FI 302 Exam 1

What type of loan makes interest payments throughout the life of the loan and then pays the principal and final interest payment at the maturity date? A. Interest-only loan B. Discount loan C. Compound loan D. Amortized loan

A. Interest-only loan

Financial markets can be classified by which of the following? A. Type of asset traded B. Owner of the financial asset C. Maturity of the financial asset D. All of the above

D. All of the above

What type of loan requires both principal and interest payments as you go by making equal payments each period? A. Interest-only loan B. Discount loan C. Compound loan D. Amortized loan

D. Amortized loan

________ is a major disadvantage of the corporate form of business. A. Unlimited liability B. Lack of ability to raise capital C. Transfer of ownership D. Double taxation

D. Double taxation

Which of the following is NOT a major component of interest rates? A. inflation premium B. real rate C. Default premium D. Historical interest rates

D. Historical interest rates

Which of the statements below is TRUE? A. The frequency of bankruptcy for a high-tech up-start rm is lower than for a blue-chip firm, so we see lower borrowing rates for start-ups than for mature firms. B. The frequency of bankruptcy for a high-tech up-start rm is higher than for a blue-chip firm, so we see lower borrowing rates for start-ups than for mature firms. C. The frequency of bankruptcy for a high-tech up-start rm is lower than for a blue-chip firm, so we see higher borrowing rates for start-ups than for mature firms. D. The frequency of bankruptcy for a high-tech up-start rm is higher than for a blue-chip firm, so we see higher borrowing rates for start-ups than for mature firms.

D. The frequency of bankruptcy for a high-tech up-start rm is higher than for a blue-chip firm, so we see higher borrowing rates for start-ups than for mature firms.

At its most basic level the function of financial intermediaries is to_______. A. effect a transfer of wealth B. track and report interest rates C. report all financial transactions to the federal government D. move money from lenders to borrowers and back again

D. move money from lenders to borrowers and back again

The sale of "new" securities, where the financial asset is being traded for the very first time, is said to take place in the ______ market. A. primary B. money C. capital D. secondary

A. primary

A_________ has limited liability, is a legal entity, and has the greatest potential to raise capital. A. Limited partnership B. general partnership C. Corporation D. sole proprietorship

C. Corporation

You parents are going to give you $10,000 as a gift upon graduation. Which of the following would cause the present value of this gift to rise? A. An increase in the interest rate B. A decrease in the time to graduate C. Your parents reducing the gift to $8,000 for poor grades D. An increase in the time to graduate

B. A decrease in the time to graduate

The organized financial intermediaries and the forums that promote the cycle of money is a good definition of which of the following main areas of finance? A. Investments B. Financial institutions and markets C. Corporate finance D. International finance

B. Financial institutions and markets

Which of the statements below is FALSE? A. Monthly interest on a loan is equal to the beginning balance times the periodic interest rate. B. Reducing principal at a faster pace increases the overall interest paid on a loan. C. The more frequent the payment, the lower the total interest expense over the life of the loan, even though the effective rate of the loan is higher. D. Reducing principal at a faster pace reduces the overall interest paid on a loan.

B. Reducing principal at a faster pace increases the overall interest paid on a loan.

Net income is_________ A. The cash flow from he operations of the company during the period B. not cash flow C. earnings before interest and taxes D. the increase or decrease in cash flow for the period

B. not cash flow

Which of the following is NOT an example of ordinary annuity cash flows? A. Mortgage payment due at the end of the period B. Car loans due at the end of a period C. Insurance payments due at the start of the period D. All of the above are examples of ordinary annuity cash flows

C. Insurance payments due at the start of the period

Which of the following is NOT and ADVANTAGE of a sole proprietorship? A. Quick decision making B. The owner receiving all the after-tax profit C. Limited liability D. All are advantages of a sole proprietorship

C. Limited liability

In agency theory, the owners of the business are referred to as ________, and the managers are referred to as ________. A. agents, principals B. stockholders, bondholders C. principals, agents D. bondholders, principals

C. principals, agents