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Finance Flashcards

Finance Chapter 1

Which of the following are cash flows from a corporation into the financial markets? 1.repayment of long-term debt2.payment of loan interest3.payment of quarterly dividend
Which of the following should a financial manager consider when analyzing a capital budgeting project? 1.project start up costs2.timing of all projected cash flows3.dependability of future cash flows4.dollar amount of each projected cash flow
Which of the following represent cash outflows from a corporation? 1.payment of dividends2.payment of government taxes
Shareholder A sold 500 shares of ABC stock on the New York Stock Exchange. This transaction was facilitated in the secondary market.
You are investing $100 today in a savings account at your local bank. Which one of the following terms refers to the value of this investment one year from now? future value
Which one of the following statements concerning a sole proprietorship? The owner of a sole proprietorship is personally responsible for all of the company’s debts.
Corporate bylaws determine how a corporation regulates itself.
Why should financial managers strive to maximize the current value per share of the existing stock? because they have been hired to represent the interests of the current shareholders
Which one of the following terms is defined as the mixture of a firm’s debt and equity financing? capital structure
Which one of the following terms is defined as the management of a firm’s long-term investments? capital budgeting
A business created as a distinct legal entity and treated as a legal “person” is called a: corporation.
A business partner whose potential financial loss in the partnership will not exceed his or her investment in that partnership is called a: limited partner
Which form of business structure is most associated with agency problems? corporation
Which one of the following is a working capital management decision? determining whether to pay cash for a purchase or use the credit offered by the supplier
The decision to issue additional shares of stock is an example of which one of the following? capital structure decision
Which one of the following variables is the exponent in the present value formula? Time
What is the present value of $150,000 to be received 10 years from today if the discount rate is 11 percent? $52,827.67
What are the three questions with creating a business 1. what long term investment should you take on? what lines of business will you be in and what sorts of building, machinery, and equipment will you need?2. Where will you get the long-term financing to pay for your investment? Will you bring in others or will you burrow money?3. How will you manage your everyday financial activities such as collecting from customers and paying suppliers?
Who controls the financial management function? the top officer of the firm, such as a vice president of finance or CFO
What does the controller do? handles cost and financial accounting, tz payments, and management information systems
What does the treasurers office do? is responsible for managing the firm’s cash and credit. It is there finical planning and capital expenditures
Capital budgeting the process of planning and managing a firm’s long term investments. The financial manager tries to identify investment opportunities
Capital structure the mixture of debt and equity maintained by a firm.
What are the concerns with the capitial structure 1. how much should the firm borrow2. what are the least expensive sources of fundss for the firm
working capital a firm’s short term assets and liabilities. such as inventory and money owed to the supplier
what are the three corporate financial management? capital budgeting, capital structure, and working capital management
sole proprietorship a business owned by a single individual, responsible for all company’s debts, unlimited liability for business debts, there is no distinction between personal and business asst of payment
partnership a business formed by two or more individuals or entities. unlimited liability for all partnership debts.
Partnership agreement an informal oral agreement or written document
Cooperation a business created as a distinct legal entity composed of one or more individual or entitles.
What is the goal of financial management to make money or add value for the owners.
agency relationships a relationship between stockholders and management
agency problem the possibility of conflict of interest between the stockholders and management of a firm
what are the two reason to increase share value 1. managerial compensation is usually tied to financial performance2. relates to job prospects
stakeholders someone other than a stockholder or creditor who potentially has a claim on the cash flows of the firm
primary market refers to original sale of securities by government and corporations
secondary market those in which securities are bough and sold after the original sale
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Finance Flashcards

Finance Ch. 4

How is the future value of $500 invested for one year at 6% annual interest computed? FV= $500 x (1+0.06)1
Which of these is the definition of the compounding of interest? Compounding is the process of earning interest both on the original investment and on the interest payments received earlier
Which formula computes the value in year 9 of a $10,000 investment in year 2 if the interest rate is 6% FV= $10,000 x (1+0.06)7
Solving which of the following problems illustrates discounting? How much do you need to invest today at 7% interest to have $40,000 available for college expenses in 17 years?What is a $1,000 gift to be received next year worth today if the interest rate is 5%?
$100 represents the present value, as it is used in the present value formula, for which of these problems? Janice invested $100 today at 9% interest for 10 yearsRuss’ savings account increased in value from $100 five years ago to $111 today
Which one of the following best illustrates simple interest? Ann has a $1,000 savings account that will pay her $40 of interest each year for 5 years
True or False: Several years ago, your grandmother invested $500 for you at 2.5% interest. Today, that investment is worth $1,864. When computing the number of years, the $1,864 should be used as the present value. False$1,864 is the future value. The present value is $500
Which of these statements is (are) correct? Assume a constant, positive, annual rate of interest. The longer the time period, the greater the future value of a stated sumThe shorter the time period, the higher the present value of a stated future value
True or false: If you invest $1,000 and earn compound interest, the dollar amount of your annual interest payment will increase will increase each year. TrueInterest earnings are added your investment each year so the next year’s interest payment will be larger than this years.
Susette invested $10,000 twenty years ago. Ten years ago, she invested an additional $5,000. Last year, she withdrew $8,000 to pay for a vacation. If you were to draw a time line of these events, which value(s) would be treated as a cash inflow(s) to Susette? $8,000 cash withdrawal
Which formula illustrates the value of $100 invested for one year at 5% interest? FV= $100 x (1+0.05)
Which formula moves a cash flow of $800 ahead six years in time at an interest rate of 5 percent? FV= $800 x (1+0.05)6
How is future value best defined? Future value is the value of an investment after one or more periods
Charity House has been promised a $25,000 donation five years from today. How much would that gift be worth next year? Assume an interest rate of 8% PV= $25,000/(1+0.08)4
Which one of these cash flows best illustrates a cash outflow? Better Bakery purchased an oven for $28,600
Which one of these statements is correct concerning the relationship of I to PV, FV and N If you increase the interest rate, all else held constant, the future value will increase
What is the value today of $2,500 to be received in 7 years if the discount rate is 3.5%? $1,964.98
You expect to receive a gift of $1,000 three years from today. What is the value of this gift today if the discount rates are 6%, 6.5% and 7% for the next three years, respectively? $827.87
Which of these is the correct formula for computing the interest rate on an investment? I(FVn/PV)1/n-1
A project has these cash flows: -$2,000 two years ago, $800 one year ago, and $1,200 one year from now. Which is the correct formula for computing today’s value of these cash flows given a 6% rate of interest? =-$2,000 x (1+0.06)2 + $800 x (1+0.06) + $1,200/(1+0.06)
Ten years ago, Alicia invested $9,000 at 5% interest. How much more money would she have today if she had invested the money at 6% instead of 5%? Interest is compounded annually. $1,457.58
You expect to receive a gift of $5,000 six years from today. Which formula provides the value of this gift two years from today if the discount is 9%? PV= $5,000/(1+0.09)4
Louisa invested $12,000 in a business venture which returned $4,000, $6,000 and $8,000 over the past three years. Which of these amounts is (are) cash outflows to Louisa? $12,000 investment
Which one of the following is the correct application of the present value formula for this problem: Maria expects to receive $5,000 from her grandmother upon her graduation in three years. What is the current value of this gift if the interest rate is 4%? PV= $5,000/(1+0.04)8
Which one of these statements is correct concering the relationship of PV, FV, i and N? Assume the interest rate is constant and positive. All else held constant, the longer the period, the lower the present value
A bank loaned money at 7% interest for five years to Stu. The loan will be repaid in one lump sum payment of $3,366.12. How much did Stu borrow? $2,400
Five years ago, Lewis Equipment purchased equipment costing $212,000. Two years ago, the firm paid $32,000 for updates to that equipment. This year, the firm sold the equipment for $189,000. Which of these cash flows is (are) cash inflows to Lewis Equipment? $189,000 sale price
Today, both Marti and Neil invested $5,000. Marti’s investment will return will return 4% while Neil’s will return 8%. Both rates will be compounded. Which one of these statements is correct? Neil’s investment will increase in value faster than Marti’s
Which one of these correctly defines the future value of a $1,000 investment? Future value is the value of the investment at any date after the initial investment date
Which one of these is the definition of the compounding of interest? Compounding is the process of earning interest both on the original investment and on the interest payments received earlier
What is the value in year 4 of a $730 cash flow made in year 7 if interest rates are 10 percent? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Value in year 4 $ 548.46 correct
You are scheduled to receive a $400 cash flow in one year, a $900 cash flow in two years, and pay a $700 payment in three years. Interest rates are 8 percent per year. What is the combined present value of these cash flows? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Combined present value of cash flows $ 586.29
Compute the present value of $4,100 paid in two years using the following discount rates: 9 percent in the first year and 8 percent in the second year. (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Present value $ 3,482.84
You invested $3,000 in the stock market one year ago. Today, the investment is valued at $3,450. What return did you earn?What return would you suffer next year for your investment to be valued at the original $3,000? (Negative answer should be indicated by a minus sign. Do not round intermediate calculations. Round your final answer to 2 decimal places.) Return earned 15 ± 1% % Return earned -13.04 ± 1% %Explanation:FVN = PV × (1 + i)N$3,450 = $3,000 × (1 + i)1(1 + i) = $3,450 / $3,000i = 1.15 – 1 = 0.15 or 15.00% (first year return is positive) FVN = PV × (1 + i)N$3,000 = $3,450 × (1 + i)1(1 + i) = $3,000 / $3,450i = 0.8696 – 1 = -0.1304 or -13.04%(second year return is negative)
Compute the present value of $900 paid in three years using the following discount rates: 6 percent in the first year, 7 percent in the second year, and 8 percent in the third year. (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Present value $ 734.73
Consider a $5,800 deposit earning 8 percent interest per year for 8 years. What is the future value? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)How much total interest is earned on the original deposit? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Future Value 10,735.40 ± 0.1%Total Interest Earned 4,935.40 ± 0.1%Interest earned on the interest 1,223.40 ± 0.1%Explanation:The $5,800 investment will grow to a future value of $10,735.40 [= FV8 = $5,800 × (1 + 0.08)8], assuming compounded interest over the 8 years. The total interest earned is $4,935.40. The interest earned on the original investment is $464 per year for 8 years, or $3,712. The interest earned on the interest is the difference of $1,223.40 [= $4,935.40 − $3,712].
Ten years ago, Hailey invested $3,900 and locked in an 8 percent annual interest rate for 30 years (ending 20 years from now). Aidan can make a 20-year investment today and lock in a 10 percentinterest rate. How much money should he invest now in order to have the same amount of money in 20 years as Hailey? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) 5,833.42 ± 0.1%Explanation:First, determine how much Hailey will have 20 years from now:FV20 = PV -10 × (1 + i)30FV20 = $3,900 × (1 + 0.08)30 = $3,900 × 10.0627 = $39,244.36 (Hailey’s FV in 30 years) So, Aidan will have to deposit:PV = FV20 / (1 + i)NPV = $39,244.36 / (1 + 0.10)20 = $39,244.36 / 6.7275 = $5,833.42
How long will it take $2,000 to reach $3,400 when it grows at 10 percent per year? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Period 5.56 correct years Explanation:FVN = PV × (1 + i)N$3,400 = $2,000 × (1 + 0.10)N(1.10)N = $3,400 / $2,000 (the thousands cancel)ln (1.10)N = ln 1.7N × ln 1.10 = ln 1.7N = ln 1.7 / ln 1.10 = 0.53063 / 0.09531 = 5.57 years = 5 years, 6.8 months
What annual rate of return is earned on a $4,000 investment made in year 3 when it grows to $8,600 by the end of year 9? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Annual rate of return 13.61 ± 1%Explanation:FVN = PV × (1 + i)NFV9 = PV3 × (1 + i) (9 – 3)$8,600 = $4,000 × (1 + i)6(1 + i)6 = $8,600 / $4,000i = (2.15) (1 / 6) – 1 = 1.1361 – 1 = 0.1361 or 13.61%
A deposit of $820 earns interest rates of 8 percent in the first year and 11 percent in the second year.What would be the second year future value? Future value $ 983.01Explanation:The time line for this problem is:FV = PV × (1 + i) (1 + j)FV = $820 × (1 + 0.08) (1 + 0.11) = $820 × 1.08 × 1.11 = $983.02
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Finance Flashcards

