1) A weakness for a proprietorship is that owners liability for debts of the firm is
unlimited.
2) EBIT/EPS analysis shows the ranges of EBIT where a firm may prefer one capital
structure over another.
3) The Fed closely monitors the Treasury account and takes any changes into
consideration in conducting daily open market operations in order to minimize the
effect on bank reserves.
4) The risk-adjusted discount rate (RADR) is the risk adjustment factor that represents
the percent of estimated cash inflows that investors would be satisfied to receive for
certain rather than the cash inflows that are possible for each year.
5) Corporate investors can exempt all preferred dividend income from income taxes.
6) The Glass-Steagall Act of 1933 ended the ability of commercial banks to act as
underwriters of newly issued securities.
7) An odd lot is a trade involving 100 shares or multiples of 100 shares.
8) Most of the annual funds raised from security issues come from corporate bond sales.
9) Net working capital is current assets plus current liabilities.
10) Using the percentage of sales technique, the remaining dollar amount of asset
investments determines the external financing needs (EFN).
11) A budget deficit stimulates economic activity.
12) Tax deferral on investments may increase the volume of savings.
13) The Capital Asset Pricing Model states that the expected return on an asset depends
on its level of unsystematic risk.
14) Pledging accounts receivable has all of the following characteristics except:
a.money is advanced to the borrower as a loan against accounts receivable
b.accounts receivable balances are removed from the balance sheet
c.the customer payment is made to the firm, which then submits the payment to the
bank
d.all of the above are characteristics of pledging
15) Which of the following statements is most correct?
a.Exporters may use sight or time drafts in billing foreign customers when they have
confidence in the purchasers ability and willingness to pay
b.A time draft becomes a bankers acceptance when the customer receives, signs, and
returns the draft to the exporter
c.The currency rate is the rate at which a given unit of a foreign currency is quoted in
terms of gold
d.All of the above statements are correct
16) All of the following statements are correct except:
a.Venture capitalists usually are members of partnerships that consist of thousands of
general partners
b.The typical venture capital partnership manages between $50 billion and $100 billion
in assets
c.It is common to organize a venture capital fund as a publicly listed corporation
d.At the end of a funds life, cash and securities are typically donated to charitable
causes
e.None of the above statements are correct
17) The six principles of finance include all of the following except:
a.Money has a time value
b.Higher returns are expected for taking on more risk
c.Diversification of investments can reduce risk
d.Financial markets are inefficient in pricing securities
e.all of the above are among the six principles
18) The ________ is the discount rate that equates the present value of the cash inflows
with the initial investment.
a.payback period
b.average rate of return
c.cost of capital
d.internal rate of return
19) When compounding more than once a year, the true opportunity costs measure of
the interest rate is indicated by the:
a.annual percentage rate
b.contract rate
c.stated rate
d.effective annual rate
20) If a Microsoft January 20 put option with a strike price of $20 was selling for $5.00
and the market price of the underlying Microsoft stock was $10.00, the price of the put
option would be _______________.
a.in-the-money
b.out-of-the-money
c.fairly priced
d.not enough information to tell
21) Gross Private Domestic Investment (GPDI) measures fixed investment in:
a.residential and non-residential structures
b.individual expenditures for nondurable goods
c.individual expenditures for services
d.none of the above
22) Cash disbursements may include all of the following EXCEPT
a.savings deposits
b.depreciation expense
c.amortization
d.accrued wages
e.none of the above
23) A revolving credit agreement is a:
a.bankers agreement to extend the maturity of a loan
b.bankers standby agreement to provide a guaranteed line of credit for a specified
period of time
c.large loan supported by a group of banks on an alternating basis
d.loan arrangement with a bank whereby secured and unsecured loans are alternately
used
24) Federal regulation of investment banking is administered primarily under the
provisions of the ___________________.
a.Investment Banking Act of 1977
b.The Garn-St. Germain Act of 1997
c.The Securities Act of 1933
d.none of the above
25) All of the following statements is correct EXCEPT
a.The financial crisis and recession of 20072009 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
systemboth 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
26) Which of the following bonds can be redeemed prior to maturity by the firm?
a.callable bonds
b.convertible bonds
c.putable bonds
d.retractable bonds
27) _____________ is when a broker constantly buys and sells securities from a clients
portfolio in an effort to generate commissions. Rather than making decisions that are in
the clients best interest, frequent commission-generating trades may be made by
brokers with selfish motives.
