Study.com Financial Management Chapter 7

Advance/Decline Index

Aneeka is reviewing the ratio of stocks that are trending up to stocks that are trending down. Which indicator is she using? a. Inflation Index b. Market Trends Index c. Advance/Decline Index d. The Absolute Breadth Index

A U.S. government issued bond

Bob will only buy investment grade bonds. Which of the following would Bob buy? a. A U.S. government issued bond b. A former Soviet bloc issued bond c. A bond issued by a startup tech company d. All bonds start with this rating

Interest is a fee the company pays to borrow money.

Choose the BEST answer to explain interest. a. Interest is the return the company receives for selling bonds. b. Interest is a fee the investor pays to purchase a bond. c. Interest is a fee the company pays to borrow money. d. Companies aren't required to make interest payments.

An increase in risk yields a higher return.

Choose the BEST answer to explain the concept of risk and return. a. Risk and return are indirectly correlated. b. An increase in risk yields a lower return. c. An increase in risk yields a higher return. d. Risk and return are not correlated.

Bonds are a short-term investment product.

Choose which answer is NOT a disadvantage of a bond. a. Bonds are a short-term investment product. b. Bonds have a low return on investment. c. Bonds are a long-term investment product. d. There is a possibility of default.

The issuer's taxing power

General obligation bonds are secured by _____. a. Rents received b. Business debt c. The issuer's taxing power d. Revenue bonds

George is bartering with an established IOU.

George reaches into his wallet and pulls out a $20 US bill to pay for his coffee. By using currency to make a purchase, what is George actually doing? a. George is exchanging value for the ownership in the underlying asset. b. George is bartering with an established IOU. c. George is paying with a government guaranteed note. d. George is offering a trade in the amount of value of the medium of exchange.

The market is bullish

Gordon is using a short-term indicator to determine market sentiment, and the indicator yields a 0.5. What can Gordon believe about the market? a. The market could go either up or down b. The market is bullish c. The market is stagnant d. The market is bearish

Mutual funds are not traded on a stock exchange, but exchange-traded funds are traded on stock exchanges.

How are a mutual fund and an exchange-traded fund different? a. Mutual funds are not traded on a stock exchange, but exchange-traded funds are traded on stock exchanges. b. Mutual funds use a diversification strategy unlike an exchange-traded fund. c. There is no appreciable difference between mutual funds and exchange-traded funds. d. Mutual funds are open to everyone, but exchange-traded funds are only open to institutional investors.

Fixed assets have a significant impact as they may take a sizable investment and are intended to be used for a longer period of time.

How do fixed assets impact a business? a. Fixed assets require that a business only operate in one state. b. Business must generate over $1M in sales to purchase fixed assets. c. Fixed assets do not have much impact on a business. d. Fixed assets have a significant impact as they may take a sizable investment and are intended to be used for a longer period of time.

Based on the type of business a company is engaged in, they may own more or fewer fixed assets.

How do fixed assets vary between businesses? a. Only corporations own fixed assets. b. Based on the type of business a company is engaged in, they may own more or fewer fixed assets. c. Businesses must own a minimum number of fixed assets for accounting reasons. d. All businesses own the same fixed assets.

Unsecured bonds are riskier than secured bonds.

How is an unsecured bond different from a secured bond? a. Unsecured bonds are riskier than secured bonds. b. Secured bonds protect only the principal balance, while unsecured bonds do not protect the principal balance. c. Unsecured bonds offer more tangible assets compared to secured bonds. d. Secured bonds offer higher interest than unsecured bonds.

Twice a year

How often do Treasury bonds pay interest payments to the investor? a. Annually b. Once a quarter c. Twice a year d. Once every other year

Purchase exchange-traded funds

Mary wants to invest in a security that is sold in the stock market. If she wants the highest diversification, what should Mary do? a. Purchase individual bonds b. Purchase exchange-traded funds c. Purchase individual stocks d. Purchase mutual funds

The issuer's revenues

Revenue bonds are secured by _____. a. GO bonds b. International bonds c. Property taxes d. The issuer's revenues

4.9%

Since 1900, what has been the average interest rate for a Treasury bond? a. 4.9% b. 2.9% c. 14.96% d. 16.9%

$3,500

The Fudge Factory issues a bond with a par value of $100,000 that pays an interest rate of 7% annually for 10 years. How much will each semiannual (every six months) coupon payment be? a. $7,000 b. $70,000 c. $170,000 d. $3,500

Full faith and credit of the U.S. government

Treasury bonds are backed by the: a. Federal Commerce system b. Elected government officials c. U.S. citizens d. Full faith and credit of the U.S. government

Funds needed to pay for current expenses and long term projects

What are capital requirements? a. Required bonuses the company should pay annually b. Funds needed to pay for current expenses and long term projects c. Funds needed to pay salaries d. Funds needed to build new facilities

Items that a business owns that are tangible and often held on a long-term basis.

