Finance Quiz Questions And Answers For All Quizes

Front 1

This sub-area of finance involves methods and techniques to make appropriate decisions about what kinds of securities to own, which firms' securities to buy, an dhow to be paid back in the form that the investor wishes.

Back 1

investments

Front 2

The practice generally known as double taxation is due to

Back 2

corporate incomes being taxed at the corporate level, then again at the shareholder level when corporate profits are paid out as dividends

Front 3

This type of business organization is legally independent entirely from its owners.

Back 3

Public Corporations

Front 4

For corporations, maximizing the value of owner's equity can also be stated as

Back 4

maximizing the stock price.

Front 5

Which of the following managers would NOT use finance?

Back 5

All of these would use finance.

Front 6

This is the set of laws, policies, incentives, and monitors designed to handle the issues arising from the separation of ownership and control.

Back 6

corporate governance

Front 7

Which of these are NOT basic approaches to minimizing the agency problem?
Question 7 answers

Back 7

All of these are basic approaches to minimizing the agency problem.

Front 8

A proprietorship is an unincorporated business owned by one individual and the owner benefits from the limited liability for business which limits his losses to what he has invested in the company.

Back 8

False

Front 9

The definition of agency problem is

Back 9

the difficulties that arise when a principle hires an agent and cannot fully monitor the agent's actions.

Front 10

This is the group who elected by stockholders to oversee management in a corporation.

Back 10

Board of Directors

Front 11

Which of these statements is true?

Back 11

The age of a firm's fixed assets will affect the fixed asset turnover ratio level.

Front 12

Which of the following ratios measures the extent to which operating income can decline before the firm is unable to meet its annual interest costs

Back 12

times-interest-earned ratio

Front 13

Which of the following statements shows the portion of the firm's earnings that has been saved rather than paid out as dividends?

Back 13

statement of retained earnings

Front 14

For which of the following would one expect the book value of the asset to differ widely from its market value?

Back 14

Fixed Assests

Front 15

The balance sheet presents a summary of the firm's revenues and expenses over an accounting period.

Back 15

False

Front 16

Which of the following activities result in an increase in a firm's cash?

Back 16

decrease fixed assets

Front 17

The information contained in the annual report is used by investors to form expectations about future earnings and dividends.

Back 17

True

Front 18

This ratio measures a firm's ability to pay off short-term obligations without relying on inventory sales.

Back 18

quick or acid test

Front 19

This measures the number of dollars of sales produced per dollar of fixed assets.

Back 19

fixed asset turnover ratio

Front 20

You have $10,000 to invest. Assuming annual compounding, how long will it take for the $10,000 to double if it is invested at 14 percent?

Back 20

5.29 years

Front 21

How much will $1,000 deposited in a savings account earning a compound annual interest rate of 6 percent be worth at the end of 3 years?

Back 21

$1,191

Front 22

All else equal, a dollar received sooner is worth more than a dollar received at some later date, because the sooner the dollar is received the more quickly it can be invested to earn a positive return.

Back 22

True

Front 23

Thirty years ago, Jesse Jones bought 10 acres of land for $1,000 per acre in what is now downtown Houston. If this land grew in value at an 8 percent per annum rate, what is it worth today?

Back 23

$100,630

Front 24

How much will $1,000 deposited in a savings account earning a compound annual interest rate of 6 percent be worth at the end of 5 years?

Back 24

$1,338

Front 25

Given an opportunity cost of 10%, what is the future value of a $1,000 annuity for 1 year?

Back 25

$1,100

Front 26

Given some amount to be received several years in the future, if the interest rate increases, the present value of the future amount will

Back 26

Be lower.

Front 27

What interest rate is implied if you lend $1,850 and are repaid $2,078.66 in two years?

Back 27

6%

Front 28

What will a deposit of $4,500 at 7% interest be worth if left in the bank for nine years?

Back 28

$8,273.25

Front 29

How long does it take for $856 to grow into $1,122 at 7%

Back 29

4 years

Front 30

A corporate stock that was issued last year would now trade in the __________ market.

