1) A firm with an inventory period of 100 days and an accounts receivable period of 50
days will have an operating cycle of 150 days.
2) The average collection period is calculated as the year-end accounts receivable
divided by the net sales.
3) The default risk premium is the compensation that investors demand for holding
securities that cannot easily be converted to cash without major price discounts.
4) A cross-sectional analysis would be used to evaluate a firms performance over time.
5) A firms financial risk is measured by its variability in EBIT over time.
6) The coefficient of variation is a measure of total return on a stock.
7) The United Nations operates a world central bank that provides a world monetary
unit to accommodate commerce across national boundaries.
8) American depository receipts are receipts which represent foreign shares to U.S.
investors.
9) Indirect financing involves the use of securities that represent specific contracts
between the savers and borrowers themselves.
10) The federal debt of the United States is owned to a large extent by foreign
institutions and individuals.
11) Common stock possesses the highest claim on the assets and cash flow of the firm.
12) Insider trading regulation is provided for under the Securities Exchange Act of
1934.
13) Global bonds usually are denominated in U.S. dollars and have offering sizes that
typically exceed $1 billion.
14) Private placement can avoid SEC registration and all SEC regulations.
15) The SECs definition of Insiders is limited to corporate personnel.
16) Market value added can be written as: the market value of stock plus the market
value of debt minus the book value of stock minus the book value of debt.
17) Under which one of the following business organizations do the owners have
unlimited liability for all debts of the firm?
a.partnership
b.limited partnership
c.corporation
d.subchapter S corporation
18) If the exchange rate in New York for British pounds sterling is quoted at 1 pound =
$1.60, and in London the rate is quoted at 1 pound = $1.62, 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 sell pounds in New York and sell dollars in London
e.none of the above
19) ______________ behavior refers to how an individual or organization treats others
legally, fairly, and honestly.
a.Principal-agent
b.Stakeholder
c.Responsible
d.Unethical
e. none of the above
20) A bonds value will be below its maturity value of $1,000 if it pays interest of $100
per year and investors require a rate of return of, all other things being equal:
a.less than 10%
b.exactly 10%
c.higher than 10%
d.either less than or greater than 10%
21) In the field of foreign trade, the most common form of credit instrument is the:
a.commercial loan
b.trust receipt
c.sight draft
d.time draft
e.none of the above
22) According to the Gordon dividend model, which of the following variables would
not affect a stocks price?
a.the firms expected growth rate in dividends
b.the number of shares outstanding
c.the shareholders required return
d.all the above affect stock price
23) The relationship between interest rates or yields and the time to maturity for debt
instruments of comparable quality is called
a.the yield to maturity
b.the term structure of interest rates
c.the maturity risk premium
d.the expectations hypothesis
24) You need $8,000 four years from now for a down payment on your future house.
How much money must you deposit today if your credit union pays 5% interest
compounded annually? Pick the closest answer.
a.$6,269.59
b.$6,578.95
c.$6,394.12
d.$6,189.83
25) A syndicate is:
a.a firm that assists in specialist transactions
b.an organization of market makers
c.the largest group of members on the NYSE
d.all the above
none of the above
26) The bank line of credit is:
a.the type of business activity on which a particular bank concentrates its lending
b.the maximum amount of credit extended to a business customer during a period of
one year
c.the average of loans made to a business customer during a year
d.the loan limit that a bank has established for a business customer
27) Pre-emptive rights allow shareholders to:
a.buy enough of a new securities offering to maintain their present proportional share of
ownership
b.buy an unlimited amount of the new issue at a discount
c.pre-empt other stockholders from selling securities in a company
d.none of the above
28) The time between ordering materials and collecting cash from receivables is known
as the:
a.operating cycle
b.cash conversion cycle
c.accounts receivable period
d.none of the above
29) The purchaser may deduct 2% from the purchase price if payment is made within
10 days; but if not paid within 10 days, the net amount of the purchase is due within 30
days. The sale is made on what terms?
a.10/30, net/2
b.2/10, net/30
c.2/30, net/10
d.10/2, net/30
30) The Security Market Line describes the relationship between the:
a.expected return on securities and their systematic risk
b.expected return on securities and their unsystematic risk
c.expected return on a security and the expected return on the market portfolio
d.risk-free rate and the expected return on the market portfolio
31) An unexpected increase in inflation should:
a.increase the demand for loanable funds
b.decrease the interest rate on loans
c.increase the interest rate on loans
d.none of the above
32) Anders owns stock in a company which has consistently paid a growing dividend
over the last 10 years. The first year Alexis owned the stock, he received $4.50 per
share and in the 10th year, he received $4.92 per share. What is the growth rate of the
dividends over the last 10 years?
a.8%
b.4%
c.2%
d.1%
33) Accounting practices and procedures used to prepare financial statements are called:
a.GAAP
b.FASB
c.SEC
d.Federal Reserve System
e.none of the above
34) Suppose you have a choice of two equally risky annuities, each paying $1,000 per
year for 20 years. One is an annuity due, while the other is an ordinary annuity. Which
annuity would you choose?
