finance exam 1
) Which of the following serves as an intermediary channeling the savings of individuals, businesses, and governments into loans and investments? A) financial institutions B) financial markets C) Securities and Exchange Commission D) OTC market
A
10) A(n) ________ is a graphic depiction between the maturity and rate of return for bonds with similar risks. A) yield curve B) supply function C) risk-return profile D) aggregate demand curve
A
11) A(n) ________ yield curve reflects higher expected future rates of interest. A) upward-sloping B) flat C) downward-sloping D) linear
A
11) Which of the following forms of organizations is the easiest to form? A) sole proprietorships B) limited liability corporation C) limited partnership D) S-corporations
A
13) The ________ market is where securities are initially issued and the ________ market is where pre-owned securities (not new issues) are traded. A) primary; secondary B) money; capital C) secondary; primary D) primary; money
A
14) Which of the following legal forms of organizations is characterized by unlimited liability? A) sole proprietorship B) limited partnership C) corporation D) C-corporation
A
15) An upward-sloping yield curve that indicates cheaper short-term borrowing costs than long-term borrowing costs is called as ________. A) normal yield curve B) inverted yield curve C) flat yield curve D) lognormal yield curve
A
17) Which of the following is true of preferred stock? A) It has features of bonds and a common stock. B) It has a claim on assets prior to creditors in the event of liquidation. C) Its dividends can be paid only after paying dividends to the common stockholders. D) It usually has a maturity of thirty years.
A
18) The yield curve in an economic period where higher future inflation is expected would be ________. A) upward-sloping B) flat C) downward-sloping D) lognormal
A
2) Managerial finance ________. A) involves tasks such as budgeting, financial forecasting, cash management, and funds procurement B) involves the design and delivery of advice and financial products C) recognizes funds on an accrual basis D) devotes the majority of its attention to the collection and presentation of financial data
A
20) Which of the following explains the general shape of the yield curve of a bond? A) Expectations theory B) Perfect market theory C) Capital asset pricing theory D) Securities market theory
A
20) Which of the following is true of a dealer market? A. Buyers and sellers are never brought together directly. B) Brokers execute the buy or sell orders in a dealer market. C) It has centralized trading floors. D) It is a part of the broker market.
A
28) Cash flows and risk are the key determinants in share price. Increased risk, other things remaining the same, results in ________. A) a lower share price B) a higher share price C) an unchanged share price D) an undetermined share price
A
28) Which of the following is an example of marketable securities? A) U.S.Treasury bills B) treasury stock C) mortgage backed securities D) loans
A
30) An ethics program is expected to have ________ impact on a firm's share price. A) a positive B) a negative C) no impact D) an unpredictable
A
33) If the CEO of a company were to pass away, what do you think would happen to price of the stock? A) It would decrease because of the perceived increased risk due of lack of near-term leadership. B) It would increase because of the perceived increased risk due of lack of near-term leadership. C) It would decrease because of the perceived decreased risk due of lack of near-term leadership. D) It would increase because of the perceived decreased risk due of lack of near-term leadership.
A
34) Which of the following is true of a cash flow? A) Profits do not necessarily result in cash flows available to the stockholders. B) It is guaranteed that the board of directors will increase dividends when net cashflows increase. C) A firm's income statement will never show a positive profit when its cash outflows exceed its cash inflows. D) An increase in revenue will always result in an increase in cash flow.