a.Blending
b.Flipping
c.Swapping
d.Sale-resale
e. none of the above
28) A firm with a cash conversion cycle of 200 days and an operating cycle of 120 days
has an average payment period of:
a.320
b.180
c.3
d.cannot be determined from this information
29) On the income statement, net profit after tax is defined as:
a.operating profit minus operating expenses
b.operating profit minus cost of goods sold
c.operating profit minus interest
d.operating profit minus interest minus taxes
e.none of the above
30) Existing securities are traded:
a.in the primary markets
b.in the secondary markets
c.only on organized exchanges
d.only over-the-counter
31) If the money supply and total demand increase faster than output, prices will:
a.fall
b.stay the same
c.rise
d.reflect lower inflation
32) In our financial system, the money multiplier:
a.is not affected by the Federal Reserve
b.can fluctuate over time
c.is not affected by the nonbank public
d.is not affected by the U.S. Treasury
33) When investors expect __________ inflation rates they will require __________
nominal interest rates so that a real rate of return will remain after the inflation.
a.higher, higher
b.higher, lower
c.lower, higher
d.none of the above
34) Which of the following statements is most correct?
a.The personal savings rate in the United States, which is personal savings as a
percentage of disposable personal income, increased from 2.4 percent to 4.6 percent
from 2006 to 2009, due largely to the fact that individuals began to save more because
of the economic uncertainties created by the financial crisis of 2007-09
b.The personal savings rate in the United States, which is personal savings as a
percentage of disposable personal income, decreased from 4.6 percent to 2.4 percent
from 2006 to 2009, due largely to the fact that individuals began to spend more because
of the economic realities created by the financial crisis of 2007-09
c.The personal savings rate in the United States, which is personal savings as a
percentage of disposable personal income, increased from 10.1 percent to 20.5 percent
from 2006 to 2009, due largely to the fact that individuals began to save more because
of the economic uncertainties created by the financial crisis of 2007-09
d.The personal savings rate in the United States, which is personal savings as a
percentage of disposable personal income, declined from 45 percent to 40 percent from
2006 to 2009, due largely to the fact that individuals began to spend more because of
the economic realities created by the financial crisis of 2007-09
e.none of the above
35) The _____________ is the difference in return earned by investing in a longer term
bond that has the same credit risk as a shorter-term bond.
a.purchasing power spread
b.credit risk premium
c.yield slope premium
d.two of the above
e.none of the above
36) Which of the following interest rates are not determined in the money market?
a.U.S. Treasury bill rate
b.prime rate
c.commercial paper rate
d.federal funds rate
37) Which of the following statements is false?
a.An order bill of lading carries title to the goods being shipped
b.There are foreign offices of U.S. banks in foreign countries
c.In dealing with a foreign bank, an exporter generally works through a local subsidiary
of that bank
d.All of the above statements are false
e.none of the above statements is false
38) The actual disbursement of cash is recorded in which of the following financial
statements?
a.income statement
b.balance sheet
c.statement of cash flows
d.cash transactions statement
39) Which one of the following capital-budgeting evaluation techniques is based on
finding a discount rate which causes the net present value to be zero?
a.net present value
b.internal rate of return
c.profitability index
d.payback
40) As sales increase over time, assets will increase at the same growth rate so long as
the
a.asset turnover increases
b.asset turnover ratio remains constant
c.asset turnover ratio decreases
d.profit margin remains constant
41) Functions of the monetary system include all of the following except
a.creating money
b.transferring money
c.accumulating savings
d.Lending and investing savings
e. all of the above are included
42) Finance has its origins in:
a.economics and statistics
b.accounting and mathematics
c.management and operations
d.economics and accounting
43) The principle of finance that “management objectives may differ from owner
objectives” implies that owner returns may be enhanced as a result of manager
objectives that differ from their own.
44) The deregulation of financial institutions and lax oversight by government
regulatory agencies and private debt rating agencies contributed to the severity of the
2007-2009 financial crisis.
45) The principle of finance that “financial markets are efficient in pricing securities”
implies that the prices of securities reflect all information available to the public and
that when new information becomes available, prices quickly change to reflect that
information.
46) Business finance is the study of financial planning, asset management and fund
raising by businesses and financial institutions.
47) A mortgage-back security is a debt security created by pooling together a group of
mortgage loans whose periodic payments belong to the holders of the security.
48) Credit ratings are prepared by government organizations on individuals, financial
institutions, business firms, and government entities.
49) The Troubled Asset Relief Program (TARP), which was passed as part of the
Economic Stabilization Act of 1978 enabled the U.S. Treasury to purchase up to $700
billion of troubled assets held by financial institutions.
50) Secondary securities markets are markets where the transfer of existing debt and
equity securities between investors occurs.
51) The principle of finance that “money has a time value” implies Money in hand
today is worth more than the promise of receiving the same amount in the future
because a sum of money today could be invested and grow over time.
52) The principle of finance that ” higher returns are expected for taking on less risk ”
implies that rational investors would choose only safe investment because they
generally do not feel that a higher return enough to justify taking greater risk.