a.the ordinary annuity
b.the annuity due
c.either one because the annuities have the same present value
d.without information about the appropriate interest rate, we cannot tell which annuity
is better
35) A trade in the multiple of 100 shares is called a (n):
a.round lot
b.odd lot
c.block trade
d.none of the above
36) Which one of the following is not considered to be a generally recognized type of
market efficiency?
a.strong-form
b.semi-strong form
c.weak-form
d.insider-information form
37) Interest rate differentials at a certain point in time may be expressed by comparing
the interest rates on:
a.a Treasury bill and a Treasury bond
b.a Treasury bill and a long-term corporate bond
c.a Treasury bill and the commercial paper rate
d.a risky security and a comparable maturity U.S. Treasury security
e.none of the above
38) The factor, unlike the commercial finance company:
a.engages in accounts receivable financing
b.purchases the accounts receivable outright
c.assumes limited credit risks
d.is not responsible for the collection of accounts
39) An r bond rating means:
a.the firm is too new to be rated
b.the bond issue is subordinate to other bond issues of the firm
c.the price volatility of the issue is expected to be especially high
d.none of the above
40) While the Chicago Board Options Exchange remains the main market for exchange
traded options, the ______________ exchange also deals in option contracts.
a.Miami
b.Indianapolis
c.San Francisco
d.all of the above
e. none of the above
41) 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
42) Ningbo Shipping has issued preferred stock at its $125 per share par value. The
stock will pay a $15 annual dividend. The cost of issuing and selling the stock was $4
per share. The cost of Ningbo Shipping preferred stock is:
a.7.2%
b.12.0%
c.12.4%
d.15%
e.none of the above
43) Which one of the following is a private firm that operates as a credit-reporting
agency?
a.National Credit Interchange Bureau
b.Foreign Credit Interchange Bureau
c.Dun & Bradstreet
d.Merrill-Lynch
44) The quick ratio of a firm with current assets of $300,000, current liabilities of
$100,000 and inventory of $100,000 is:
a.1:1
b.2:1
c.3:1
d.4:1
45) Brokerage firms that not only assist in trades but also have research staffs that
analyze firms and make recommendations about which stocks to buy or sell are called:
a.discount brokerage firms
b.full service brokerage firms
c.investment banking firms
d.stock advisory brokers
46) Debt management of the federal government includes:
a.determining which types of refunding to implement
b.determining the types of securities to sell
c.deciding which interest rate patterns to use
d.two of the above
e. answers a, b and c are correct
47) Financial statements that must be included in the annual report include all of the
following EXCEPT:
a.the income statement
b.the balance sheet
c.the statement of cash flows
d.the cash budget
e.all of the above must be included
48) In June, Erie Plastics had an ending cash balance of $55,000. In July, the firm had
total cash receipts of $70,000 and total cash disbursements of $10,000. 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
49) Personal consumption expenditures (PCE) does not include:
a.individual expenditures for durable goods
b.individual expenditures for nondurable goods
c.individual expenditures for services
d.individual savings
e.all the above are included
50) All of the following statements are correct except:
a.The firms optimum debt/equity mix minimizes the firms cost of capital, which in turn
helps the firm to maximize shareholder wealth
b.A firms mix of debt and equity used to finance its assets defines the firms capital
structure
c.A nonoptimal capital structure with either too much or too little debt leads to higher
financing costs, and the firm will likely reject some capital budgeting projects that
could have increased shareholder wealth with an optimal financing mix
d.A projects NPV represents the increase in shareholders wealth from undertaking a
project; thus, a lower weighted average cost of capital gives higher project net present
values and results in higher levels of shareholder wealth
All of the above statements are correct
51) Stephen Spielberg would like to send his parents on a cruise for their 25th wedding
anniversary. He has priced the cruise at $15,000 and he has 5 years to accumulate this
money. How much must Stephen deposit annually in an account paying 10 percent
interest in order to have enough money to send his parents on the cruise?
a.$1,862
b.$2,457
c.$3,000
d.$2,234
52) The primary securities markets are
the markets for previously issued securities such as the New York Stock Exchange
the markets where financial assets such as stocks and bonds are initially issued
the three most important financial markets in any economy
the markets for stocks and bonds only
53) An effective financial system must have:
several sets of policy makers who pass laws and make decisions relating to fiscal and
monetary policies
an efficient monetary system for creating and transferring money
financial markets that facilitate the transfer of financial assets amongst individuals,
institutions, and businesses
all of the above
54) The return provided by $100 deposited for 10 years that results in a future value of
$614.46 is 19.91%.
55) The principle of finance that “financial markets are inefficient 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.
56) The principle of finance that “reputation sometimes matters” implies that businesses
do not necessarily require the trust and confidence of their customers, employees, and
owners, as well as the community and society within which they operate, to be
successful.
57) Crucial elements of the financial environment and well-developed financial system
include:
financial institutions
financial markets
investment and financial management
all of the above
58) The Toxic Real Asset Problem (TRAP), 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.