A
38) Which of the following is an example of a firm's stakeholder? A) suppliers B) Federal reserve C) media D) competitors
A
39) Which of the following is considered as a violation of business ethics? A) earnings management B) repurchase of shares C) using the call option on a callable bond when the interest rate is low D) paying a high amount of dividends every year
A
4) Firms that require funds from external sources can obtain them ________. A) through financial institutions B) from central bank directly C) through forex market D) by issuing T-bills
A
40) Which of the following is one of the positive benefits of an effective ethics program? A) reduce potential litigation and judgment costs B) maintain and build competitor confidence C) gain the loyalty, commitment, and respect of the firm's competitors D) making sure violations are penalized, while at the same time not subjecting the employee to publicity
A
43) Which of the following acts regulates the primary market in which securities are originally issued to the public? A) The Securities Act of 1933 B) The Gramm-Leach-Bliley Act C) The Securities Exchange Act of 1934 D) The Glass-Steagall Act
A
47) A ________ is responsible for a firm's financial activities such as financial planning and fund raising, making capital expenditure decisions, and managing cash, credit, the pension fund, and foreign exchange. A) treasurer B) controller C) foreign exchange manager D) pension fund manager
A
48) Jennings, Inc. has a tax liability of $170,000 on pretax income of $500,000. What is the average tax rate for Jennings, Inc.? A) 34 percent=500000*.34=170000 B) 46 percent C) 25 percent D) 40 percent
A
53) Economic theories that a financial manager must ensure for efficient business operations, include ________. A) supply-and-demand analysis B) asset pricing theory C) Porter's theory of five forces D) Monte-Carlo simulation
A
6) While making financing decisions, a financial manager should ________. A) determine the appropriate mix of short-term and long-term financing B) decide on which individual securities to select for investment C) analyze quarterly budget and performance reports D) improve the productivity of manufacturing products
A
62) Investment decisions generally refer to the items that appear on the ________. A) left-hand side of the balance sheet, and financing decisions relate to the items on the right-hand side B) right-hand side of the balance sheet, and financing decisions relate to the items on the left-hand side C) right-hand side of the balance sheet, and financing decisions relate to the items on the income statement D) left-hand side of the balance sheet, and financing decisions relate to the items on the income statement
A
63) Which of the following is one of the key activities of a financial manager? A) making financing decisions B) managing cost accounting C) managing financial accounting D) making legal policy decisions
A
70) A financial manager's investment decisions determine ________. A) both the mix and the type of assets found on the firm's balance sheet B) both the mix and the type of liabilities found on the firm's balance sheet C) both the mix and the type of assets and liabilities found on the firm's balance sheet D) both the mix and the type of short-term and long-term financing
A
73) The board of directors is typically responsible for ________. A) approving strategic goals and plans B) managing day-to-day operations C) arranging finance for approved long-term investments D) maintaining and controlling the firm's daily cash balances
A
75) The Sarbanes-Oxley Act of 2002 resulted in ________. A) tightened audit regulations and controls B) toughened penalties against overcompensated executives C) lenient penalties against executives who commit corporate fraud D) delayed disclosure of stock sales by corporate executives
A
76) The true owner(s) of the corporation is (are) the ________. A) board of directors B) chief executive officer C) stockholders D) creditors
A
8) Which of the following assists companies in raising capital, advise firms on major transactions such as mergers or financial restructuring, and engage in trading and market making activities? A) investment banks B) securities exchanges C) mutual funds D) commercial banks
A
8) ________ rate of interest is the actual rate charged by the supplier and paid by the demander of funds. A) Nominal B) Real C) Risk-free D) Inflationary
A
82) ________ is one of the solution to the agency problem in publicly-held corporations. A) Stock options B) Stock split C) Demotion of employee designation D) Distribution of dividends
A
83) Incentive plans usually tie management compensation to ________. A) share price B) dividends C) coupon payments D) inventory turnover
A
85) The conflict between the goals of a firm's owners and the goals of its non-owner managers is ________. A) the agency problem B) incompatibility C) serious only when profits decline D) the window-dressing
A
86) The agency problem may result from a manager's concerns about ________. A) job security B) maximizing shareholder value C) corporate goals D) increasing creditworthiness
A
9) Most businesses raise money by selling their securities in a ________. A) public offering B) forex market C) futures market D) commodities market
A
9) Which of the following legal forms of organization has the ease of dissolution? A) sole proprietorships B) partnerships C) limited partnerships D) corporations
A
25) Which of the following is a measure of profit maximization to shareholders? A) the timing of returns B) earnings per share C) current assets D) market risk premium
B
26) The ________ is created by a number of institutions and arrangements that allow the suppliers and demanders of long-term funds to make transactions. A) forex market B) capital market C) money market D) commodities market
B
16) Which of the following is true of a partnership and a corporation? A) In a corporation, income is taxed at the corporate level; whereas, in a partnership, income is taxed twice. B) In a partnership, income is taxed at the corporate level; whereas, in a corporation, income is taxed twice. C) Income from both forms of organizations are double-taxed. D) In a partnership, income is exempted from tax up to $10 million; whereas, in a corporation, income is taxed twice.
