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1) Subordinate debentures are bonds whose claims are subordinate or junior to the
claims of those holding debenture bonds.
2) The current account balance shows the flow of income into and out of the United
States during a specified time period.
3) The cash conversion cycle measures the time between when a firm pays its suppliers
for inventory and when it collects cash from customers on a sale of the finished
product.
4) The firms capital structure is the mix of debt and equity used to finance its assets.
5) The direct quotation method expresses the number of foreign currency units needed
to buy one U.S. dollar.
6) Corporate bonds are not as risky as common stocks; as a result, corporate bonds
always lower returns to investors than do common stock.
7) At very high interest rates the Rule of 72 will result in a small estimation error for the
estimate of the time for an investment to double.
8) A primary Treasury objective is to maintain satisfactory conditions in the government
securities market through maintaining investor confidence.
9) The U.S. government may influence monetary and credit conditions indirectly
through taxation and expenditure programs.
10) Most of accounting practice is based upon the cash concept.
11) A fixed-rate mortgage is an example of an annuity.
12) Most bonds currently issued in the United States today are registered bonds.
13) Because debt obligations are paid with cash, the firms cash flows ultimately
determine solvency.
14) Under a best-effort agreement, investment bankers try to sell the securities of the
issuing corporation, but they assume no risk for a possible failure of the flotation.
15) By definition, gross investment must equal gross savings.
16) A bond with a coupon rate of 4% and a discount rate of 6% will pay $60 in interest
each year.
17) The International Bank for Reconstruction and Development (World Bank) was
created to provide banking services for U.S. firms operating overseas.
18) Should a business fail after receiving shipping documents from its bank on the basis
of a trust receipt, the bank:
a.becomes a preferred creditor to the extent of the amount due less cash deposits with
the bank
b.sells off the assets
c.auctions off the merchandise
d.has a prior claim relative to other general creditors
e.none of the above
19) Ningbo shipping has projected sales in May, June, and July of $100, $200, and
$300, respectively. It makes 20 percent of sales for cash and collects the balance one
month following the sale. Ningbo Shippings total cash receipts in July are
a.$220
b.$200
c.$180
d.cannot be determined
20) All of the following are considered stages in the capital budgeting process
EXCEPT:
a.development
b.identification
c.implementation
d.selection
e.all are included
21) The present value of an ordinary annuity of $350 each year for five years, assuming
an opportunity cost of 4 percent, is
a.$288
b.$1,896
c.$1,750
d.$1,558
22) An organization that engages in accounts-receivable financing by purchasing the
accounts outright is referred to as a:
a.field warehouse firm
b.commercial finance company
c.factor
d.commercial paper house
23) As a general rule, the capital structure that maximizes stock price also:
a.minimizes the weighted average cost of capital
b.maximizes the weighted average cost of capital
c.minimizes the required rate of return on equity
d.maximizes the cost of debt
24) The hypotheses that states that firms try to time the market by issuing stocks when
stock prices are high and repurchasing shares when prices are low is called:
a.the market theory hypothesis
b.the market timing hypothesis
c.the market value hypothesis
d.the market pricing hypothesis
25) An unconditional order for the payment of money from one person to another is
called a (n)
a.bill of exchange
b.sight draft
c.time draft
d.documentary draft
26) A short-term promissory note sold by high-credit-quality corporations and is backed
solely by the credit quality of the issuer is called:
a.commercial paper
b.a line of credit
c.a revolving credit agreement
d.a factoring arrangement
27) The total risk of a well-diversified international portfolio of stocks appears to be
about what proportion of the risk of an average one-stock portfolio?
a.one-third
b.one-half
c.two-thirds
d.three-fourths
28) All of the following statements are correct except:
a.MIRR solves all of the problems presented by IRR and will always provide the same
recommendation as the NPV
b.MIRR never gives a single answerit will always provide multiple answers unlike the
IRR approach
c.MIRR is least useful in the case of mutually exclusive investments and in cases where
project cash flows change sign more than once
d.MIRR is always greater than the regular IRR if the cost of capital is less than the
regular IRR
e.none of the above are correct
29) A famous athlete is awarded a $9 million contract that stipulates equal payments to
be made monthly over a period of five years. To determine what such a contract is
worth today, you would need to use:
a.present value factors
b.future value factors
c.present value factors of an annuity
d.future value factors of an annuity
30) A business organization that receives the limited liability of a corporation but is
taxed as a proprietorship or partnership is called a:
a.limited proprietorship
b.limited partnership
c.limited corporation
d.S corporation
31) Commission brokers:
a.act as agents to execute customers orders for securities purchases and sales
b.assist specialists in executing orders
c.trade for their own accounts
d.all the above
e.none of the above
32) Ningbo Steel was extended credit terms of 3/15 net 30 EOM. The cost of giving up
the cash discount, assuming payment would be made on the last day of the credit
period, is 75.26 percent. If the firm were able to stretch its accounts payable to 60 days
without damaging its credit rating, the cost of giving up the cash discount would only
be
a.18.81%
b.18.25%
c.21.90%
d.25.09%
e.none of the above
33) A firms mix of debt and equity defines the firms:
a.capital structure
b.working capital
c.net working capital
d.degree of operating leverage
34) Which of the following statements is most correct?