What are fixed assets? a. Items that a business owns that are tangible and often held on a long-term basis. b. Assets that are cemented into the ground and do not move. c. Assets that have a fixed price and do not change. d. Assets that are owned by consumer type businesses.

Debt vehicles issued by state and local governments to finance their operations and fund municipal projects

What are municipal bonds? a. Debt vehicles issued by the federal government to finance international operations b. Debt vehicles issued by state and local governments to finance their operations and fund municipal projects c. Debt vehicles issued by state and local governments to finance federal operations d. Debt vehicles issued by the federal government to finance its operations and fund local projects

something you can own, something with monetary value, something where that monetary value is derived from a contractual claim

What are the conditions for something to qualify as a financial asset? a. something you can own, something with monetary value, something where that monetary value is derived from a verbal agreement b. something you can hold, something with monetary value, something where that monetary value is derived from a contractual claim c. something you can own, something with potential investment value, something where that monetary value is derived from a contractual claim d. something you can own, something with monetary value, something where that monetary value is derived from a contractual claim

General obligation bonds and revenue bonds

What are the two types of municipal bonds? a. Global bonds and high-yield bonds b. General obligation bonds and revenue bonds c. High-yield bonds and floating rate loans d. International bonds and revenue bonds

They remain relatively stable, with a consistent balance.

What happens to fixed assets on the financial statements if no fixed assets are purchased or sold? a. They remain relatively stable, with a consistent balance. b. They generally double annually. c. They are included as an inventory item. d. They are sold regularly, so it changes the balance consistently.

An initial block of an exchange-traded fund sold to investors

What is a creation unit? a. The unit of mutual fund shares initially sold to investors b. One share of a mutual fund c. One share of an exchange-traded fund d. An initial block of an exchange-traded fund sold to investors

An equity investment

What is another term for stock? a. A debenture b. A bond c. A debt instrument d. An equity investment

Munis

What is another word for municipal bonds? a. Metro bonds b. Munips c. Munis d. Munics

Fixed assets are not sold as a typical business transaction and are often held for a longer-period of time

What is the difference between fixed assets and inventory? a. Inventory items are always perishable b. Fixed assets are not sold as a typical business transaction and are often held for a longer-period of time c. Inventory items are not sold d. Fixed assets are owned only by businesses that do not hold inventory

10 years

What is the minimum maturity for a Treasury bond? a. 1 year b. 5 years c. 10 years d. 50 years

Describe the bond issuer's creditworthiness

What is the purpose of a bond rating? a. Describe the bond issuer's creditworthiness b. Identify bond return rates c. Provide regulation for the bond industry d. Tell investors which bond to buy

Any bond that isn't in the same top tier rating as an investment grade bond

What is the simple definition of a junk bond? a. Any bond with a rate of return that is equal to or greater than 10% b. Any bond issued by a U.S. corporation c. Any bond not backed by the full faith and credit of the United States government d. Any bond that isn't in the same top tier rating as an investment grade bond

The current cash on hand less the bills due

What is working capital in a business? a. The funds needed by a business to pay its workers b. The funds needed to pay for long term projects, such as a new facility c. The city where its primary headquarters is located d. The current cash on hand less the bills due

Investment Grade Bond

What type of bond has an AA+ or Aa1 rating? a. Junk Bond b. High Yield Bond c. Municipal Bond d. Investment Grade Bond

All of these answers are correct.

What types of outflows should we include in our capital requirements calculation? a. One-time expenses, such as maintenance and repair costs b. Long term project costs, such as an advertising campaign or a new facility c. Recurring expenses, such as salaries and rents d. All of these answers are correct.

It's a debt instrument

What's the best explanation of a bond? a. It's an ownership interest in a company b. It's a debt instrument c. It represents a corporate debt obligation d. It represents a government debt obligation

Investing in different types of investments to reduce risk

What's the best explanation of diversification? a. Purchasing stocks and bonds b. Purchasing different mutual funds c. Investing in different types of investments to reduce risk d. Investing strategically to maximize profits in each investment category

Primary markets involve initial offering of securities while the secondary market involves trading of previously purchased securities

What's the difference between a primary securities market and a secondary securities market? a. Primary markets deal with publicly traded securities and secondary markets do not b. Primary markets involve initial offering of securities while the secondary market involves trading of previously purchased securities c. A primary market relates to the trading of stocks and a secondary market relates to the trading of bonds d. A primary market relates to the trading of bonds and a secondary market relates to the trading of stocks

Prospectus

What's the name of a disclosure document required by the SEC to be provided to potential investors of publicly traded securities? a. Stock disclosure b. Prospectus c. Securities disclosure d. Private placement memorandum

On a specific date as agreed by both the issuer and bondholder

When does a term bond become mature? a. On the first of each term b. On a specific date as agreed by both the issuer and bondholder c. On the last day of the year d. On a date as imposed by the issuer

All of the answers are correct

Where can you purchase Treasury bonds? a. Brokers b. Local banks c. All of the answers are correct d. U.S. Treasury

All of these answers are correct.