B
26) The key variables in the owner wealth maximization process are ________. A) market risk premium and risk B) cash flows and risk C) risk-free rate and share price D) total assets and risk
B
17) The theory suggesting that for any given issuer, long-term interest rates tends to be higher than short-term rates is called ________. A) expectation hypothesis B) liquidity preference theory C) market segmentation theory D) interest parity theory
B
18) Corporate owners receive return ________. A) by realizing gains through increases in share price and interest earnings B) by realizing gains through increases in share price and cash dividends C) through capital appreciation and retained earnings D) through interest earnings and earnings per share
B
2) Generally, an increase in risk will result in ________. A) a lower required return or interest rate B) a higher required return or interest rate C) a higher return on investment D) a lower return on investment
B
2) Government is typically a ________. A) net provider of funds because it borrows more than it saves B) net demander of funds because it borrows more than it saves C) net provider of funds because it can print money at will D) net demander of funds because it saves more than it borrows
B
21) Assume the following returns and yields: U.S. T-bill = 8%, 5-year U.S. T-note = 7%, IBM common stock = 15%, IBM AAA Corporate Bond = 12% and 10-year U.S. T-bond = 6%. Based on this information, the shape of the yield curve is ________. A) upward sloping B) downward sloping C) flat D) normal
B
21) The amount earned during the accounting period on each outstanding share of common stock is called ________. A) dividend per share B) earnings per share C) net profits after taxes D) book value per share
B
22) ________ mainly explains the tendency for the yield curve to be upward sloping. A) Expectations theory B) Liquidity preference theory C) Market segmentation theory D) Investor perception theory
B
24) By definition, the money market involves the buying and selling of ________. A) stocks and bonds B) short-term securities C) all financial instruments except derivatives D) secured premium notes
B
25) Most money market transactions are made in ________. A) common stock B) marketable securities C) commodities market D) preferred stock
B
) Nico Nelson, a management trainee at a large New York-based bank, is trying to estimate the real rate of return expected by investors. He notes that the 3-month T-bill currently yields 3 percent and has decided to use the consumer price index as a proxy for expected inflation. What is the estimated real rate of interest if the CPI is currently 2 percent? A) 5% B) 1% C) 3% D) 2%
B
) The inflation risk premium on a bond is 2 percent, the U.S. T-bill rate is 5 percent, the maturity risk premium on the bond is 3 percent, the default risk premium on the bond is 2 percent, and the liquidity risk premium on the bond is 1 percent. Calculate its nominal rate of return. A) 16% B) 13% C) 11% D) 9%
B
1) ________ rate of interest creates equilibrium between the supply of savings and the demand for investment funds. A) Nominal B) Real C) Risk-free D) Inflationary
B
10) Which of the following is a means of selling bonds or stocks to the public? A) private placement B) public offering C) organized selling D) direct placement
B
11) Which of the following is a forum in which suppliers and demanders of funds can transact business directly? A) shadow banking system B) financial markets C) commercial banks D) financial institutions
B
12) A major weakness of a partnership is ________. A) the difficulty in maintaining owners' control B) the difficulty in liquidating or transferring ownership C) the double taxation of income D) its high organizational costs
B
13) Which of the following is a strength of a corporation? A) low taxes B) limited liability C) low organization costs D) less government regulation
B
14) A downward-sloping yield curve that indicates generally cheaper long-term borrowing costs than short-term borrowing costs is called ________. A) normal yield curve B) inverted yield curve C) flat yield curve D) linear yield curve
B
27) Cash flows and risk are the key determinants in share price. Increased cash flow results in ________, other things remaining the same. A) a lower share price B) a higher share price C) an unchanged share price D) an undetermined share price
B
31) Which of the following is true of cash flows and risk? A) Low cash flow and low risk result in an increase in share price. B) High cash flow and low risk result in an increase in share price. C) High cash flow and high risk result in an increase in share price. D) Lo cash flow and high risk result in an increase in share price
B
32) The money market is a market ________. A) that enables suppliers and demanders of long-term funds to make transactions B) which brings together suppliers and demanders of short-term funds C) where smaller, unlisted securities are traded D) where all derivatives are traded
B
34) The process of pooling mortgages or other types of loans and selling the claims or securities against that pool in the secondary market is called ________. A) valuation B) securitization C) private placement D) capital restructuring