Ch 15 MC

sold in large denominations Each of the following is correct regarding bonds except they are
interest must be paid on a periodic basis regardless of earnings From the standpoint of the issuing company a disadvantage of using bonds as a means of long term financing is that
$210,000 If a corporation issued $3,000,000 in bonds which pay 10% annual interest what is the annual net cash cost of this borrowing if the income tax rate is 30%
have specific assets of the issuer pledged as collateral Secure bonds are bonds that
a bond indenture A legal document which summarizes the rights and privileges of bondholders as well as the obligations and commitments of the issuing company is called
their earnings per share may decrease Stockholders of a company may be reluctant to finance expansion through issuing more equity because
earnings per share on common stock may be lower Which of the following is not an advantage of issuing bonds instead of common stock
mortgage bonds Bonds that are secured by real estate are termed
term bonds Bonds that mature at a single specified future date are called
convertible bonds Bonds that may be exchanged for common stock at the option of the bondholders are called
callable bonds Bonds that are subject to retirement at a stated dollar amount prior to maturity at the option of the issuer are called
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Finance Flashcards

Personal Finance Final

Corporate structure may be defined as _____.A. the way a corporate building is structuredB. the way a business is organizedC. whether or not a company pays corporate taxesD. the method a company uses to pay its employees The way a business is organized
Which of the following might not be an option for increasing your present income?A. Requesting a promotionB. Requesting a merit increase in payC. Quitting your job to find anotherD. Looking for a better job without quitting your old job Quitting your job to find another
Which of the following are effective options to pursue if you want to increase your income? Select all that apply.A. Quit your job immediately and look for a new one that pays more.B. Demand a promotion.C. Find a second job.D. Request a merit increase in pay. Find a second job & Request a merit increase in pay
Your resume should include all of the following information EXCEPT:A. contact information.B. personal history.C. education background.D. qualifications. Personal History
The single best way to increase your income is to get an education. Why?A. You automatically make more money if you are educated.B. You automatically get promotions if you are educated.C. You can obtain jobs that have higher starting salaries.D. You will automatically receive better benefits. You can obtain jobs that have higher starting salaries.
Which of the following will most likely earn a higher level of income?A. A female file clerk with a high school diploma and a year of college.B. A male file clerk with a high school diploma and a year of college.C. A male accountant with a Bachelor’s degree.D. A female accountant with a Master’s degree. in business administration. A female accountant with a Master’s degree. in business administration.
The term median means _____.A. there are an equal number of employees earning above the amount provided and an equal number earning below the amount providedB. there are an equal number of employees earning above the amount provided but not an equal number earning below the amount providedC. there are an equal number of employees not earning above the amount provided but an equal number of employees earning below the number providedD. the number calculated by adding all numbers together, then dividing by the total amount of numbers There are an equal number of employees earning above the amount provided and an equal number earning below the amount provided
The term average means _____.A. there are an equal number of employees earning above the amount provided and an equal number earning below the amount providedB. there are an equal number of employees earning above the amount provided but not an equal number of employees earning below the amount providedC. there are equal number of employees not earning above the amount provided but an equal number of employees earning below the amount providedD. the number calculated by adding all numbers together, then dividing by the total amount of numbers The number calculated by adding all numbers together, then dividing by the total amount of numbers
The term “educational attainment” means _____.A. you have earned a degreeB. you are attending school to earn a degreeC. whatever education you have gottenD. you have earned the highest degree possible in your field Whatever education you have gotten
Which of the following factors should be considered when deciding on a career choice? Select all that apply.A. job requirements, including educational levelB. your short-term goalsC. your skills and interestsD. ease of job search Job requirements, including educational level & your skills and interests
Which of the following is not true concerning Income Tax Refunds?A. It is advantageous to receive a large sum of money in the form of a refund so that you can use the money to pay down debt.B. You are essentially giving the government an interest-free loan.C. It means that you are having too much deducted from your paycheck.D. You haven’t properly evaluated your personal tax circumstances. It is advantageous to receive a large sum of money in the form of a refund so that you can use the money to pay down debt.
When claiming dependents, they must meet the following criteria EXCEPT:A. the dependent must be a relative.B. the dependent must reside with you for the entire year.C. the dependent must be under nineteen years of age unless he or she is a full-time student (under 24 years old).D. the dependent was unable to provide over half of his or her support for the year. the dependent must reside with you for the entire year.
If you opt to put money in a medical flexible spending account rather than trying to amass enough medical expenses to itemize on your tax return, you are taking advantage of _____.A. a creditB. withholdingC. a deductionD. an exclusion an exclusion
A form of taxation in which everyone pays an equal rate of taxes is called a _____.A. progressive taxB. regressive taxC. flat taxD. net tax flat tax
A form of taxation in which the highest income earner pays the largest percentage of taxes is called a _____.A. progressive taxB. regressive taxC. flat taxD. net tax progressive tax
A form of taxation in which the lowest income earners pay the largest percentage of taxes is called a _____.A. progressive taxB. regressive taxC. flat taxD. net tax regressive tax
Which of the following is not considered part of your gross income?A. interest from bank accountsB. the amount you receive as a bonusC. your salaryD. money your employer pays for your medical insurance money your employer pays for your medical insurance
Which of the following is not true about your adjusted gross income?A. It is your income minus deductionsB. It is your income plus your deductionsC. It determines whether you are eligible for additional tax breaksD. It is your gross income minus deductions It is your income plus your deductions
Which of the following is true about standard deductions?A. They are tax breaks that you can claim without having to itemizeB. They are listed just above the total taxable income on the 1040 tax formC. They reduce your tax bill rather than your taxable incomeD. You must itemize in order to take advantage of this deduction They are tax breaks that you can claim without having to itemize
A dollar-for-dollar reduction in your tax payment is called a _____.A. deductionB. flat taxC. creditD. debit credit
Which of the following best defines health insurance?A. An annual contract between an insurance company and an individualB. A type of insurance whereby the insurer pays the medical costs of the insuredC. A type of insurance that protects your personal property if you are unable to pay your billsD. A type of insurance that assists your loved ones in the event of your death A type of insurance whereby the insurer pays the medical costs of the insured
Which of the following illustrates the main difference between Medicare and Medicaid?A. Medicare helps to insure the elderly, while Medicaid focuses on low-income individuals and families.B. Medicaid helps to insure the elderly, while Medicare insures low income earners.C. Medicaid helps to replace lost income for the poor.D. Medicare is available only to those over the age of 65. Medicare helps to insure the elderly, while Medicaid focuses on low-income individuals and families.
Which of the following is not true about managed care?A. The most common types of managed care are HMO’s and PPO’s.B. Your employer is responsible for all co-payments.C. It is a system in which companies contract with doctors to provide health care services.D. If you have health care coverage through your employer, you probably have a managed care plan. Your employer is responsible for all co-payments.
Which of the following statements is true about Medicaid?A. Medicaid covers only hospital and doctor’s visits.B. Medicaid is a managed health care system.C. Medicaid was established to help ensure that people living below the poverty level could receive health care.D. Medicaid provides health care only for elderly veterans. Medicaid was established to help ensure that people living below the poverty level could receive health care.
What is life insurance?A. Health insurance that covers you for the rest of your lifeB. Insurance that supplements your income if your life in threatenedC. Insurance that protects you in the event of an unexpected illness or accident that prevents you from workingD. Insurance that assists your loved ones with income in the event of your death Insurance that assists your loved ones with income in the event of your death
John T. works on the assembly line in an automobile factory. One day, he falls off the roof of his home while cleaning his rain gutters and injures his back. He soon learns that he will have to be off his job for close to a year while his back heals. Which of the following insurance will he need to cover losses from his absence?A. He will be covered by disability insurance for a period of three months.B. He may potentially be covered by disability insurance provided by his employer until he returns to work.C. He will have to collect from his regular medical insurance.D. Because the accident occurred at home, he is not covered. He may potentially be covered by disability insurance provided by his employer until he returns to work.
Which of the following statements is not true about HMO insurance?A. It is a managed health care system.B. The letters stand for Health Maintenance Organization.C. In an HMO, you are assigned a primary care physician.D. In an HMO you can choose your own primary care physician (PCP), but specialists must be referred by the PCP. In an HMO you can choose your own primary care physician (PCP), but specialists must be referred by the PCP.
Which of the following statements is not true about disability insurance?A. The only way to get disability insurance in through your employer.B. You can have short-term or long-term disability insurance.C. Long-term disability insurance ends when a person turns 65.D. Long-term disability insurance usually lasts five years. The only way to get disability insurance in through your employer.
