Finance Test Test Q's From Old Tests +Problem Sets+

E

"Don't put all of your eggs in one basket" is an illustration of ________. A) variance B) validation C) portion control D) expected return E) diversification

A

A furniture store has a sofa on sale for $399.00, with the payment due one year from today. The store is willing to discount the price at an annual rate of 5% if you pay today. To the nearest dollar, what is the amount if you pay today? A) $380 B) $399 C) $419 D) $394 E) $388

B

5. The ease with which a security can be sold and converted into cash is called: A) convertibility B) liquidity C) cashability D) redeemability

D

5. Which of the following is a source of funds for a firm? a. Debt b. Equity c. Purchasing raw materials d. Both A and B

A

5. Which of the following is true of the future value of an investment? A) The higher the interest rate, the higher the future value of an investment. B) The higher the inflation rate, the lower the future value of an investment. C) The lower the number of compounding periods, the higher the future value of an investment. D) The lower the present value of an investment, the higher the future value of an investment.

A

6. One of the main services offered by investment banks to companies is: A) helping companies sell new debt or equity issues in the security markets. B) making loans to companies. C) taking deposits from companies. D) all of the above.

C

6. Which of the following business organizational form(s) is/are the easiest one(s) to raise capital? a. Sole proprietorship b. Partnership c. Corporation d. Both A and B

D

6. Which of the following investments will have the highest future value? A) $1,300 invested at an annual interest rate of 10% for 5 years B) $1,000 invested at an quarterly interest rate of 2.25% for 10 years C) $1,300 invested at an quarterly interest rate of 2.25% for 5 years D) $1,000 invested at an annual interest rate of 10% for 10 years

C) r = (FV/PV)1/n- 1

question "At what rate is my money growing over time?" is best answered by which form of the TVM equation?

D

7. Joseph Ray just received an inheritance of $35,775 from his great aunt. He plans to invest the funds for retirement. If Joseph can earn 4.75% per year with quarterly compounding for 32 years, how much will he have accumulated? (Round off to the nearest dollar.) A) $237,416 B) $71,550 C) $184,622 D) $162,113

B

7. The process of converting financial securities with one set of characteristics into securities with another set of characteristics is called: A) financial bundling. B) financial intermediation. C) financial disintermediation. D) none of the above.

C

7. Which of the following is an appropriate goal for a firm? a. Profit maximization b. Revenue maximization c. Stockholder's wealth maximization d. Tax minimization

C

8. 5 Juan Vinson is planning to buy a house in five years. He is looking to invest $25,000 today in an index mutual fund that will provide him a return of 12 percent annually. How much will he have at the end of five years? (Round to the nearest dollar.) A) $45,000 B) $28,000 C) $44,059 D) $28,530

A

8. If you are a borrower, which would you prefer to occur during the life of your loan? A) A level of inflation that is higher than that anticipated at the outset of the loan. B) A level of inflation that is lower than that anticipated at the outset of the loan. C) A level of inflation that is exactly as anticipated at the outset of the loan. D) No inflation at all

A

8. One reason for the existence of agency problems between managers and stockholders is that: A) there is a significant degree of separation between management and ownership. B) managers know how to manage the firm better than stockholders. C) stockholders have unreasonable expectations about managerial performance. D) none of the above.

B

9. If the supply of loanable funds decreases relative to the demand for those funds, then we would expect: A) interest rates to remain unchanged. B) interest rates to increase. C) interest rates to decrease. D) the cost of money to remain unchanged.

C

9. Lori Willis plans to invest for retirement, which she hopes will be in 20 years. She is planning to invest $25,000 today in U.S. Treasury bonds that will earn interest at 6.25 percent annually. How much will she have at the end of 20 years? (Round to the nearest dollar.) A) $68,870 B) $50,625 C) $84,046 D) $75,000

D

9. Which of the following mechanisms can help to align the behavior of managers with the goals of stockholders? A) Well-designed management compensation B) Managerial labor market C) An independent board of directors D) All of the above

B

10. If a firm sells common stock to the public for the very first time, it is known as _____. A) an underwriting B) an initial public offering C) a financial intermediation D) an origination

C

10. The cash remaining with the firm after paying its operating expenses, making payments to creditors, and taxes is called: A) earnings per share. B) capital contributed in excess of par. C) residual cash flows. D) assets.

B

10. When the discount rate: A) decreases, the present value of the future cash flow does not change. B) decreases, the present value of any future cash flow increases. C) increases, the present value of any future cash flow increases. D) increases, the present value of any future cash flow does not change.

A

2. Compound interest consists of both simple interest and interest on interest. A) True B) False

A

2. The vast preponderance of securities sales on the New York Stock Exchange are secondary market transactions. A) True B) False

A

3. The more frequently the interest payments are compounded, the larger the future value of $1 for a given time period. A) True B) False

A

3. are the principal lender-savers in the economy. A) Households B) Investment banks C) State governments D) Businesses

C

4. Secondary financial markets are similar to: A) direct auction markets. B) new-car markets. C) used-car markets. D) direct financial market.

A

4. The time value of money refers to the issue of: A) what the value of the stream of future cash flows is today. B) why a dollar received tomorrow is worth more than a dollar received today. C) what time is required to double an amount of money. D) why people prefer to consume things at some time in the future rather than today.