B
38) A crisis in the financial sector often spills over into other industries because when financial institutions ________ borrowing, activity in most other industries ________. A) increase; slows down B) contract; slows down C) increase; increases D) contract; increases
B
4) Which of the following is an area of career opportunities in financial services? A) supply chain management B) personal financial planning C) auditing of financial statements D) production planning
B
44) The tax deductibility of various expenses such as general and administrative expenses ________. A) increases their pretax cost B) reduces their after-tax cost C) has no effect on their after-tax cost D) has an unpredictable effect on their after-tax cost
B
46) A controller is commonly responsible for ________. A) managing cash B) financial accounting C) managing credit activities D) financial planning
B
48) A ________ is responsible for the firm's accounting activities, such as corporate accounting, tax management, financial accounting, and cost accounting. A) treasurer B) controller C) foreign exchange manager D) pension fund manager
B
49) The average tax rate of a corporation with ordinary income of $105,000 and a tax liability of $24,200 is ________. A) 46 percent B) 23 percent=24200/15000 C) 34 percent D) 15 percent
B
50) Which of the following is true of cash basis accounting? A) All credit sales will be recorded as revenue. B) Revenue is recognized when a customer pays cash. C) Expenses are recognized when they are incurred. D) Accounts receivable and accounts payable can never be zero.
B
51) In general, most corporate capital gains are taxed at ________ tax rate. A) a 46 percent B) the regular corporate C) a 28 percent D) a 30 percent
B
54) Corporation A owns 15 percent of the stock of corporation B. Corporation B pays corporation A $100,000 in dividends in 2002. Corporation A must pay tax on ________. A) $100,000 of ordinary income B) $ 30,000 of ordinary income C) $ 70,000 of ordinary income D) $ 70,000 of capital gain
B
55) Johnson, Inc. has just ended the calendar year making a sale in the amount of $10,000 of merchandise purchased during the year at a total cost of $7,000. Although the firm paid in full for the merchandise during the year, it is yet to collect at year end from the customer. The net profit and cash flow from this sale for the year are ________. A) $3,000 and $10,000, respectively B) $3,000 and -$7,000, respectively C) $7,000 and -$3,000, respectively D) $3,000 and $7,000, respectively
B
57) ________ is one of the primary responsibilities of a financial manager. A) Monitoring quarterly tax payments B) Analyzing budget and performance reports C) Determining the audit policy D) Preparing income statements
B
60) A firm has just ended its calendar year making a sale in the amount of $200,000 of merchandise purchased during the year at a total cost of $150,500. Although the firm paid in full for the merchandise during the year, it is yet to collect at year end from the customer. The possible problem this firm may face is ________. A) high taxes B) lack of cash flow C) inability to receive credit D) high leverage
B
61) Which of the following line items in a balance sheet is considered the most for making a financing decision? A) current assets B) long-term liabilities C) revenue D) cost of goods sold
B
64) The primary activity of a financial manager is ________. A) analyzing accrued earnings B) making an investment decision C) preparing organization charts D) auditing financial statements
B
65) Which of the following activities of a finance manager determines the types of assets the firm holds? A) budget allocation B) investment decisions C) financing decisions D) analyzing and planning cash flows
B
7) Nico invested an amount a year ago and calculated his return on investment. He found that his purchasing power had increased by 15 percent as a result of his investment. If inflation during the year was 4 percent, then Nico's ________. A) real return on investment is more than 15 percent B) nominal return on investment is more than 15 percent C) nominal return on investment is less than 11 percent D) real return on investment is equal to 4 percent
B
72) A financial manager's financing decisions determine ________. A) both the mix and the type of assets found on the firm's balance sheet B) the most appropriate mix of short-term and long-term financing C) both the mix and the type of assets and liabilities found on the firm's balance sheet D) the proportion of the firm's earnings to be paid as dividend
B
74) The Sarbanes-Oxley Act of 2002 was passed in response to ________. A) insider trading activities B) false disclosures in financial reporting C) the decline in technology stocks D) the agency issue
B
78) The responsibility for managing day-to-day operations and carrying out corporate policies belongs to the ________. A) board of directors B) chief executive officer C) stockholders D) creditors
B
80) Which of the following is an example of agency cost? A) costs incurred for setting up an agency B) failure of making the best investment decision C) payment of income tax D) payment of interest
