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
Bonds that have coupons that are literally clipped and presented, like a check, to the
bank for payment, and where the bond issuer does not know who is receiving the
coupon payments are called:
a. registered bonds
b. coupon bonds
c. bearer bonds
d. none of the above
Which one of the following financial statements reports a firm’s assets and the claims
on assets?
a. balance sheet
b. income statement
c. statement of changes in financial position
d. cash flow statement
_______________________ is the sum of an individual’s money, real assets, and
financial assets or claims against others less the individual’s debt obligations.
a. Portfolio value
b. Individual net worth
c. Personal wealth
d. Investment value
e. None of the above
Which one of the following activities is not a major component of the operating cycle?
a. manufacturing process
b. selling effort
c. collection period
d. asset investment decisions
Which of the following is not a rating category used when rating bonds?
a. AAA
b. BBB
c. B
d. D
e. F
The list of financial institutions that either failed or were merged with other firms or
bailed out by the federal government during financial crisis of 2007-2009 include all of
the following except:
a. Lehman Brothers
b. American International Group
c. Merrill Lynch
d. Washington Mutual
e. All of the above firms failed, merged or were bailed out
Compensating balances at a commercial bank are:
a. net differentials of balances with correspondent banks
b. maintained by Federal Reserve for services rendered
c. account balances required in connection with unsecured business loans under bank
lines of credit
d. required vault-held reserves as an alternative to reserves held by Federal Reserve
Banks
The Federal Reserve Banks are owned by:
a. commercial banks
b. the U.S. Treasury
c. national member banks of the Federal Reserve System
d. member banks of the Federal Reserve System
The theory of ___________________ implies that information is quickly embedded in
prices making it difficult for investors to “beat the market.”
a. stock investing
b. efficient markets
c. portfolio management
d. asset allocation
e. none of the above
Barbara borrows $4,500 at 12 percent annually compounded interest to be repaid in
four equal annual installments. The actual end-of-year payment is
a. $942
b. $1,125
c. $1,482
d. $2,641
Three essential needs of a well-operating financial system include all of the following
EXCEPT:
a. an efficient national payments system
b. an elastic or flexible money supply
c. a bank insurance system
d. a lending/borrowing mechanism
The risk cause by variations in income before taxes over time because fixed interest
expenses do not change when operating income rises or falls is called:
a. interest rate risk
b. business risk
c. financial risk
d. purchasing power risk
e. none of the above
Checks:
a. are orders to depository institutions to transfer money to the party who received the
check
b. may be safely sent in the mail
c. provide a record of payment
d. all of the above
e. none of the above
The firm’s target capital structure is consistent with which of the following?
a. minimum risk
b. maximum earnings per share
c. minimum weighted average cost of capital
d. minimum cost of equity
Which group of ratios might be most interesting to potential creditors of a firm?
a. asset utilization ratios
b. profitability ratios
c. leverage ratios
d. market value ratios
Assume a lender offers you a $25,000, 10%, three-year loan that is to be fully amortized
with three annual payments. The first payment will be due one year from the loan date.
How much will you have to pay each year?
a. $8,042
b. $9,026
c. $10,053
d. $11,120
All of the following statements are correct except:
a. The NPV and IRR methods will always agree on whether a project enhances or
harms shareholder wealth.
b. If a project has a positive NPV, its IRR will always be greater than the cost of capital.
c. If a project has a negative NPV, its IRR will always be less than the cost of capital.
d. There is sometimes a conflict between NPV and IRR in the case of mutually
exclusive projects.
e. all of the above are correct
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
A sub-prime mortgage is a home loan made to a borrower with a relatively low credit
score indicating the likelihood that loan payments might be missed when due.
A weak-form efficient market is one in which prices reflect all public and private
knowledge, including past and current information.
Underpricing represents the difference between the aftermarket price and the offering
price.
The Federal Reserve System (Fed), the central bank of the United States, is responsible
for setting monetary policy and regulating the banking system.
Because the cost of capital is used to evaluate future investment proposals, it is
important to include flotation costs because such costs would be incurred if a firm were
to raise new capital to fund proposed projects.
Many callable bonds possess a call deferment period which is a specified period of time
after the issue during which the bonds cannot be called.
Insurance companies receive contributions from employees and/or their employers and
invest the proceeds on behalf of the employees for use during their retirement years.
Tax deferral on investments may increase the volume of savings.
Bondholders have priority claims over equity holders to a firm’s assets and cash flows.