a.the security market line graphically shows the expected return and systematic risk
relation
b.unsystematic risk is the major determinant of returns for individual assets
c.assets that have greater systematic risk than the market have betas smaller than 1.0
d.all of the above statements are correct
35) Tangshan Mining was extended credit terms of 3/15 net 30 EOM. The cost of
giving up the cash discount, assuming payment would be made on the last day of the
credit period, would be ________. If the firm were able to stretch its accounts payable
to 60 days without damaging its credit rating, the cost of giving up the cash discount
would only be ________.
a.70.99%; 14.25%
b.70.99%; 15.25%
c.75.26%; 20.09%
d.75.26%; 25.09%
e.none of the above
36) A countrys economic policy actions are directed toward all of the following goals
EXCEPT:
a.economic growth
b.high employment
c.price stability
d.all of the above are primary policy goals
37) BP has a cash conversion cycle of 80 days, an average collection period of 25 days,
and an average age of inventory of 70 days. Based on this information, BPs operating
cycle is ________ days.
a.95
b.85
c.75
d.65
e.none of the above
38) The price that an individual must pay when purchasing claims to foreign exchange:
a.is always higher than the basic quotation rate
b.is readily available in financial publications
c.is relatively constant from day to day
d.varies widely among sources of foreign exchange
39) An order to sell stock at the market price when the price of the stock falls to a
specified level is called a:
a.limit order
b.market order
c.short sale
d.stop-loss order
40) An increase in the supply for loanable funds accompanied by an increase in demand
will cause interest rates to:
a.increase
b.decrease
c. stay the same
d.not enough information to tell
41) Joseph has just accepted a job as a stockbroker. He estimates his gross pay each
year for the next three years is $35,000 in year 1, $21,000 in year 2, and $32,000 in year
3. What is the present value of these cash flows if they are discounted at 4%?
a.$79,452.30
b.$80,294.50
c.$81,517.10
d.$88,000
42) In the cash budget, the firms final sales forecast us usually a function of
a.economic forecasts
b.the sales force estimate of demand
c.external and internal factors in combination
d.accounts payable experience
43) If a firm has an after-tax profit margin of 5%, an asset turnover of 2.5 times, and no
debt, the return on equity is:
a.2%
b.8.5%
c.12.5%
d.not enough information available
44) ________________ facilitate the transfer of financial assets among individuals,
institutions, businesses, and governments.
a.Financial markets
b.Government institutions
c.Regulatory authorities
d.none of the above
45) Examples of external economic data required for project analysis include all of the
following except:
a.business cycle stages
b.inflation trends
c.taxes
d.exchange rate trends
e.all of the above are included
46) The agency problem may result from a manager's concerns about any of the
following except
a.job security
b.personal wealth
c.corporate goals
d.company provided perquisites
e.none of the above
47) If the exchange rate in New York for British pounds sterling is quoted at 1 pound =
$60, and in London the rate is quoted at 1 pound = $62, financial arbitragers might:
a.buy pounds in New York
b.sell dollars in London
c.simultaneously sell pounds in New York and buy dollars in London
d.simultaneously buy pounds in New York and sell dollars in London
48) You are considering buying a 10-year, $1,000 par value bond issued by IBM. The
coupon rate is 8% annually, with interest being paid semiannually. If you expect to earn
a 10% rate of return on this bond, what is the maximum price you should be willing to
pay for this IBM bond?
a.$189.93
b.$875.39
c.$898.54
d.$911.46
49) Your college has agreed to give you a $10,000 tuition loan. As part of the
agreement, you must repay $12,600 at the end of the three-year period. What interest
rate is the college charging?
a.8%
b.9%
c.11%
d.6%