B
84) If managers are not owners of their company, then they are ________. A) dealers B) agents C) bondholders D) brokers
B
1) As a key participant in financial transactions, individuals are ________. A net demanders of funds because they save more money than they borrow B) net users of funds because they save less money than they borrow C) net suppliers of funds because they save more money than they borrow D) net purchasers of funds because they save more money than they borrow
C
1) ________ is concerned with design and delivery of advice and financial products to individuals, businesses, and governments. A) Managerial finance B) Auditing services C) Financial services D) Cost accounting
C
12) A(n) ________ yield curve reflects lower expected future rates of interest. A) upward-sloping B) flat C) downward-sloping D) linear
C
15) Which of the following is the purest and most basic form of corporate ownership? A) bond B) notes C) common stock D) preferred stock
C
16) A yield curve that reflects relatively similar borrowing costs for both short-term and long-term loans is called as ________. A) normal yield curve B) inverted yield curve C) flat yield curve D) lognormal curve
C
18) The key securities traded in the capital markets are ________. A) commercial papers and Treasury bills B) Treasury bills and certificates of deposit C) stocks and bonds D) bills of exchange and commercial papers
C
19) The wealth of the owners of a corporation is represented by ________. A) profits B) earnings per share C) share value D) cash flow
C
19) The yield curve in an economic period where lower future inflation is expected would be ________. A) upward-sloping B) flat C) downward-sloping D) exponential
C
22) A market that establishes correct prices for the securities that firms sell and allocates funds to their most productive uses is called a(n) ________. A) future market B) forex market C) efficient market D) weak-form market
C
22) Which of the following is the best measure of profit maximization goal? A) retained earnings B) risk of the investment C) earnings per share D) timing of the returns
C
24) Profit maximization as the goal of the firm is not ideal because ________. A) profits are only accounting measures B) cash flows are more representative of financial strength C) profit maximization does not consider risk D) profits today are less desirable than profits earned in future years
C
27) Long-term debt instruments used by both government and business are known as ________. A) preferred stocks B) T-bills C) bonds D) equities
C
29) In a ________ market, the buyer and seller are brought together to trade securities in an organization called ________. A) dealer; securities market B) broker; over-the -counter market C) broker; securities market D) dealer; over-the-counter market
C
3) Finance is ________. A) the system of verifying, analyzing, and recording business transactions B) the science of production, distribution, and consumption of goods and services C) the art and science of managing money D) the art of merchandising products and services
C
33) Apex Inc. issues a bond of $1,000 which pays interest semiannually at a coupon interest rate of 8%. The maturity of the bond is 15 years. Where should this bond be traded? A) forex market B) money market C) capital market D) commodities market
C
37) Which of the following is true of stakeholders? A) They are the owners of a firm. B) They are groups to whom a firm has financial obligations. C) They are groups having a direct economic link to a firm. D) They include only the bondholders, common stockholders, and preferred stockholders
C
39) The Glass-Steagall Act ________. A) was intended to regulate the activities in the secondary market B) created the Securities Exchange Commission C) separated the activities of commercial and investment banks D) was intended to regulate the activities in the primary markeT
C
4) The ________ rate is typically the nominal rate of interest on a three-month U.S. Treasury bill. A) expected B) real C) risk-free D) premium
C
42) An effective ethics program ________. A) can weaken corporate value B) has no effect on a corporation's value C) can enhance a corporation's value D) will result in high employee attrition rate
C
42) Which of the following acts regulates the secondary market? A) The Securities Act of 1933 B) The Gramm-Leach-Bliley Act C) The Securities Exchange Act of 1934 D) The Glass-Steagall Act
C
44) An accountant's primary function is ________. A) the evaluation of the financial statements B) making decisions based on financial data C) the collection and presentation of financial data D) the planning of cash flows
C
45) A treasurer is commonly responsible for handling ________. A) tax management B) corporate accounting C) investing surplus funds D) cost accounting
C
49) Which of the following is true of accrual basis accounting? A) Expenses are recognized either when they are incurred or cash is paid. B) Revenue is recognized when a customer pays cash. C) Expenses are recognized when they are incurred. D) Revenue is recognized when a customer pays cash or shows interest to purchase the product or service.