Which of the following might be considered positive aspects of HMO’s?A. Free choice of primary care physicianB. Care from non-HMO provider not coveredC. Out-of-pocket expenses are usually lowD. Easy to receive specialized care Out-of-pocket expenses are usually low
Which of the following might be considered a negative aspect of HMO’s?A. Out-of-pocket expenses are usually high.B. HMO’s focus on preventative care.C. Not easy to receive specialized careD. Free choice of primary care physician Not easy to receive specialized care
A FICO® score represents all of the following EXCEPT:A. the amount of money in your retirement account.B. income to debt ratio.C. creditworthiness.D. length of credit history. the amount of money in your retirement account.
On average, compared to a person with good credit, a person with poor credit will pay _____ for insurance?A. 5% to 10% moreB. 10% to 15% lessC. 20% to 50% moreD. 25% to 40% more 20% to 50% more
How long does it take to rebuild your credit history?A. 8 yearsB. 7 yearsC. 9 yearsD. 30 years 7 years
Secured debt means a lender gives you money in exchange for what?A. CollateralB. Credit reportC. PrincipalD. Interest Collateral
Which type of debt is the least attractive for a consumer?A. Unsecured debtB. Secured debtC. Mortgage debtD. Lease debt Unsecured debt
When as asset, such as a car, decreases in value over time what is it called?A. FinancingB. EquityC. LeasingD. Depreciation Depreciation
If you miss one payment on a credit card, what is generally the penalty?A. A higher interest rateB. A lower available credit lineC. A late payment feeD. A negative notation on your credit report A late payment fee
If you miss two payments on a credit card, what is generally the penalty?A. A higher interest rate and a late payment feeB. A late payment fee and a lower available credit lineC. A late payment feeD. A negative notation on your credit report A higher interest rate and a late payment fee
If you have $1,000.00 on a credit card and the interest rate is 23.7% per year, how much interest will you pay for one year? (Multiply rather than compound your interest.)A. $2,370.00B. $23.70C. $237.00D. $230.70 $237.00
How many monthly payments are there in a 30-year loan?A. 30B. 365C. 360D. 100 360
What can be the best type of safety net in hard times?A. GamblingB. MortgageC. Rental propertyD. None of the above Mortgage
Generally, you need to live in a home ________years to break even on closing costs.A. OneB. TwoC. ThreeD. Four Three
What is generally the most complicated financial transaction the average American will ever undertake?A. Buying a boatB. Buying a carC. Buying a homeD. None of the above Buying a home
Real estate is considered a/an ________investment.A. IlliquidB. LiquidC. SureD. Partially-liquid Illiquid
Individual mortgage interest rates are generally determined by what?A. The economyB. The individual’s credit scoreC. The property valueD. The state the property is located in The individual’s credit score
What is PMI?A. Personal mortgage issuanceB. Personal mortgage investmentC. Personal mortgage insuranceD. Personal mortgage interest Personal mortgage insurance
Who dictates how much insurance a homeowners must carry on their property?A. The state the property is located inB. The bank that holds the mortgageC. The ownerD. None of the above The bank that holds the mortgage
Assuming you have a 30-year fixed-rate loan, you’re paying _____% interest during the first few years.A. 90B. 80C. 70D. 60 90
Why is investing in gold beneficial?A. It is easy to mine.B. It is considered a stable investment.C. Gold is more expensive than stocks.D. The value of gold is subject to inflation. It is considered a stable investment.
What type of insurance may a homeowner need?A. Hurricane insuranceB. Flood insuranceC. Firestorm insuranceD. All of the above All of the above
Which of the following is not one of the three types of business arrangements in the United States?A. Sole proprietorshipB. PartnershipC. Sole partnershipD. Corporation Sole partnership
With a sole proprietorship, who pays the taxes?A. The shareholdersB. The companyC. Both the shareholders and the ownerD. The owner The owner
Which of the following would not be considered an advantage of a sole proprietorship?A. Decisions can be made quickly without having to consult others.B. A proprietor is also responsible for his or her own health insurance.C. There are no legal formalities if the business dissolves.D. All of the profits from the business go right to the owner. A proprietor is also responsible for his or her own health insurance.
What can a proprietor do to minimize personal risk and liability?A. Change his/her nameB. Form a limited liability proprietorshipC. Form a limited liability partnershipD. Form a limited liability company Form a limited liability company
Why are partnerships often favored over corporations?A. They have more power.B. They are more successful.C. There are no taxes levied on profits.D. A partnership structure eliminates the dividend tax levied upon profits realized by the owners. A partnership structure eliminates the dividend tax levied upon profits realized by the owners.
What are the two types of partnerships?A. Limited and soleB. General and privateC. Limited and generalD. Private and limited Limited and general
Which of the following would not be considered an advantage of a partnership?A. A partnership usually involves low start-up costs.B. Each general partner is deemed the agent of the partnership.C. It’s easy to form a partnership.D. You can share the responsibilities with your partners. Each general partner is deemed the agent of the partnership.
As a generic legal term, ___________ means any group of persons with a legal entity.A. CorporationB. BusinessC. PartnershipD. Proprietorship Corporation
Who regulates a corporation?A. the government of the state, province, or national government with which it is registeredB. the bondholdersC. the corporation’s foundersD. the corporation’s union the government of the state, province, or national government with which it is registered
Which of the following is not a legal characteristic of a corporation?A. Transferable sharesB. Perpetual lifeC. Limited liabilityD. Legal protection from law suits Legal protection from law suits
What is an entrepreneur?A. a sole proprietorshipB. a corporationC. one who opens a new businessD. a bank that loans money one who opens a new business
Which of the following is the best definition of probable operating costs?A. Amount of money required to start a businessB. Amount of money required to market a businessC. Amount of money required to purchase business equipmentD. Amount of money required to keep a business running Amount of money required to keep a business running
What may be offered to clients when banks find the risk too high?A. Proprietary moneyB. Private moneyC. Personal moneyD. Partnership money Private money
Which of the following is a start-up cost associated with opening a business?A. EquipmentB. Legal fees/LicensingC. InsuranceD. All of the above All of the above
What is a term used widely among real estate investors to refer to non-traditional means of real estate financing, or financing techniques not commonly used?A. Common financingB. Capital financingC. Leverage financingD. Creative financing Creative financing
What does “OPM” stand for in leveraging OPM?A. Organizational profit managementB. Other profit meansC. Other people’s moneyD. Organizational profit marketing Other people’s money
Generally, a loan obtained from a bank will be a loan.A. TaxedB. TermC. VariableD. Collateral-free Term
Which of the following is not a type of retail bank?A. Bond bankB. Private bankC. Offshore bankD. Ethical bank Bond bank
What type of banks were traditionally banks which engaged in trade financing?A. PrivateB. MerchantC. EthicalD. Offshore Merchant
Which of the following is an example of an unsecured bank loan?A. Credit card debtB. Bank overdraftsC. Corporate bondsD. All of the above All of the above
Which of the following is not a core module of accounting?A. Accounts receivableB. Accounts payableC. Debt collectionD. Purchase orders Debt collection
What is a general ledger also known as?A. A normal ledgerB. A nominal ledgerC. An enumerated ledgerD. None of the above A nominal ledger
Which of the following is not one of the seven basic accounting categories?A. AssetB. GainsC. LossesD. Investment Investment
The listing of the account names and the sum of the account balances is called what?A. A total balanceB. A complete balanceC. An absolute balanceD. A trial balance A trial balance
Which of the following should be included in a general ledger?A. DateB. DescriptionC. Total amount for each accountD. All of the above All of the above
What kind of statement is also known as a profit and loss statement?A. Complete statementB. Income statementC. Investment statementD. Earnings statement Income statement
What kind of statement shows how changes in balance sheet and income accounts affected cash and cash equivalents?A. Cash flow statementB. Investment statementC. Earnings statementD. Income statement Cash flow statement
A balance sheet is often described as a of the company’s financial condition on a given date.A. PictureB. SnapshotC. PhotoD. Slideshow Snapshot
What is the purpose of an income statement?A. To show managers and investors whether the company is up-to-date on taxesB. To show managers and investors whether the company is spending its money appropriatelyC. To show managers and investors whether the company made or lost money during the period being reportedD. None of the above To show managers and investors whether the company made or lost money during the period being reported
The two components of are variable costs and fixed costs.A. Entire costB. Total costC. Complete costD. Required cost Total cost
What is the margin of safety?A. How much sales can fall before a business starts making less 5%B. How much sales can fall before a business starts taking a lossC. How much sales can fall before a business makes less than 15%D. None of the above How much sales can fall before a business starts taking a loss
What are expenses that change as conditions change?A. Fixed costsB. Moderate costsC. Variable costsD. Changing costs Variable costs
What are expenses that do not change called?A. Given costsB. Known costsC. Stable costsD. Fixed costs Fixed costs
Which of the following are examples of possible fixed costs?A. Wages of workersB. Raw materialC. Neither of the aboveD. Both of the above Neither of the above
Which of the following are examples of possible fixed costs?A. RentB. Property taxesC. Both of the aboveD. None of the above Both of the above
What is known as the rate of business expansion through increasing output and sales as opposed to mergers, acquisitions, and takeovers?A. Organic growthB. Corporate growthC. Inorganic growthD. Monetary growth Organic growth
What is known as the rate at which business expands by increasing output and business reachA. Organic growthB. Corporate growthC. Inorganic growthD. Monetary growth Inorganic growth
What is another term for profit planning?A. Profit zoningB. Profit mappingC. Profit predictingD. Profit sharing Profit mapping
What is known as the price at which a seller projects that a buyer will buy a product?A. Target priceB. Selling priceC. Perfect priceD. Profit price Target price
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Finance Flashcards