A

4. Unlimited liability means that the owner of a firm is responsible for A. paying all of the bills of the firm. B. earning an acceptable return on investment or be liable for fines. C. earning an acceptable return on investment or be subject to termination. D. paying employees and suppliers, but he or she has no other financial obligations.

B

. An investment of $100 today is worth $116.64 at the end of two years if it earns an annual interest rate of 8%. How much interest is earned in the first year and how much in the second year of this investment? A) The interest earned in year one is $8.32 and the interest earned in year two is $8.32. B) The interest earned in year one is $8.00 and the interest earned in year two is $8.64. C) The interest earned in year one is $8.64 and the interest earned in year two is $8.00. D) The interest earned in year one is $8.00 and the interest earned in year two is $8.00. E) There is not enough information to solve this problem

B

1. Governments are the principal lender-savers in the economy. A) True B) False

B

1. The value of a dollar invested at a positive interest rate grows over time but at a slower rate further into the future. A) True B) False

B

A home improvement firm has quoted a price of $9,800 to fix up Eric's backyard. Five years ago, Eric put $7,500 into a home improvement account that has earned an average of 5.25% per year. Does Eric have enough money in his account to pay for the backyard fix‐up? A) Yes; Eric now has exactly $9,800 in his home improvement account. B) No; Eric has only $9,687 in his home improvement account. C) Yes; Eric now has $10,519 in his home improvement account. D) No, Eric has only $9,475 in his home improvement account. E) There is not enough information to answer this question.

A

A patent is a productive asset for a technology-based firm. A) True B) False

E

A two‐year investment of $3500 is made today at an annual interest rate of 5.75%. Which of the following statements is true? A) The future value would be greater if the holding period was shorter. B) The present value would be greater if the interest rate was higher. C) The future value would be greater if the interest rate was lower. D) The future value does not change as the interest rate changes. E) None of the above is true.

E

Although (or because) shareholders own the company a. few decisions are made according to the majority of the shareholder votes. b. in most cases the CEO gets to make the decisions he wants to make. c. the shareholders have little or no say in the way the company is run. d. the CEO is usually replaced if small shareholders become dissatisfied with his or her performance. e. Both a and b.

A

Financing decisions determine how firms raise cash to pay for their investments. A) True B) False

According to the Finance FAQ, what should you do if you can't get a website to do what you need to do for the course? a. Wait until class and then ask another student. b. Ask another student for help and then contact the people who run the website if you still can't get it to work. c. Contact Microsoft, or your Android provider, or Apple, depending on the type of device you are using. d. Restart the device you are using. e. Contact the instructor.

B

A

Carl Icahn is an activist shareholder. a. This means that he sometimes buys a large number of shares and tries to influence the firm's management. b. This means that he holds a lot of shares and actively manages the company. c. This means that he sometimes buys a large number of shares and tries to become the CEO. d. False. He is a passive shareholder. e. None of the above.

A

The financial manager is responsible for making decisions that are in the best interests of the firm's owners. A) True B) False

C

The form of business ownership that gives the owner the most control over how the business is run is the A) corporation. B) partnership. C) sole proprietorship. D) limited partnership. E) Subchapter S corporation.

B

Which of the following actions will decrease the present value of an investment? A) Decrease the interest rate. B) Decrease the future value. C) Decrease the amount of time. D) All of the above will decrease the present value. E) None of the above will decrease the present value.

C

Which of the following is true for a C‐corporation? A) Business income is taxed at the individual's personal rate. B) The owners have unlimited liability. C) Business income is taxed at the corporate rate. D) All of the above. E) None of the above.

D

Which of the following will result in a future value greater than $100? A) PV = $50, r = an annual interest rate of 10%, and n = 8 years. B) PV = $75, r = an annual interest rate of 12%, and n = 3 years. C) PV = $90, r = an annual interest rate of 14%, and n = 1 year. D) All of the future values are greater than $100. E) Only A and C are greater than $100

B

Which of the statements below is true? A) Investors want to maximize expected return and maximize risk. B) Investors want to maximize expected return and minimize risk. C) Investors want to minimize expected return and maximize risk. D) Investors want to minimize expected return and minimize expected risk. E) Investors want to maximize expected return and minimize expected risk

D

Your grandmother places $13,000 into an account earning an interest rate of 7% per year. After 5 years the account will be valued at $18,233.17. Which of the following statements is correct? A) The present value is $13,000, the time period is 7 years, the present value is $18,233.17, and the interest rate is 5%. B) The future value is $13,000, the time period is 5 years, the principal is $18,233.17, and the interest rate is 7%. C) The principal is $13,000, the time period is 7 years, the future value is $18,233.17, and the interest rate is 5%. D) The principal is $13,000, the time period is 5 years, the future value is $18,233.17, and the interest rate is 7% E) None of the above is correct.

E

Your university is running a special offer on tuition. This year's tuition cost is $18,000. Next year's tuition cost is scheduled to be $19,080. The university offers to discount next year's tuition at a rate of 6% if you agree to pay both years' tuition in full today. How much is the total tuition bill today if you take the offer? A) $28,000 B) $34,981 C) $37,080 D) $36,300 E) None of the above is correct.