C
5) Investment banks are institutions that ________. A) perform all activities of commercial banks and retail banks B) are exempted from Securities and Exchange Commission regulations C) engage in trading and market making activities D) are only limited to capital market activities
C
5) Which of the following is an area of career opportunities in managerial finance? A) investment B) real estate and insurance C) capital expenditures management D) personal financial planning
C
50) If a corporation sells certain capital equipment for more than their initial purchase price, the difference between the sale price and the purchase price is called a(n) ________. A) ordinary gain B) revenue gain C) capital gain D) abnormal gain
C
52) Congress allows corporations to exclude from taxes 70 to 100 percent of dividends received from other corporations. Congress did this to ________. A) encourage corporations to invest in each other B) avoid double taxation on dividends C) eliminates most of the potential tax liability from the dividends received by the second and any subsequent corporations D) lower the cost of equity financing for corporations
C
53) Corporation X needs $1,000,000 and can raise this through debt at an annual rate of 10 percent, or preferred stock at an annual cost of 7 percent. If the corporation has a 40 percent tax rate, the after-tax cost of each is ________. A) debt: $100,000; preferred stock: $70,000 B) debt: $60,000; preferred stock: $42,000 C) debt: $60,000; preferred stock: $70,000 1000000*1-.4=60000. 1000000*.7=70000 D) debt: $100,000; preferred stock: $42,000
C
) A ________ is responsible for evaluating and recommending proposed long-term investments. A) financial analyst B) credit manager C) pension fund manager D) capital expenditures manager
D
56) A firm has just ended its calendar year making a sale in the amount of $150,000 of merchandise purchased during the year at a total cost of $112,500. Although the firm paid in full for the merchandise during the year, it is yet to collect at year end from the customer. The net profit and cash flow from this sale for the year are ________. A) $0 and $150,000, respectively B) $37,500 and -$150,000, respectively C) $37,500 and -$112,500, respectively D) $150,000 and $112,500, respectively
C
56) Which of the following is true? A) The process of pooling mortgages or other types of loans and then selling claims or securities against that pool in a secondary market is called depreciation. B) Corporations pay taxes on all dividends received from other corporations, no matter their share of ownership. C) Corporations may pay taxes on only 30 percent of the dividends received from other corporations, depending on their percentage of ownership. D) Capital gains are treated separately from ordinary corporate income for tax purposes
C
57) ________ is one of the primary responsibilities of a financial manager. A) Monitoring quarterly tax payments B) Analyzing budget and performance reports C) Determining the audit policy D) Preparing income statements
C
6) Which of the following is a duty of a financial manager in a business firm? A) developing marketing plans B) controlling the stock price C) raising financial resources D) auditing financial records
C
67) An investment decision taken by a financial manager will consider ________. A) tax payable at the end of a year B) working capital generated during an operating cycle C) funds used to purchase land D) issue of long-term notes
C
68) While managing a firm's assets, a financial manager should include ________. A) ending balance of retained earnings B) earnings before tax C) cash D) accounts payable
C
69) Which of the following activities of a finance manager determines how the firm raises money to pay for the assets in which it invests? A) financial analysis and planning B) investment decisions C) financing decisions D) analyzing and planning cash flows
C
79) In a corporation, the board of directors are elected by the ________. A) chief executive officer B) creditors C) stockholders D) employees
C
8) Which of the following legal forms of organization is most expensive to organize? A) sole proprietorships B) partnerships C) corporations D) limited partnership
C
81) Which of the following is the best measure to ensure that management decisions are in the best interest of the stockholders? A) fire managers who are inefficient B) remove management's perquisites C) tie management compensation to the performance of the company's common stock price D) tie management compensation to the level of dividend per share
C
87) Which of the following is an example of agency costs? A) cost of labor B) raw material cost C) monitoring expenditures cost D) factory rent
C
) Nominal rate of interest is equal to ________. A) the real rate plus an inflationary expectation B) the real rate plus a risk premium C) the risk-free rate plus an inflationary expectation D) the risk-free rate plus a risk premium
D
10) Under which of the following legal forms of organization is ownership readily transferable?