Back 30

secondary

Front 31

The existence of financial intermediaries greatly increases the efficiency of financial markets because, without them, savers would have to provide funds directly to borrowers, which would be a much costlier process.

Back 31

True

Front 32

These feature debt securities or instruments with maturities of one year or less

Back 32

money markets

Front 33

This is a security formalizing an agreement between two parties to exchange a standard quantity of an asset at a predetermined price on a specified date in the future.

Back 33

derivative security

Front 34

These capital market instruments are long term loans to individuals or businesses to purchase homes, pieces of land, or other real property.
Question 5 answers

Back 34

Mortgages

Front 35

Which of the following is NOT a capital market instrument?

Back 35

U.S. Treasury bills

Front 36

Once firms issue financial instruments in primary markets, these same stocks and bonds are then traded in which of these?

Back 36

secondary markets

Front 37

In the U.S., these financial institutions arrange most primary market transactions for businesses.

Back 37

investment banks

Front 38

The market for newly issued stock by firms that were private is normally called

Back 38

the initial public offering market.

Front 39

Which of the following is not an advantage of going public?

Back 39

All of the above are advantages of going public.

Front 40

Which of these statements is true?

Back 40

The higher the default risk, the higher the interest rate that security buyers will demand.

Front 41

This theory argues that individual investors and financial institutions have specific maturity preferences, and to encourage buyers to hold securities with maturities other than their most preferred requires a higher interest rate.

Back 41

Market Segmentation Theory

Front 42

This is the risk that a security issuer will miss an interest or principal payment or continue to miss such payments.

Back 42

default risk

Front 43

Determinants of Interest Rate for Individual Securities The Wall Street Journal reports that the current rate on 10-year Treasury bonds is 5.35 percent, on 20-year Treasury bonds is 5.75 percent, and on a 20-year corporate bond is 6.25 percent. Assume that the maturity risk premium is zero. If the default risk premium and liquidity risk premium on a 10-year corporate bond is the same as that on the 20-year corporate bond, what is the current rate on a 10-year corporate bond.

Back 43

5.85%

Front 44

This is the continual increase in the price level of a basket of goods and services.

Back 44

inflation

Front 45

Determinants of Interest Rate for Individual Securities The Wall Street Journal reports that the rate on 3-year Treasury securities is 7.00 percent, and the 6-year Treasury rate is 7.25 percent. From discussions with your broker, you have determined that expected inflation premium is 1.75 percent next year, 2.25 percent in Year 2, and 2.40 percent in Year 3 and beyond. Further, you expect that real interest rates will be 3.75 percent annually for the foreseeable future. What is the maturity risk premium on the 6-year Treasury security?

Back 45

1.10%

Front 46

Determinants of Interest Rate for Individual Securities You are considering an investment in 30-year bonds issued by a corporation. The bonds have no special covenants. The Wall Street Journal reports that 1-year T-bills are currently earning 4.50 percent. Your broker has determined the following information about economic activity and the corporation bonds:
Real interest rate = 2.50%
Default risk premium = 1.85%
Liquidity risk premium = 0.30%
Maturity risk premium = 0.75%

Back 46

2% and 7.4%, respectively

Front 47

Treasury securities that mature in 6 years currently have an interest rate of 8.5%. Inflation is expected to be 5% each of the next three years and 6% each year after the third year. The maturity risk premium is estimated to be 0.1%(t - 1), where t is equal to the maturity of the bond (i.e., the maturity risk premium of a one-year bond is zero). The real risk-free rate is assumed to be constant over time. What is the real risk-free rate of interest?

Back 47

2.50%

Front 48

Which of these is NOT a theory that explains the shape of the term structure of interest rates?

Back 48

short-term structure of interest rates theory

Front 49

Determinants of Interest Rate for Individual Securities A particular security's default risk premium is 2 percent. For all securities, the inflation risk premium is 2.25 percent and the real interest rate is 3.25 percent. The security's liquidity risk premium is 0.50 percent and maturity risk premium is 0.75 percent.
The security has no special covenants. What is the security's equilibrium rate of return?

Back 49

8.75%