1) Discounting is an arithmetic process whereby a future value decreases at a compound
interest rate over time to reach a present value.
2) Cross-sectional analysis is used to evaluate a firms performance over time.
3) Both the operating cycle and the cash conversion cycle can be reduced by shortening
the inventory period.
4) A line of credit is also often referred to as a revolving credit agreement.
5) The liquidity premium is compensation for those financial debt instruments that
cannot be easily converted to cash at prices close to their estimated fair market values.
6) The degree of financial leverage may be measured by taking the firms earnings
before interest and taxes and dividing by earnings before taxes.
7) Capital budgeting decisions can only involve mutually exclusive projects.
8) An underwriting agreement is a contract in which the investment banker agrees to
underwrite or do its best to sell securities to investors at the highest price it can; the
investment banker assumes no risk for the possibility that it may fail to issue all
authorized shares .
9) An advantage of short-term borrowing is the need for frequent renewals.
10) A weak-form efficient market is one in which prices reflect all public and private
knowledge, including past and current information.
11) For the same annual percentage rate, more frequent compounding increases the
future value of an investors funds more quickly.
12) To construct a cash budget, two sets of information are needed: estimated cash
inflows and estimated cash outflows.
13) A capital budgeting projects cash flows, including the total up-front cost of the
project, are typically known with certainty before the project starts.
14) Foreign exchange hedging by a multinational corporation is:
a.a normal responsibility of the company CEO
b.not ordinarily considered to be prudent business
c.usually described in speculative terms
d.permitted only for defensive purposes
e.none of the above
15) As the economy begins moving out of a recessionary period, the yield curve is
generally:
a.upward sloping
b.flattened out
c.downward sloping
d.discontinuous
16) Examples of non-financial data required for project analysis include all of the
following except:
a.distribution channels
b.quantity and quality of labor force in different locations
c.labor-management relations
d.status of technological change in the industry
e.all of the above are included
17) The largest category of federal budget receipts is from
a.foreign income taxes
b.corporate income taxes
c.excise taxes
d.estate and gift taxes
e.none of the above
18) Federal obligations usually issued for maturities of five between 40 and 50 years
are called:
a.Treasury bonds
b.Treasury notes
c.Treasury bills
d.Agency issues
e. none of the above
19) Securities that may be bought and sold through the usual market channels are
called:
a.Treasury bonds
b.Treasury notes
c.Treasury bills
d.Marketable government securities
e. none of the above
20) Which of the following statements is false?
a.Foreign banks, in addition to having correspondent relation with United States banks,
are permitted to set up subsidiaries in this country
b.The trust receipt is used by a bank in releasing shipping documents to a customer
when the bank wishes to retain title to the merchandise
c.A nation with relatively lower interest rate levels will have a relatively stronger
currency
d.A nation with a relatively lower inflation rate will have a relatively stronger currency
21) If the variance for Stock A is greater than the variance for Stock B, then the
standard deviation for Stock A:
a.is greater than the standard deviation for Stock B
b.is less than the standard deviation for Stock B
c.is the same as the standard deviation for stock b
d.cannot be determined by this information
22) The stage in the capital budgeting process that involves applying the appropriate
capital budgeting techniques to help make a final accept or reject decision is called the
_____________ stage.
a.follow-up
b.selection
c.identification
d.development
e.none of the above are included
23) If Stock A is considered to be of lower risk than Stock B, then Stock A should have
returns that are
a.lower than Stock B
b.higher than Stock B
c.they would have equal returns
d.cannot determine from the information given
24) In general,
a.a revolving credit agreement is equally as expensive but less risky to the firm than a
line of credit
b.a revolving credit agreement is equally as expensive and more risky to the firm than a
line of credit
c.a revolving credit agreement is less expensive and less risky to the firm than a line of
credit
d.a revolving credit agreement is less expensive but more risky to the firm than a line of
credit
e.none of the above
25) Which one of the following is not a cost to the issuing firm of going public with an
initial stock offering?
a.direct costs (legal fees, accounting fees, etc.)
b.underwriters spread
c.overpricing
d.underpricing
26) Which one of the following financial statements conveys a relationship of equality
between assets and liabilities plus owners equity?
a.income statement
b.statement of cash flows
c.balance sheet
d.statement of retained earnings
27) Commercial banks were for many years prohibited from full-fledged investment
banking by the:
a.Glass-Steagall Act
b.Garn-St. Germain Depository Institutions Act
c.Securities Act of 1933
d.National Association of Securities Dealers
28) Which of the following types of bonds have the lowest risk?
a.closed-end mortgage bond
b.subordinated debenture
c.open-end mortgage bond
d.all the above would have the same risk
29) All of the following statements are correct except:
a.Venture capitalists usually are members of partnerships that consist of a few general
partners
b.The typical venture capital partnership manages between $50 million and $100
million in assets
c.It is common to organize a venture capital fund as a limited partnership in which the
venture capitalist is the general partner and the other investors are limited investors
d.At the end of a funds life, cash and securities are distributed to the investors.
e.All of the above statements are correct
30) Ithaca Iron has annual operating outlays of $1,800,000 and a cash conversion cycle
of 60 days. If the firm currently pays 12 percent for negotiated financing and reduces its
cash conversion cycle to 50 days, the annual savings is
a.$60,000
b.$10,000
c.$26,000
d.$16,000
e. none of above are correct
31) Which of the following statements is false?
a.The Dow Jones Industrial Average is an example of a price-weighted index
b.An American depository receipt is a receipt which represents foreign shares to U.S.
investors
c.Index arbitrage occurs when traders buy and sell stocks with offsetting trades in
futures and options in order to lock in profits from price differences between these
different markets
d.Each of the above statements is correct
32) Unsystematic risk is also known as:
a.market risk
b.nondiversifiable risk
c.firm-specific risk
d.macroeconomic risk
33) A documentary draft is accompanied, among other things, by a (n):
a.order bill of lading
b.manifest
c.trust receipt
d.letter of credit
34) A firms stock is expected to pay a $3 annual dividend next year, the current stock
price is $60, and the expected growth rate in dividends is 8%. Using the Gordon
approach, what is the expected return?
a.5%
b.8%
c.11%
d.13%
35) Moe Howard borrows $10,500 from the bank at 11 percent annually compounded
interest to be repaid in six equal annual installments. The interest paid in the first year is
a.$1,155
b.$2,481
c.$144
d.$1,327
36) Christine has just purchased a used Mercedes for $18,995. She plans to make a
$2,500 down payment on the new car. What is the amount of her monthly payment on
the remaining loan if she must pay 12% annual interest on a 24-month car loan?
a.$759.53
b.$776.48
c.$894.16
d.$899.87
37) Factoring 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 factor
d.all of the above are characteristics of pledging
38) Transactions that affect bank reserves can be initiated by the:
a.nonbank public
b.Federal Reserve System
c.U. S. Treasury
d.all the above
39) The firms target capital structure is consistent with which of the following?
a.minimum risk
b.maximum earnings per share
c.minimum weighted average cost of capital
d.minimum cost of equity
40) The issuing of new securities, mortgages, and other claims to wealth takes place in
the:
a.secondary market
b.money market
primary market
securities market