D
12) The sale of a new security directly to an investor or a group of investors is called ________. A) arbitraging B) short selling C) a capital market transaction D) a private placement
D
13) The term structure of interest rates is the relationship between ________. A) the present value of principal and coupon rate of the bonds B) the general expectation of inflation and nominal rate of return for bonds C) the general expectation of inflation and real rate of return for bonds D) the maturity and rate of return for bonds with similar level of risk
D
14) The over-the-counter (OTC) market is ________. A) a highly liquid market as compared to NASDAQ B) a market in which low risk-high return securities are traded C) an organized market in which all financial derivatives are traded D) a market where smaller, unlisted securities are traded
D
15) Which of the following is true of a primary market? A) It is an organized market in which all financial derivatives are traded. B) It is regulated by The Sarbanes-Oxley Act. C) It is a market where smaller, unlisted securities are traded. D) It is the only market in which the issuer is directly involved in the transaction.
D
16) Which of the following is true of a secondary market? A) It is a market for an unlisted company to raise equity capital. B) It is a market where securities are issued through private placement C) It is a market in which short-term money market instruments such as Treasury bills are traded. D) It is a market in which preowned securities are traded
D
17) Which of the following is true of sole proprietorships and corporations? A) It is difficult to transfer ownership of corporations compared to that of sole proprietorships. B) Income from both forms of organizations are taxed only at the corporate level. C) Both sole proprietorships and corporations are equally scrutinized and regulated by government bodies. D) In sole proprietorships, owners have unlimited liability; whereas, in corporations, owners have limited liability.
D
19) Which of the following is true of international equity markets? A) In the international equity market, corporations cannot raise capital through IPOs, instead they can raise capital by trading in the secondary market. B) In the international equity market, corporations can easily manipulate the price of the shares since it is not regulated by any regulatory bodies. C) In the international equity market, corporations can only sell blocks of shares to institutional investors from European Union. D) In the international equity market, corporations can sell blocks of shares to investors in a number of different countries simultaneously.
D
20) Wealth maximization as the goal of a firm implies enhancing the wealth of ________. A) the auditors B) the creditors C) the federal reserve D) the firm's stockholders
D
21) Which of the following is true of a securities exchange? A) It serves as an intermediary by channeling the savings of individuals, businesses, and governments into loans or investments. B) It borrows funds directly from the financial institutions. C) It is an association of banks who meet to buy and sell stocks and bonds. D) It provides a marketplace in which firms can raise funds through the sale of new securities and purchasers can resell securities
D
23) Profit maximization as a goal is ideal because it directly considers ________. A) risk and book value of assets B) timing and cash flow C) timing and risk D) EPS and stock price.
D
23) The ________ is created by a financial relationship between suppliers and demanders of short-term funds. A) stock market B) capital market C) forex market D) money market
D
23) Which of the following affects the slope of yield curve? A) tax rates B) dividend policy C) selection of accounting standards D) liquidity preferences
D
24) Which of the following is true of risk premium? A) T-bills have a have a higher risk premium than that of Treasury bonds. B) The government bonds have a higher risk premium than that of corporate bonds. C) The speculative corporate issues have a lower risk premium than that of the higher rated corporate issues. D) The lower-rated corporate issues have a higher risk premium than that of the higher rated corporate issues.