Personal Finance

When estimating your retirement savings goal in today’s dollars, the amount saved must be higher to adjust for inflation. True
A beneficiary designation can, and should, be made on your retirement accounts, life insurance policies, bank and credit union accounts, and investment accounts. True
The salary-reduction pension plan specifically designed for employers with 100 or fewer employees is called a SIMPLE IRA
The type of employer retirement plan in which the benefit is determined by a formula that generally includes the worker’s average pay and the number of years worked for the company is called a ____ plan. Defined-Benefit
Workers who are not active participants in an employer-sponsored retirement plan can deduct contributions to their IRA accounts from their gross income, within specified limits, when filing their federal income taxes True
A positive aspect of defined-benefit plans is that the plans include disability and survivor’s benefits
When a worker retires, other members of his or her immediate family may also be eligible to receive Social Security retirement benefits. True
An annuity is a good choice as an investment option within an IRA or inside your employer’s 401(k) plan as you save for retirement. False
Which of the following pension plan features is (are) especially important to younger workers who anticipate changing jobs more frequently? Vesting and Portability
Transfers at the death of a spouse usually are very uncomplicated because spouses generally own property together under Joint tenancy with right of survivorship
____ is not a community property state. New York
Which of the following people would receive an asset should the beneficiary die before the owner of the asset? Contingent beneficiary
A retirement plan that is self-directed means that the employee decides. Both B and C – how much the employee will contribute to the plan, and how much the employer will contribute to the plan
The process by which employees obtain nonforfeitable rights to their retirement benefits that cannot be taken away in case of dismissal or resignation is called Vesting
An employee stock-ownership plan allows the employees to regularly purchase shares of stock in the company at discounted prices. False
You will earn money each year off your tax-deferred retirement accounts without having to pay taxes until the funds are withdrawn. True
In which of the following is the retirement plan contribution for the employee dependent on the financial success of the employer? Profit-Sharing
When estimating your retirement savings goal in today’s dollars, the amount saved must be higher to adjust for inflation True
All of your employment income is subject to the FICA tax. False
A(n) ____ is intended for taxpayers with self-employment income and owners of small businesses. SEP-IRA
The ____ is a computation of how much income the investor might pocket from rent each year before mortgage payments as a percentage of the purchase price. Rental Yield
If you put money into collectibles, limit your investment to no more than 20 percent of your portfolio False
Investors choose derivatives both to reduce risk by hedging against losses and to take on additional risk by speculating.
Projected gross income for an income-producing real estate investment is computed as gross rental income less vacancies and unpaid rent.
Which of the following is true regarding futures trading? Futures contracts are generally highly leveraged
Timesharing should be considered vacation plans rather than real estate investments. True
Which is not a characteristic of a true timeshare arrangement? Grants legal real estate ownership to the purchaser
Paul’s marginal tax bracket is 28 percent. He has taxable income of $5,000 on his real estate investment. His tax liability on this income is $1,400
When directly owning a real estate investment, the actual title is held by the investors. True
A disadvantage of real estate investment is -Large initial investment-Financial risk-Illiquidity
A mutual fund can be arranged to keep its proceeds out of probate, in case of the owner’s death. True
A mutual fund whose objective focuses on growth in the value of the securities invests in companies expected to show average or better growth with steady or rising dividends. False
Deferred loads are a set percentage of the value of your portfolio False
Investing in a mutual fund rather than an individual stock reduces Random Risk
Which is not a method for taking your funds out of a mutual fund? Borrowing against your fund account
Index funds are Unmanaged
Publications that offer comparative performance information about mutual funds generally rank each fund according to one-year and ten-year performance only. False
Mutual fund quotations normally include the NAV, YTD Percentage Return, and the fund’s expense ratio. False
No-load funds may have “service fees” of 0.25 percent or less. True
A charge that often decreases 1 percent each year the investor owns shares in the fund is called a Back-end load
A mutual fund that provides the investor with some income and a good chance for long-term price appreciation has a ____ objective. Growth and income
Which of the following is (are) a unique advantage(s) of investing in a family of funds? Exchange privileges
Target-date retirement funds are recommended for those who wish to actively manage their own investments. False
A growing number of mutual fund companies now offer an option of A shares or B shares or C shares. Which of the following is true about the different classes. Each class has a different fee structure
Compounding is attained in mutual fund investing through automatic reinvestment of dividends
The measure of a fund’s expenses expressed per dollar of the assets under management is its expense ratio
Net asset value increases when the value of the underlying securities increases
Value funds specialize in securities of companies that are underpriced
The Amalgamated Fund has assets with a market value of $25 million dollars, liabilities of $1 million dollars and 10 million shares outstanding. Its net asset value is $2.40
Net Asset Value formula NAV = (market value of assets – market value of liabilities) / number of shares
Closed-end investment companies issue a limited and fixed number of shares
A ____ does not take effect until a specified event occurs, usually physical or mental incapacitation. durable power of attorney
A(n) ____ refers to treatment preferences and the designation of a surrogate decision maker in the event that a person should become unable to make decisions on her or his own behalf as a result of coma, dementia, brain tumor or other serious medical condition. advanced medical directive
Social Security disability income payments are available to covered workers who are either partially or totally disabled. False
Drawbacks of an HMO include limited choice of physicians
Employers are more likely to offer short-term rather than long-term disability income insurance as a free employee benefit. True
Which of the following types of disability income insurance policies will only provide benefits if you can no longer perform the occupation you had at the time you became disabled? own-occupation policy
A person who wants to continue health insurance coverage through your COBRA rights must pay the full premiums plus a 2 percent administrative fee
An HRA is a tax-deductible savings account into which individuals and/or their employers can deposit tax-sheltered funds for use to pay medical bills including the deductibles and other out-of-pocket costs required by a high-deductible plan. False
A living will is a written statement indicating that its signer does not wish extraordinary medical measures to be taken if he or she has no reasonable expectation of recovery from a desperate medical problem. True
The disability income insurance feature that provides a reduced level of benefit when you suffer a partial disability is called a residual clause
To qualify as a high-deductible health care plan, the deductible must be at least $1,000
A legal document in which individuals designate another person to make health care decisions on their behalf if they are incapable of making their wishes know is called a health care proxy
One cannot rely on worker’s compensation to cover your health care needs because it covers only job-related injuries and illnesses
HMOs have dollar limits on their coverage. False
A group of physicians and hospitals who have banded together to offer a health insurance contract in areas where there is no available HMO is called a provider-sponsored network
Medicare is the only federal health care program currently in place. False
The maximum annual deposit into a health savings account is ____ for an individual and ____ for a family. $3,300 / $6,500
The major financial loss resulting from premature death is the Lost income of the deceased
After a divorce, the noncustodial parent will have no need for life insurance on their former spouse. False
The death benefit of a life insurance policy is always the same amount as the face value. False
Whole life insurance is a form of cash-value life insurance that provides lifetime insurance protection and expects you to pay premiums for life. True
A living benefit clause provides dollar benefits to the insured prior to death if the insured is terminally ill
An automatic premium loan provides an open-ended line of credit from which the policyholder can borrow money. False
Universal life insurance provides both the pure protection of term insurance and the cash-value buildup of whole life insurance. True
The ____ method of comparing the costs of life insurance policies assumes the policy will be cashed in at the end of a certain period of time rather than remaining in force until death. interest-adjusted cost index
The major reason that people buy life insurance is to protect the person whose life is insured. False
