If the expected return on Stock 1 is 6%, and the expected return on Stock 2 is 20%, the
expected return on a two-asset portfolio that holds 10% of its funds in Stock 1 and 90%
in Stock 2 is:
a. 11.52%
b. 13%
c. 18.6%
d. 19.14%
Which of the following is not a reason to sell securities in a private placement?
a. to keep current shareholders from suspecting ‘sweetheart deals”
b. to forestall a hostile takeover
c. to fulfill a need for an emergency infusion of equity
d. to reduce dividend payouts to shareholders
e. none of the above
The document which details the issuer’s finances and must be provided to each buyer of
the security is called the:
a. indenture
b. prospectus
c. tombstone
d. all the above
Maximizing _____________________ is accomplished through effective financial
planning and analysis, asset management, and the acquisition of financial capital.
a. the value of perquisites.
b. the owners’wealth.
c. the firm’s profits
d. the firm’s earnings
e. none of the above
To protect against loss as a result of adverse currency fluctuations, an export firm may:
a. demand cash settlement
b. use a futures contract as a hedge
c. require the customer to make payment in the exporter’s currency
d. all of the above are possible protections.
Under ___________________ a factor pays the firm for its receivables before the
account due date.
a. reverse factoring
b. maturity factoring
c. advance factoring
d. nonrecourse factoring
Key factors that influence currency exchange rates include all of the following
EXCEPT:
a. supply and demand relationships
b. inflation rates
c. interest rates
d. all of the above influence exchange rates
Methods used to speed up collections include all of the following EXCEPT:
a. a lockbox system
b. remote disbursement locations
c. pre-authorized checks
d. All of the statements above are correct.
A (n) _____________ gives the bondholder a claim to specific assets (identified
through serial numbers) such as railroad cars or airplanes.
a. first mortgage bond
b. equipment trust certificate
c. inventory bond
d. collateralized bond
An effective financial system needs:
a. an efficient monetary system
b. to be able to create capital by channeling savings into investment
c. markets in which to buy and sell claims to wealth
d. all of the above
Which one of the following is not a basic component of the DuPont method of ratio
analysis?
a. profit margin
b. total asset turnover
c. equity multiplier
d. liquidity margin
Cost-volume-profit analysis can be used to estimate the firm’s operating profits at
different levels of:
a. dollar sales
b. unit sales
c. dollar fixed costs
d. unit variable costs
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.
In calculation of a payback period, what use is made of cash flows occurring after the
end of the payback period?
a. They are ignored.
b. They are discounted back to time zero.
c. They are included in the accept/reject decision.
d. They are normally canceled by initial negative cash flows.
Which of the following statements is most correct?
a. The U.S. stock market appears to be a fairly good example of a semi-strong form
efficient market.
b. A market in which prices reflect all past and current publicly known information is a
strong form efficient market.
c. A weak-form efficient market implies that technical analysis can be used to predict
future price movements.
d. All of the above statements are correct.
Eriez Magnetics purchased goods with a purchase price of $10,000 and credit terms of
3/10 net 40. The firm paid for these goods on the 5th day after the date of sale. The firm
must pay ________ for the goods.
a. $7,000
b. $9,900
c. $9,700
d. $10,000
e. none of the above
Dollar-denominated bonds that are issued in the United States by a foreign issuer are
called:
a. Eurodollar bonds
b. foreign bonds
c. Yankee bonds
d. global bonds
Commercial finance companies obtain loanable funds:
a. to a lesser extent than commercial banks through equity capital
b. through both long- and short-term borrowing
c. from the Small Business Administration
d. primarily from the sale of preferred stock
A firm with total asset turnover lower than the industry average may have
a. excessive debt.
b. excessive cost of goods sold.
c. insufficient sales.
d. insufficient fixed assets.
e. none of the above
A firm can reduce its cash conversion cycle by
a. increasing its average age of inventory
b. increasing its average collection period
c. decreasing its average payment period
d. increasing its average payment period
e. none of the above
The break-even quantity is inversely related to the level of a firm’s variable costs.
The bond issuer does not necessarily know who is receiving interest payments on bearer
bonds.
The branch of government primarily responsible for the formulation of fiscal policy is
the U.S. Senate.
Fiat money is legal tender proclaimed to be money by law.
The account receivable period may be calculated as accounts receivable divided by
sales.
A documentary draft is a draft that is accompanied by an order bill of lading and other
documents.
The risk free rate of interest is the interest rate on a debt instrument with no default,
maturity, or liquidity risks.