Where might a business obtain more capital if needed? a. Borrowing of funds from a bank b. Reduction of ongoing expenses c. Sale of company ownership to investors (equity) d. All of these answers are correct.

An ownership interest in a company.

Which of the following BEST explains the contractual obligation associated with stock? a. Commitment by the company that issued the stock to buy the stock of cash whenever the holder of the stock requests. b. An ownership interest in a company. c. A commitment to the owner of stock to make the value of the stock increase, no matter what. d. The promise by a central bank to keep the economy strong so the business represented by the stock can be financially stable.

Control is not affected.

Which of the following describes the effect of bond financing on owner control? a. Control is shared by the bond issuer and holder. b. Control is surrendered to the bond holder. c. Control is split 51/49 between bond issuer and holder. d. Control is not affected.

Bonds

Which of the following financial assets is a debt instrument - a promise by the issuer to pay the holder their principal plus interest at some future date? a. Stock b. Legal Tender c. Bonds d. Money

Gross domestic product

Which of the following indicators gauges the total economic output of an economy in order to forecast movement in the stock market? a. Gross domestic product b. The Absolute Breadth Index c. Advance/Decline Index d. Inflation

Highest return of all investment products

Which of the following is NOT an advantage of a bond. a. Little chance of default b. Low risk c. Highest return of all investment products d. Earnings projections

The interest of bonds is tax deductible.

Which of the following is a considered an advantage of bond financing? a. The interest of bonds is tax deductible. b. Bonds invite others to help in decision making. c. Bond financing reflects ownership in a company. d. Bonds can decrease return on equity.

AA+

Which of the following is an example of a Standard & Poor's bond rating? a. Ca b. AA+ c. Aa1 d. 740

An offering of unregistered securities to a group of investors

Which of the following is the best explanation of a private placement? a. An offering of stock on the primary market b. An offering of bonds to a group of investors c. An offering of unregistered securities to a group of investors d. An offering of securities on the secondary market

Maturity date

Which of the following is the term for when a bond is due? a. End of term date b. Due date c. Payment date d. Maturity date

Bonds are considered a contractual arrangement.

Which of the following is true regarding bonds? a. The company is legally bound to pay the principal, but not interest payments. b. Bonds are considered a contractual arrangement. c. The company isn't legally bound to pay interest payments. d. The company isn't legally bound to pay the principal at maturity.

Money, Stock, Bonds

Which of the following lists is in the correct order, from least to most, of the market value of each of these financial assets? a. Money, Stock, Bonds b. Money, Bonds, Stock c. Stock, Money, Bonds d. Bonds, Stock, Money

They utilize traditional economic analysis

Which of the following statements about technical analysis and technical indicators is FALSE? a. They utilize computer programs b. They utilize traditional economic analysis c. They utilize charts d. They utilize mathematics

Bonds can increase return on equity.

Which of the following statements is true about bonds? a. Bonds can increase return on interest. b. Bonds can increase return on equity. c. Bonds can decrease return on equity. d. Bonds can decrease return on interest.

Serial bond

Which of these bond types are bonds in which a portion of the outstanding bonds mature or become due at several dates which typically fall in a series? a. Convertible bond b. Serial bond c. Unsecured bond d. Registered bond

Convertible bond

Which of these bond types provides the bondholder with the right to exchange the bond for a specific number of shares in the company's common stock before the maturity date? a. Unsecured bond b. Registered bond c. Convertible bond d. Serial bond

It identifies when the business may need more funds it has on hand, so arrangements can be made ahead of time.

Why should a business calculate capital requirements? a. It keeps the financial planning staff busy. b. It's a government requirement. c. It shouldn't - calculating capital requirements is not necessary for most businesses. d. It identifies when the business may need more funds it has on hand, so arrangements can be made ahead of time.

Because they offer greater potential for large returns

Why would an investor buy investment vehicles other than mutual funds or exchange-traded funds? a. Due to a dislike of ETFs b. Because they offer greater potential for large returns c. Because they're less risky than individual stock investments d. For the purpose of diversification

Bearer bond

X is a type of bond that is payable to whoever holds it. As such, anyone can claim ownership of X. Because of the risk associated with X, very few are in circulation today. Identify X. a. Bearer bond b. Callable bond c. Serial bond d. Registered bond

The Absolute Breadth Index

_____ measures market volatility to forecast significant changes in stock prices. a. Inflation b. The Absolute Breadth Index c. The Arms Index d. The consumer price index