and Reinvestment Act
d.only a and b were passed
e.a, b, and c were all passed
35) 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
36) In general, during the business cycle, when economic activity is peaking:
a.interest rates begin to creep higher
b.unemployment levels are low
c.inflation begins to edge higher
d.all of the above
37) A firm with total asset turnover lower than the industry average may have
a.excessive debt
b.excessive cost of goods sold
c.excessive sales
d.insufficient fixed assets
e.none of the above
38) All of the following methods can be used to estimate the cost of equity except:
a.Like debt and preferred stock, cash flows from common equity are fixed
b.Firms have two sources of common equity, retained earnings and new stock issues,
and thus two costs of common equity
c.From the shareholders perspective, the opportunity cost of retained earnings is the
return the shareholders could earn by investing the funds in assets whose risk is similar
to that of the firm
d.If the firm cannot invest its retained earnings to achieve a sufficient risk-adjusted
return, shareholders would be better off receiving 100 percent of its net income as
dividends
e.All of the above statements are correct
39) Reasons for stock repurchases include all of the following EXCEPT:
a.to sell off shares used in management stock option incentive programs, in which
managers can purchase shares of stock at pre-specified prices
b.to use in stock-based sell-offs of other firms
c.the firm has too little cash and sees its own stock as one of its most attractive sales
alternatives
d.all of the above
e.none of the above
40) A draft requiring immediate payment is called a (n)
a.bill of exchange
b.sight draft
c.time draft
d.documentary draft
41) Earnings before interest and taxes (EBIT) is another way of describing:
a.operating profits
b.net profits before taxes
c.gross profits
d.earnings per share
42) If net working capital is negative:
a.current assets are greater than current liabilities
b.it represents the portion of fixed assets that are financed through long-term financing
c.it represents the portion of fixed assets that are financed by current liabilities
d.none of the above
e.all the above
43) Shareholder wealth would be:
a.assets plus liabilities
b.assets minus liabilities
c.common stock price times number of shares outstanding
d.none of the above
44) In general,
a.a revolving credit agreement is more expensive but less risky to the firm than a line of
credit
b.a revolving credit agreement is more expensive and more risky to the firm than a line
of credit
c.a revolving credit agreement is less expensive and less risky to the firm than a line of
credit
d.a revolving credit agreement is less expensive but more risky to the firm than a line of
credit
e.none of the above
45) Consolidated Edison has just paid an annual dividend of $3 per share. If the
expected growth rate for Con Ed is 10%, and your required rate of return is 16%, how
much are you willing to pay for this stock?
a.$55
b.$50
c.$46.50
d.none of the above
46) The annual rate of return is often referred to as the
a.discount rate
b.usury rate
c.government rate
d.all of the above
47) A firm has fixed operating costs of $150,000, total sales of $1,500,000, and total
variable costs of $1,275,000. The firm’s operating breakeven point in dollars is
a.$150,000
b.$176,471
c.$1,000,000
d.$1,425,000
48) What is Ningbo Shippings WACC if its after tax cost of debt is 3.5%, its cost of
retained earnings is 14%, and the firms market value of debt is $40 million while the
market value of its equity is $60 million?
a.9.8%
b.3.5%
c.11.8%
d.14.7%
e.none of the above
49) Which of the following are not bond rating agencies?
a.Standard and Poors
b.Fitchs
c.Duff and Phelps
d.all the above are rating agencies
e.none of the above are rating agencies
50) In calculating the cost of new common stock using the constant dividend growth
model, it is important that the __________ are subtracted from the price of the stock.
a.flotation costs
b.par value
c.cost of retained earnings
d.proceeds of the sale
51) If a Microsoft January 20 call option with a strike price of $20 was selling for $6.62
and the market price of the underlying Microsoft stock was $25.62, the price of the call
option would be _______________.
a.in-the-money
b.out-of-the-money
c.fairly priced
d.not enough information to tell
52) 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.$0.62
b.$5.62
c.$15.62
d.$25.62
e. none of the above
53) The risk cause by changes in inflation that affect revenues, expenses and
profitability is called:
a.interest rate risk
b.business risk
c.tax risk
d. financial risk
e. none of the above