D
29) Financial managers evaluating decision alternatives or potential actions must consider ________. A) only risk B) only return C) either risk or return D) risk, return, and the impact on share price
D
3) Government can obtain funds ________. A) by trading in equity market B) by issuing financial instruments such as futures and options C) through forex market D) by selling debt securities
D
30) In a ________ market, the buyer and seller are not brought together to trade securities directly but instead have their orders executed on the ________. A) dealer; securities market B) broker; over-the -counter market C) broker; securities market D) dealer; over-the-counter market
D
31) An efficient market is one where ________. A) prices of stocks move up and down widely without apparent reason B) prices of stocks remain low for long periods of time C) prices of stocks are unaffected by market news D) the price of a security is an unbiased estimate of its true value
D
32) As the risk of a stock investment increases, investors' ________. A) return will increase B) return will decrease C) required rate of return will decrease D) required rate of return will increase
D
35) The primary risk of mortgage-backed securities is ________. A) that the prices of have high volatility B) that the prices of housing will increase C) that the government will not be able to meet the guarantees on the cash flows D) that homeowners may not be able to, or choose not to, repay their loans
D
36) Which of the following is true of mortgage-backed securities? A) Mortgage-backed securities assure a flat 15% return. B) Mortgage-backed securities are guaranteed by the U.S. government. C) Mortgage-backed securities can only be purchased by investment banks. D) Mortgage-backed securities represent claims on the cash flows generated by a pool of homeloans.
D
41) The implementation of a pro-active ethics program is expected to result in ________. A) a positive corporate image and increased respect, but is not expected to affect cash flows B) an increased share price resulting from a decrease in risk, but is not expected to affect cash flows C) a positive corporate image and increased respect, but is not expected to affect share price D) a positive corporate image and increased respect, a reduction in risk, and enhanced cash flow resulting in an increase in share price
D
43) Corporate ethics policies typically apply to ________ in dealing with ________. A) employee actions; customers and creditors B) employee actions; customers, vendors, and regulators C) management actions; all corporate constituents D) employee actions; all corporate constituents
D
51) A financial manager is interested in the cash inflows and outflows of a firm, rather than the accounting data, in order to ________. A) ensure profitability B) maintain healthy public relations C) ensure timely payment of taxes D) maintain an optimum solvency level
D
52) Which of the following is the responsibility of a finance manager? A) processing purchase orders and invoices B) ensuring accounts payable are paid on time C) preparing the monthly income statement D) analyzing the capital needs of the firm
D
54) The primary economic principle used in managerial finance is ________. A) purchase power parity B) asset pricing theory C) Porter's theory of five forces D) marginal cost-benefit analysis
D
55) The dividend exclusion for corporations receiving dividends from another corporation has resulted in ________. A) a lower cost of equity for the corporation paying the dividend B) a higher relative cost of bond-financing for the corporation paying the dividend C) stock investments being relatively less attractive, relative to bond investments made by one corporation in another corporation D) stock investments being relatively more attractive relative to bond investments made by one corporation in another corporatiON
D
7) Which of the following provides savers with a secure place to invest funds and offer both individuals and companies loans to finance investments? A) investment banks B) securities exchanges C) mutual funds D) commercial banks
D
71) In planning and managing the requirements of a firm, the financial manager is concerned with ________. A) the mix and type of assets, but not the type of financing utilized B) the type of financing utilized, but not the mix and type of assets C) the acquisition of fixed assets, allowing someone else to plan the level of current assets required, and the market value of the share D) the mix and type of assets, the type of financing utilized, and analysis in order to monitor the financial condition
D
9) The ________ is the compound annual rate of interest earned on a debt security purchased on a given date and held to maturity. A) risk premium B) yield curve C) risk-free rate D) yield to maturity
D
37) When home prices are falling, we would expect a(n) ________. A) high mortgage default rates B) low mortgage default rates C) unchanged mortgage default rates D) higher percentage of owner home equity
a
40) The Federal Deposit Insurance Corporation (FDIC) ________. A) is an agency, created by the Glass-Steagall Act, that monitors banks on a regular basis to ensure that they were safe and sound. B) is an agency that monitors business combinations between commercial banks, investment banks, and insurance companies C) guarantees individuals will not lose any money held at any type of financial institution that fails D) guarantees individuals will not lose any money, up to a specified amount, held at any type of financial institution that fails
a
41) The Gramm-Leach-Bliley Act ________. A) is created to monitor banks on a regular basis to ensure that they were safe and sound. B) allows business combinations between commercial banks and investment banks, but not insurance companies C) allows business combinations between commercial banks, investment banks, and insurance companies D) was signed during the Great Depression because of the financial crisis
c