For positive interest rates, the future value interest factor is
a. always greater than 1.0.
b. sometimes negative.
c. always less than 0.
d. never greater than 25.
During the 2007 – 2009 financial crisis, many major financial institutions and business
corporations were on the verge of collapse or failure; however, some of the very largest
corporations and financial institutions were deemed as being ________ because their
failure would cause cascading negative repercussions throughout the U.S. and many
foreign economies.
a. toxic firms
b. boat rockers.
c. too large to ignore
d. too big to fail
e. none of the above
When considering the time value of money, which of the following four methods of
project evaluation would appear to be the least satisfactory?
a. internal rate of return
b. profitability index
c. net present value
d. payback period method
__________________ become the most important and effective means of monetary and
credit control.
a. Changing reserve requirements has
b. Changing the discount rate has
c. Open market operations has
d. Changing the Treasury bill rate has
e. none of the above
A decrease in the supply for loanable funds accompanied by an increase in demand will
cause interest rates to:
a. increase
b. decrease
c. stay the same
d. not enough information to tell
A limited partnership is comprised of:
a. only limited partners
b. only general partners
c. both general and limited partners
d. both partners and proprietors
Large U.S. corporations of high credit quality can issue or sell short-term promissory
notes called:
a. revolving credit agreements
b. commercial paper
c. trade credit
d. inventory loans
Credit money includes:
a. checking accounts at commercial banks
b. checkable deposits at savings and loan associations
c. checking accounts at credit unions
d. all the above
e. none of the above
For most lines of business the basic source of short-term loan financing is:
a. commercial banks
b. finance companies
c. the commercial paper market
d. factors
Which of the following financial institutions market €seasoned€ instruments and
securities?
a. brokerage firms
b. finance companies
c. mortgage lenders
d. none of the above
An organization that sells shares in their firms to individuals and others and invests the
proceeds in corporate and government securities is called a (n)
a. investment company
b. investment bank
c. insurance company
d. brokerage firm
If a firm pays out 20% of its earnings as dividends and has averaged a 20 percent return
on equity, how quickly can the firm grow while maintaining a constant debt to equity
mix?
a. 6.4%.
b. 10.2%.
c. 16.3%.
d. 19.0%.
e. none of the above.
The stage in the capital budgeting process in which implemented projects are
periodically reviewed is called the _____________ stage.
a. follow-up.
b. selection.
c. identification.
d. implementation.
e. none of the above are included
In an inflationary period, interest rates have a tendency to:
a. rise
b. fall
c. stay the same
d. act erratically
Assume that Ningbo Steel borrows $2,000,000 for one year under a line of credit with a
stated interest rate of 9.5 percent and a 10 percent compensating balance and that the
firm keeps no money on deposit in its checking account. Based on this information, the
effective annual interest rate on the loan is
a. 19.5%.
b. 21.1%.
c. 11.1%.
d. 10.6%.
e. none of the above
Which of the following statements is most correct?
a. Income from the obligations of the federal government is exempt from all state and
local taxes but is subject to federal and state inheritance, estate, or gift taxes.
b. Income from the obligations of the federal government is exempt from all federal
taxes but is subject to state and local income taxes, state inheritance, estate, or gift
taxes.
c. Income from the obligations of the federal government is exempt from all federal,
state and local taxes but is subject to inheritance, estate, or gift taxes.
d. none of the above
The basic sources of loanable funds are:
a. short-term funds and currency
b. current savings and the creation of new funds through the expansion of credit by
depository institutions
c. contractual savings and commercial bank credit
d. bank loans and the creation of new funds through the contraction of credit by
depository institutions
In general, the more net working capital a company has
a. the greater the risk.
b. the lower the risk.
c. the less likely creditors will lend to the firm.
d. none of the above
“Crowding out” caused by deficit financing can result in tighter credit conditions and
higher interest rates.
15. Limited partners must take an active role in the operations of the firm.
Demand-pull inflation may be defined as an excessive demand for goods and services
during periods of economic expansion as a result of large increases in the money
supply.
Financial theory favors the method using the market values of the firm’s debt and equity
to compare target and actual weights.
If required reserves are larger than the total reserves of an institution, the difference is
called excess reserves.