Antonio and Trina are a young couple with two small children, Jason (age four) and Claudia (age two). Trina is an account executive for a brokerage firm while Antonio has taken a couple years off from his profession as a civil engineer to work on an MBA degree. Right now Antonio and Trina’s budget is very tight, as they are accustomed to living on two incomes, but Trina’s employer has just circulated employer benefit information, so Antonio and Trina believe this is a good time to evaluate their life insurance needs. They have listed the financial information they believe is relevant.Current life insurance (Antonio) $ 75,000Current life insurance (Trina) $ 50,000Assets available for living expenses 0Present value of Social Security benefits if Antonio dies $132,397Present value of Social Security benefits if Trina dies $151,905Antonio’s income before he went back for the MBA $ 45,000Trina’s income $ 50,000Percent of income that needs to be replaced 75 percentProjected final expenses $7,000Projected readjustment-period needs $5,000Projected debt-repayment needs $ 15,000Projected college-expenses $ 80,000Number of years income replacement is needed 20Assumed rate of return on invested funds 5 percentAppropriate interest rate factor 12.5NARRENDRefer to Figure 12-1. Antonio and Trina decide to purchase a $300,000 policy on Trina and a $250,000 policy on Antonio. How much would these policies cost if they were $0.92 per $1,000 of coverage for Tina and $0.98 per $1,000 for Antonio? $521
Cash dividends are paid only on participating life insurance policies. True
Determining the magnitude of possible losses from a premature death can be complicated. The best method is the needs-based approach
A life insurance policy irrevocably lapses when the premium is not paid by the stated due date. False
With decreasing term insurance, often the face amount of coverage declines annually while the premiums also decline False
Jonna purchased a $25,000 cash value policy with a guaranteed insurability option that can be exercised a maximum of four times at $25,000, each over the next 12 years. Which of the following statements is false? Jonna will have to prove she is still insurable each time she exercises a purchase option
The premiums for a $100,000, 20-year, decreasing term policy would be less than the premiums for a $100,000, 20-year policy with a fixed face value, other things being equal. True
The policyholder may increase or decrease the amount of premium paid with a variable life insurance policy True
Debt payments can be handled through either debt-repayment needs or ____ needs. income-replacement
If you invest the difference in the cost of term insurance and that of another type of policy, you will always be ahead financially. True
A risk premium constitutes the difference between the riskier investment’s return and the totally safe return on the T-bill. True
To employ leverage, you should borrow funds to make an investment with the goal of earning a rate of return in excess of the after-tax costs of borrowing. True
By investing in alternatives that are higher on the investment pyramid, one is exposed to ____ risk to his or her capital and ____ risk of loss. increasing ; decreasing
An investment that can be sold quickly but only by making price concessions suffers from ____ risk. marketability
A long-term investor generally has a high-risk investment philosophy. False
To earn the best returns, you should be invested in the market for only a handful of days each year. True
Common stock investments are most vulnerable to ____ risk market volatility
Ownership investments generally produce capital gains
The average share price is the actual cost basis of the investment used for tax purposes. False
Generally speaking, there is a trade-off between risk and rewards on investments. True
Investors that follow a(n) ____ strategy buy a widely diversified mix of stocks and/or mutual funds, reinvest the dividends, and hold on to those investments almost indefinitely. Buy-and-hold
Short-term investors are usually more interested in current income than capital gains True
Historically, both common stock and corporate bonds have performed well in times of inflation. False
Using borrowed funds to make an investment is called Leverage
The basis for the buy-and-hold philosophy is that investments go up over time and it is best to think long-term after selecting well positioned investments. True
A limited management account allows workers saving for retirement through an employer-based plan to have the benefits of asset allocation without doing the reallocations themselves. True
Four strategies of portfolio management for long-term investors are portfolio diversification, asset allocation, buy-and-hold, and dollar-cost averaging
People seeking aggressive returns should consider investing in Any of these- fast growing companies, stock-index and commodity futures, high-yielding junk bonds
Financial risk relates to the possibility that the investment will fail to pay a return to the investor. True
Diversification ____ risk, and leverage ____ risk. decreases ; increases
Growth companies typically pay little or no cash dividends. True
A bond is an interest-bearing negotiable certificate of long-term debt issued by Any of these- the federal government, a corporation, a municipality
Companies that consistently pay out higher than average cash dividends are classified as ____ stocks. income
NARRBEGIN: Figure 14-2Figure 14-2Toni and Felix are considering buying stock. They would like to purchase 600 shares of Sudsy Soap stock at $35 a share. Sudsy Soap had the following figures for the past year:Annual earnings $ 100,000Shares of stock 10,000Corporate assets $1,500,000Corporate liabilities $ 800,000Cash dividends (annual) $ 5,000Market price of stock $ 35Growth rate 8 percentNARRENDRefer to Figure 14-2. What is Sudsy Soap’s dividend per share? $0.50
If Moody’s downgrades a bond, which of the following would fall? market price
Ginnie Mae and Freddie Mac bonds are examples of ____ bonds. federal agency
NARRBEGIN: Figure 14-2Figure 14-2Toni and Felix are considering buying stock. They would like to purchase 600 shares of Sudsy Soap stock at $35 a share. Sudsy Soap had the following figures for the past year:Annual earnings $ 100,000Shares of stock 10,000Corporate assets $1,500,000Corporate liabilities $ 800,000Cash dividends (annual) $ 5,000Market price of stock $ 35Growth rate 8 percentNARRENDWhat is Sudsy Soap’s P/E ratio? 3
If you redeem an I bond within the first five years, you will forfeit the 3 most recent months’ interest; after five years, you will forfeit the 12 most recent months’ interest. False
Genie Corporation recently declared a three-for-one stock split. Before the split the stock was worth $100 per share. If you owned 100 shares before the split occurred, you now own ____ shares worth approximately ____ per share. 300 ; $33
Secured bonds are always safer than unsecured bonds. False
Dividend Yield Cash Dividend per share/ market price
Dividends per share Total cash dividend / shares of stock
Income stocks are typically more volatile than the market as a whole. False
Federal income tax on interest earned on a Series EE U.S. government savings bond may be deferred until the bond is redeemed. True
NARRBEGIN: Figure 14-3Figure 14-3Use the following stock listing for transactions on December 12 to answer the questions:[ED: the red colored cells must be merged and the word “net” deleted]52 NetHigh WeeksLow Stock Div Yld % P/E Vol 100s Last Chg44.75 25 QPZ .30 0.7 26 3289 44.25 +0.75NARRENDRefer to Figure 14-3. What was QPZ’s closing price on December 12? $44.25 per share
Hill Country Pools, Inc., had after-tax earnings of $750,000 and paid out dividends of $325,000. There are 275,000 shares of Hill Country Pools common stock outstanding with a current market value of $27 a share and no preferred stock. What is the dividend payout ratio for this company? 43 percent
A week order is good for five business days False
A disadvantage for a buyer who places a limit order is that the investor might miss an excellent opportunity if the stock price rises. True
NARRBEGIN: Figure 14-2Figure 14-2Toni and Felix are considering buying stock. They would like to purchase 600 shares of Sudsy Soap stock at $35 a share. Sudsy Soap had the following figures for the past year:Annual earnings $ 100,000Shares of stock 10,000Corporate assets $1,500,000Corporate liabilities $ 800,000Cash dividends (annual) $ 5,000Market price of stock $ 35Growth rate 8 percentNARRENDWhat is Sudsy Soap’s dividend yield? 1.4%
A stop order instructs a stockbroker to sell your shares at the market price if a stock declines to or below a specified price. True
NARRBEGIN: Figure 14-3Figure 14-3Use the following stock listing for transactions on December 12 to answer the questions:[ED: the red colored cells must be merged and the word “net” deleted]52 NetHigh WeeksLow Stock Div Yld % P/E Vol 100s Last Chg44.75 25 QPZ .30 0.7 26 3289 44.25 +0.75NARRENDRefer to Figure 14-3. What was QPZ’s closing price on December 11? $44.25 per share
During times of high mortgage interest rates, real estate investors can expect a positive cash flow. False
The prudent investor limits high-risk investments to less than ____ percent of his or her overall investment mix. 10
High-risk investments include​ All of these- futures contracts, options, collectibles
Puts allow the holder of the contract to sell an asset at a specific striking price for a certain time period before the expiration date. True
When directly owning a real estate investment, the actual title is held by the investors.​ True
A hedge fund​ Can profit in times of market volatility as well as in a falling market
Planting trees and shrubs on your rental property is an example of a capital improvement.​ True
Ownership costs include the cost of capital improvements as well as the original cost of the property.​ False
The writer of a put may incur a loss when the market price of an optioned asset rises above the striking price. False
In a zero-sum game, the overall return actually becomes ____ if transaction costs are included.​ negative
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Finance Flashcards

