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1) Tax receipts tend to increase during economic downturns.
2) Common stock possesses the lowest claim on the assets and cash flow of the firm.
3) More efficient management of working capital assets will lessen the firms needs for
financing.
4) IPO under pricing occurs only in the United States.
5) The stand alone principle suggests that a project must be viewed separately from the
rest of the firm.
6) The five basic groups of ratios are liquidity ratios, asset management ratios, capital
budgeting ratios, profitability ratios, and market value ratios.
7) The order bill of lading represents the written acceptance of goods for shipment by a
transportation company and the terms under which the goods are to be transported to
their destination.
8) During periods of economic expansion, firms usually rely more on internal sources
of funds.
9) All firms can use shelf registration which saves issuers both time and money.
10) Contractual savings are savings accumulated on a regular schedule for a specified
length of time by prior agreement.
11) Mortgage bonds are secured by home mortgages.
12) The U.S. Treasury has little power to influence money markets.
13) 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
14) A stronger U.S. dollar generally
a.results in more imports of foreign merchandise
b.leads to concern about worsening trade deficits
c.results in lower domestic inflation
d.all of the above
15) The present value of a $20,000 perpetuity at a 7 percent discount rate is
a.$186,915
b.$285,714
c.$140,000
d.$325,000
16) Currently, the backing for Federal Reserves notes is primarily in the form of:
a.gold certificates
b.gold bullion
c.eligible paper (business notes and drafts)
d.none of the above
17) The ____________ the coefficient of variation, the ____________ the risk.
a.lower, more stable
b.higher, lower
c.lower, higher
d. more stable, higher
e. none of the above
18) If a person requires greater return when risk increases, that person is said to be:
a.risk seeking
b.risk averse
c.risk aware
d. risk indifferent
e. none of the above
19) The most frequently cited justification for requiring a compensating balance is:
a.for a commission; to cover the costs of loaning the money
b.to be reassured of some recovery in the event of bankruptcy of the firm
c.to make bank borrowers also be depositors
d.to pay interest for the use of the money
20) A (n) ________ portfolio maximizes return for a given level of risk, or minimizes
risk for a given level of return.
a.efficient
b.profit maximizing
c.idiosyncratic
d. diverse
e. none of the above
21) To study finance at the micro level is to study of all but which of the following?
a.fund raising for business firms
b.financial institutions
c.asset management
d.financial planning
22) The attitude of central banks and commercial banks toward bankers acceptances:
a.has been unfavorable regarding bankers acceptances as attractive long-term
commitments
b.has never been constructive and has, in fact, been in opposition to their use at times
c.is one of approval provided that before investing in such instruments guarantees can
be obtained from the Export-Import Bank
d.is irrelevant, since they are prevented from investing in such instruments by
regulations or laws
e. none of the above
23) The federal government pays for the services it provides primarily through:
a.service fees
b.creating money
c.borrowing
d.selling assets owned by the government
e.none of the above
24) Given the following financial data: net income/sales = 6%; sales/total assets = 3.5;
debt/total assets = 30%. The return on total assets is:
a.15%
b.21%
c.30%
d.not enough information available
25) Which of the following is NOT a determinant of market interest rates?
a.the inflation premium
b.the maturity risk premium
c.the volatility risk premium
d.the real rate of interest
26) A customer of a bank needs additional currency and cashes a check for $10,000.
The reserve requirement is 20%. The bank has no excess reserves. It must:
a.refuse the check
b.get an additional $8,000 of reserves
c.get an additional $2,000 of reserves
d.none of the above
27) __________________ allows stock to be held in the name of a brokerage house.
a.The Federal Reserve
b.Street name
c.The Securities Exchange Act of 1944
d.none of the above
28) The study of how individuals prepare for financial emergencies, protect against
premature death and property losses, and accumulate wealth is called:
a.entrepreneurial finance
b.personal finance
c.finance
d.financial management
29) The goal of a business should be:
a.maximization of the owners wealth
b.maximization of accounting profit
c.maximization of sales
d.maximization of assets
30) Which of the following statements is most correct?
a.The improbability of an event occurring is the percentage of a given outcome
b.A skewed probability distribution shows all possible outcomes and associated
probabilities for a given event
c.The standard evaluation measures the dispersion around the expected value
d. The constant of variation is a measure of relative dispersion used in comparing the
risk of assets with differing expected returns
e. none of the above
31) For bank loans, the effective interest rate is generally
a.not affected by whether or not the loan is a discount loan or a traditional loan
b.higher if the loan is a premium loan
c.lower if the loan is a discount loan
d.higher if the interest is paid at maturity
e.none of the above
32) If a firm has total long-term capital of $1,000,000, preferred stock of $500,000,
preferred dividends of $10 and preferred stock price of $100, the weighted cost of
capital is:
a.50%
b.10%
c.5%
d.cannot tell from this information
33) In effect, the commercial letter of credit enables the importer to:
a.substitute the banks financial strength for his or her own
b.shift the burden of financing the transaction to the exporter
c.borrow from his or her bank on the basis of merchandise importer
d.have ample of time to sell the imported merchandise and meet payment obligations
34) An analyst should be careful when conducting ratio analysis to ensure that
a.the overall performance of the firm is not judged on a single ratio
b.the dates of the financial statements being compared are different
c.audited statements are not being used
d.different accounting procedures are used
e.none of the above
35) Three theories commonly used to explain the term structure of interest rates include
all of the following EXCEPT
a.the default risk theory
b.the expectations theory
c.the market segmentation theory
d.the liquidity preference theory
36) Which of the following statements is false?
a.working capital represents assets needed to carry out the normal
operations of the business
b.current liabilities that reflect amounts owed but not yet due on the date
of the balance sheet are called accruals
c.because of accrual accounting, a firms net income over some period
is not necessarily the same as its cash flows
d.all the above statements are correct
37) All of the following components are needed to calculate the internal growth rate
except:
a.return on assets
b.retention rate
c.return on equity
d.all are needed