Personal Finance Ch 7: Credit vs Cash

Which of the following is not a disadvantage to cash advances on a credit card?a.Cash advances are similar to loans in that they need to be paid back with interest.b.Cash advances require a lot of paperwork and are generally difficult to get.c.Cash advances are often the last thing to be paid when paying off your credit card.d.Cash advances often come with an interest rate much higher than your credit card. B
Paul is going to buy a collectible vintage painting from a local art gallery. The painting is priced at $600 in the gallery. The gallery owner does accept credit cards but prefers cash. In fact, he offers to give Paul a 5% discount if he can pay in cash. Paul doesn’t have any cash but can get a cash advance on his credit card. His credit card has an APR of 16% on credit purchases and a 32% APR on cash advances. Assuming Paul wants to pay the painting off over 12 months, which of the following is true?a.Paul will pay a total of $696, over 12 months, if he purchases the painting with his credit card.b.Paul will pay a total of $653.28, over 12 months, if he purchases the painting with his credit card.c.Paul will pay a total of $782.40, over 12 months, if he purchases the painting with a cash advance for discounted purchase price.d.Paul will pay a total of $708.96, over 12 months, if he purchases the painting with a cash advance for discounted purchase price. B
Tim has four credit cards with the balances and APRs listed in the chart below. What will Tim’s total monthly minimum credit card payment need to be to pay off all four credit cards in 24 months?a.$118.24b.$162.62c.$163.00d.$221.93 D
Bill was going to purchase a new mountain bike with his credit card, which he thought had an APR of 13%. His plan was to keep his payments around $75 per month for 24 months. He then found out that his credit card actually had an APR of 17%. Which of the following would not allow Bill to purchase a bike while keeping the same monthly payment?a.Purchase a bike that costs less.b.Wait for the bike he wants to go on sale for a cheaper price.c.Purchase the bike in a part of town with a higher sales tax rate.d.Increase the number of months he wants to use to pay off the balance. C
Listed below are the balances and annual percentage rates for Jimmy’s credit cards. If Jimmy makes the same payment each month to pay off his entire credit card debt in the next 12 months, how much will he have paid in interest in the 12 month period?(Hint, find out how much interest Jimmy pays to each card over the 12 months seperately, and then add them together.)a.$321.83b.$370.75c.$449.24d.$730.80 C
Tom is in dire need of a new washing machine. He knows what model he would like to get, but doesn’t have the cash to pay for it. He plans to get a line of credit (credit card) at the store when he purchases his new washer. He found four different stores that carry the same washing machine for different prices. The lines of credit they offer also come with different APRs. Tom’s primary goal is to minimize his monthly payment as he pays the washing machine off over the next 18 months. From which of the four stores should Tom purchase his washing machine?a.Bob’s Nuts and Boltsb.Steve’s Scratch and Dentc.Wally’s Washing Machinesd.Al’s Appliances B
Which of the following is not a disadvantage of using credit instead of cash?a.Credit cards increase the likelihood of impulse buying.b.Credit cards can be used to increase your credit score.c.Credit cards generally come with interest and other fees that cash does not.d.Credit cards require a good credit rating and responsible credit maintenance. NOT D
Which of the following is not a benefit to using credit instead of cash?a.Using credit can help you build a good credit rating.b.Using credit allows you to make impulsive buys.c.Using credit makes it easier to track your spending than cash.d.Using credit offers a convenient source of funds in an emergency. B
Looking for some furniture for her new apartment, Susan visits the local swap meet in search of something cheap. Knowing that most swap meet vendors will not accept credit cards and that she will not have any money until her next payday, Susan decides to take out a $200 cash advance on her credit card at an interest rate of 32%.If Susan had no previous balance on her credit card, and she manages to pay off the balance within 1 month, how much will she have to pay in interest?a.$5.33b.$32.00c.$173.33d.$205.33 A
Which answer choice does not represent an advantage to using credit cards over other forms of payment?a.payments made online with credit cardb.payments made abroad with credit cardc.emergency contact number for lost cardd.interest due on outstanding balance D
Which of the following is not a disadvantage of using cash instead of credit?a.Using cash will not help you improve your credit rating.b.Using cash can be awkward when making large purchases.c.Using cash generally requires trips to the bank or ATM to keep cash on hand.d.Using cash can make it easier to over-spend since you know exactly how much you have. D
Which of the following statements is not true of cash advances?a.Credit card companies offer easy access to cash through ATM’s or checks that can be written to yourself and cashed.b.Credit card companies apply payments to cash advance balances first because the interest is higher.c.The APR of a cash advance is higher than that of regular credit card purchases.d.Credit card companies place limits on the amount of cash you can receive through a cash advance. B
Ralph is purchasing a new gaming system for $300.00. He is trying to decide whether he wants to use cash or his credit card to pay. He has $600.00 available in his checking account. Which of the following is not an argument that justifies Ralph’s use of his cash to purchase the gaming system?a.Using cash can help Ralph improve his credit score.b.Using cash may limit overspending or impulse buying.c.Cash doesn’t come with any potential “over limit” or “late payment” fees.d.Cash will be the easiest method of payment with very few security measures involved. A
Which of the following is not a disadvantage to cash advances on a credit card?a.Cash advances are similar to loans in that they need to be paid back with interest.b.Cash advances require a lot of paperwork and are generally difficult to get.c.Cash advances are often the last thing to be paid when paying off your credit card.d.Cash advances often come with an interest rate much higher than your credit card. B
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Finance Flashcards

Corporate Finance- Chapter 7

Coupon The stated interest payment, in dollars, made on a bond each period is called the bond’s:
Face Value The principal amount of a bond that is repaid at the end of the loan term is called the bond’s:
Maturity The specified date on which the principal amount of a bond is repaid is called the bond’s:
Yield to Maturity The rate of return required by investors in the market for owning a bond is called the:
Coupon Rate The annual coupon of a bond divided by its face value is called the bond’s:
Par Value A bond with a face value of $1,000 that sells for $1000 in the market is called:
Discount Bond A bond with a face value of $1000, that sells for less than $1000 in the market is called a:
Premium Bond A bond with a face value of $1000 that sells for more than $1000 in the market is called a:
Debts that mature in less than one year. The unfunded debt of a firm is generally understood to mean the firm’s:
Indenture The written, legally binding agreement between the corporate borrower and the lender detailing the terms of a bond issue is called the:
Registered Form The form of bond issue in which the registrar of the company records ownership of each bond, with relevant payments made directly to the owner of the record, is called the:
Bearer Form The form of a bond issue in which the bond is issued without record of the owner’s name, with relevant payments made directly to whoever physically holds the bond, is called the:
Debentures The unsecured debts of a firm with maturities greater than 10 years are most literally caleld:
Notes The unsecured debts of a firm with maturities less than 10 years are most literally called:
Subordinated ; Senior In the event of default, ____ debt holders must give preference to ______debt holders in the priority of repayment distributions.
Sinking Fund An account managed by the bond trustee for early bond redemption payments is called
Call Provision An agreement giving the bond issuer the option to repurchase the bond at a specified price prior to maturity is called the:
Call Premium The amount by which the call price exceeds the bond’s par value is the:
Prohibition of a company from redeeming callable bonds prior to a certain date A deferred call provision refers to the:
Protective covenants Parts of the indenture limiting certain actions that might be taken during the term of the loan to protect the interests of the lender are called:
Treasury Bond The long-term bonds issued by the United States government are called:
Municipal Bonds The long-term bonds issued by state and local governments in the United States are called:
A Zero Coupon Bond A bond that makes no coupon payments and is initially priced at a deep discount is called:
Floating-rate A bond that pays a variable amount of coupon interest over time is called a:
Convertible A bond which, at the election of the holder, can be swapped for a number of shares of common stock at any time prior to the bond’s maturity is called:
Transparent A financial market is _______ if it is possible to easily observe its prices and trading volume:
Current Yield The annual coupon payment of a bond divided by its market price is called the:
Bid Price The price a dealer is willing to pay for a security held by an investor is called the:
Ask Price The price a dealer is willing to accept for selling a security to an investor is called the:
Nominal Interest rates or raters of return on investments that have not been adjusted for the effects of inflation are called _____ rates.
Real Rates Interest rates or rates of return on investments that have been adjusted for the effects of inflation are called _____ rates.
Fisher Effect The relationship between nominal rates, real rates, and inflation is known as the:
Term Structure of interest rates The relationship between nominal interest rates on default-free, pure discount and the time to maturity is called the:
Inflation Premium The _____ premium is that portion of a nominal interest rate or bond yield that represents compensation for expected future overall price appreciation.
Default Risk The ______ Premium is that portion of a nominal interest rate or bond yield that represents compensation for the possibility of nonpayment by the bond issuer.
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Finance Flashcards

Personal Finance; Modules 1 – 4

Fill in the blanks:If you want to earn as much as possible, you open a savings account that earns ___________ interest and has the ______________ interest rate. Compound; highest
Interest The amount owed for borrowing money
What is generally true about savings vehicles? People should evaluate different forms of savings vehicles based on their needs
Which account gives you the least access to your money? Certificate of Deposit (CD)
What is the purpose of a budget? To help you plan how you will spend the money you earn or receive
Which savings vehicles usually requires a high minimum balance? Certificate of Deposit (CD)
Two examples of savings vehicles Certificate of Deposit & Money Market Account
Rule of thumb for saving money Putting aside money for savings each month
compounding frequency that will earn you the most money Daily Compounding
Financial Institution the typically comes has membership requirements Credit Union
Most liquid type of account Checking account
Which of the following is NOT one of the responsibilities of the Federal Reserve?A) maintaining a stable banking system B) Establishing Federal budget C) Setting nation’s monetary policyD) Supervising reserve banks B) Establishing federal budget . . . Is NOT one of the responsibilities of the Federal Reserve
LEAST important part of check Memo line
Which type of account typically has the highest interest rate? Certificate of Deposit (CD)
Typical Account Fees ATM fee, Minim,um balance fee, service fee, etc.
Highest fee Overdraft fee
Fill in the blank:Savings accounts usually offer ______________ interest rates than checking accounts. It is ______________ to access your money in a savings account than in a checking account. Higher; harder
Three parts of Federal Reserve Reserve Banks, Federal Open Market Committee(FOMC) and Board of governors
Primary Responsibility of Federal Reserve Bank Establish Monetary Policy
Credit card balance The amount of money you still owe to the credit card company.
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Finance Flashcards

Personal Finance Chapter 5 Review

After Tax Return= Taxable Return(1-marginal tax bracket) Formula to calculate which accounts are better in terms of a higher rate of return.
Truth and Savings Act of 1993 designed to help promote competition between depository institutions and make it easier for consumers to compare interest rates, fees and terms associated with savings institutions’ deposit accounts. Established uniform guidelines for how banks and other financial institutions disclose information about deposit accounts to individuals.
Liquid Assets Cash and investments that can easily be converted into cash.
They are important because without liquid funds you might have to compromise your long-term investments to cover unexpected expenses. Why are liquid assets important?
Money Market Mutual Funds What type of financial institution pools money together from investors and invest that money in stocks or bonds?
non profit organizations with low fees and generally high interest rates What are Credit Unions?
Savings and Loans Associations a financial institution that specializes in savings deposits and mortgage loans, and has become one of the primary sources of mortgage loans for homebuyers today. It offers mortgage services to people from the savings and deposits received from private investors.
Liquid, Safe, Low minimum balance, Convenient Advantages of Checking account
minimum balance required, monthly fee, opportunity cost, interest less than alternatives Disadvantages of Checking account
Liquid Safe federally insured Earns higher interest than a Checking Account Advantages of Savings account
Minimum holding time Charges/fees Low interest rate Inconvenient Disadvantages of savings account
Safe, Earns interest, Check writing privileges Advantages of a MMDA
High minimum balances/penalties, interest rates below alternatives Disadvantages of and MMDA
Money Market Deposit Account alternative to savings account, variable interest rates, check and ATM access.
Safe, fixed interest rate, convenient. Advantages of Certificate of Deposit
Early withdrawal penalty, fixed interest rate, minimum deposit required Disadvantages of Certificate of Deposit
Certificate of Deposit pays a fixed rate of interest while funds are on deposit for a period of time (30 days to years).
High interest rates, check writing, limited risk, convenient. Advantages of a MMMF
Money Market Mutual Fund investors receive interest on a pool of investments less an administrative (usually less than 1% of total investment)
Administrative fees, minimum initial investment, not insured, minimum checks. Disadvantages of a MMMF
Asset management account a comprehensive financial services package (checking account, credit card, MMFs, etc.) offered by a brokerage firm.
Monthly statements, coordination of money management, checks, high return, convenient. Advantages of Asset management account
Costly, minimum initial investment, not insured. Disadvantages of Asset management account
U.S. Treasury Bills short-term debt issued by the federal government with maturities from 3-12 months.
Risk-free, exempt from state and local taxes, federal tax vary with current rates. Advantages of T-Bills
Low rate of return Disadvantages of T-Bills
U.S. Savings Bonds Series EE and I bonds are safe, low risk savings products issued by the Treasury with low denominations.
Safe, affordable, no taxes, convenient, redeem at any bank, no commissions or fees. Advantages of Savings Bonds
Low liquidity, long maturity, semi-annual compounding. Disadvantages of Savings Bonds
Federal Government At what level of government are savings accounts insured?
NOW Accounts Interest bearing checking accounts are called what?
Allocated Funds When funds are not able to be used elsewhere because they are required for say a minimum balance, this represents a special type of cost, what is that cost?
Cashiers Check a check guaranteed by a bank, drawn on the bank’s own funds and signed by a cashier.
Monthly fee, flat charge per check, or minimum balance Common Fee Arrangements for checking accounts
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Finance Flashcards

International Finance Chapter 5

1 An arbitrage is best defined asa) A legal condition imposed by the CFTC.b) The act of simultaneously buying and selling the same or equivalent assets or commodities for the purpose of making reasonable profits.c) The act of simultaneously buying and selling the same or equivalent assets or commodities for the purpose of making guaranteed profits.d) None of the above C
2 Interest Rate Parity (IRP) is best defined asa) When a government brings its domestic interest rate in line with other major financial markets.b) When the central bank of a country brings its domestic interest rate in line with its major trading partners.c) An arbitrage condition that must hold when international financial markets are in equilibrium.d) None of the above C
3 When Interest Rate Parity (IRP) does not holda) there is usually a high degree of inflation in at least one country.b) the financial markets are in equilibrium.c) there are opportunities for covered interest arbitrage.d) both b) and c) C
4 Suppose you observe a spot exchange rate of $1.50/€. If interest rates are 5% APR in the U.S. and 3% APR in the euro zone, what is the no-arbitrage 1-year forward rate?a) €1.5291/$b) $1.5291/€c) €1.4714/$d) $1.4714/€ B
5 Suppose you observe a spot exchange rate of $1.50/€. If interest rates are 3% APR in the U.S. and 5% APR in the euro zone, what is the no-arbitrage 1-year forward rate?a) €1.5291/$b) $1.5291/€c) €1.4714/$d) $1.4714/€ D
6 Suppose you observe a spot exchange rate of $2.00/£. If interest rates are 5% APR in the U.S. and 2% APR in the U.K., what is the no-arbitrage 1-year forward rate?a) £2.0588/$b) $2.0588/£c) £1.9429 /$d) $1.9429/£ B
7 Suppose that the one-year interest rate is 5.0 percent in the United States and 3.5 percent in Germany, and the one-year forward exchange rate is $1.16/€. What must the spot exchange rate be? a) $1.1768/€ b) $1.1434/€c) $1.12/€ d) None of the above B
8 A higher U.S. interest rate (i$ ↑) will result in a) a stronger dollar.b) a lower spot exchange rate (expressed as foreign currency per U.S. dollar).c) both a) and b)d) none of the above A
9 If the interest rate in the U.S. is i$ = 5 percent for the next year and interest rate in the U.K. is i£ = 8 percent for the next year, uncovered IRP suggests that a) the pound is expected to depreciate against the dollar by about 3 percent.b) the pound is expected to appreciate against the dollar by about 3 percent.c) the dollar is expected to appreciate against the pound by about 3 percent.d) both a) and c) D
10 If IRP fails to holda) pressure from arbitrageurs should bring exchange rates and interest rates back into line.b) it may fail to hold due to transactions costs.c) it may be due to government-imposed capital controls.d) all of the above D
11 Although IRP tends to hold, it may not hold precisely all the timea) due to transactions costs, like the bid ask spread.b) due to asymmetric information.c) due to capital controls imposed by governments.d) both a) and c) D
12 If a foreign county experiences a hyperinflation,a) its currency will depreciate against stable currencies.b) its currency may appreciate against stable currencies.c) its currency may be unaffected—it’s difficult to say.d) none of the above A
13 As of today, the spot exchange rate is €1.00 = $1.25 and the rates of inflation expected to prevail for the next year in the U.S. is 2% and 3% in the euro zone. What is the one-year forward rate that should prevail?a) €1.00 = $1.2379b) €1.00 = $1.2623c) €1.00 = $0.9903d) $1.00 = €1.2623 A
14 Purchasing Power Parity (PPP) theory states thata) the exchange rate between currencies of two countries should be equal to the ratio of the countries’ price levels.b) as the purchasing power of a currency sharply declines (due to hyperinflation) that currency will depreciate against stable currencies.c) the prices of standard commodity baskets in two countries are not related.d) both a) and b) D
15 As of today, the spot exchange rate is €1.00 = $1.60 and the rates of inflation expected to prevail for the next year in the U.S. is 2% and 3% in the euro zone. What is the one-year forward rate that should prevail?a) €1.00 = $1.6157b) €1.6157= $1.00c) €1.00 = $1.5845d) $1.00 × 1.03 = €1.60 × 1.02 C
16 In view of the fact that PPP is the manifestation of the law of one price applied to a standard commodity basket, a) it will hold only if the prices of the constituent commodities are equalized across countries in a given currency.b) it will hold only if the composition of the consumption basket is the same across countries.c) both a) and b)d) none of the above C
17 Some commodities never enter into international trade. Examples includea) nontradables.b) haircuts.c) housing.d) all of the above D
18 Generally unfavorable evidence on PPP suggests thata) substantial barriers to international commodity arbitrage exist.b) tariffs and quotas imposed on international trade can explain at least some of the evidence.c) shipping costs can make it difficult to directly compare commodity prices.d) all of the above D
19 The price of a McDonald’s Big Mac sandwicha) is about the same in the 120 countries that McDonalds does business in.b) varies considerably across the world in dollar terms.c) supports PPP.d) none of the above. B
20 The International Fisher Effect suggests thata) any forward premium or discount is equal to the expected change in the exchange rate. b) any forward premium or discount is equal to the actual change in the exchange ratec) the nominal interest rate differential reflects the expected change in the exchange rate. d) an increase (decrease) in the expected inflation rate in a country will cause a proportionate increase (decrease) in the interest rate in the country. C
21 The Fisher effect states thata) any forward premium or discount is equal to the expected change in the exchange rate. b) any forward premium or discount is equal to the actual change in the exchange rate.c) the nominal interest rate differential reflects the expected change in the exchange rate. d) an increase (decrease) in the expected inflation rate in a country will cause a proportionate increase (decrease) in the interest rate in the country. D
22 The main approaches to forecasting exchange rates area) Efficient market, Fundamental, and Technical approaches.b) Efficient market and Technical approaches.c) Efficient market and Fundamental approaches.d) Fundamental and Technical approaches. A
23 The benefit to forecasting exchange ratesa) are greatest during periods of fixed exchange rates.b) are nonexistent now that the euro and dollar are the biggest game in town.c) accrue to, and are a vital concern for, MNCs formulating international sourcing, production, financing and marketing strategies.d) all of the above C