Finance 305 Exam 1, 2 and 3 multiple choice

Investors buy stock at the… Quotes ask price
Which of the following factors would NOT positively impact a company’s stock price?a. discovery of a new blockbuster drugb. increase in the risk and required return on a stockc. greater efficiency in operations resulting in higher returnsd. an increase in expected sales growth over the next few years a. Discover of a new blockbuster drug
Which of the following is not correct?a. total risk is measured by the standard deviationb. by combining a stock in a portfolio, that stock will always provide a positive return c. there is a positive relationship between risk and return d. if you observe a high variability in a stock’s return you can infer that the stock is very risky b. By combining a stock in a portfolio, that stock will always provide a positive return
Which of these is defined as a combination of investment assets held by an investor?a. Bundleb. Portfolioc. market collectiond. all of these b. Portfolio
What is the reward that investors require for taking risk by investing in a stock? Risk Premium
The correct ranking from least risky to most riskya. Long-term, Treasury bonds, stocks, Treasury billsb. Stocks, Treasury bills, long-term Treasury bondsc. Treasury bills, long-term Treasury bonds, stocksd. Stocks, long-term Treasury bond, Treasury bills c. Treasure bills, long-term treasury bond, stock
Which of the following is the most correct?a. In an efficient market, investors will sell an undervalues stock, which will drive its price down.b. In an efficient market, investors will sell an overvalues stock, which will drive its price down.c. In an efficient market, investors will buy an overvalued stock, which will drive its price down. b. In an efficient market, investors will sell an overvalued stock, which will drive its price down.
Which of the following statements is true?a. If a new project is less risky, than the firm’s existing projects, then it should be charged a lower cost of capitalb. If a new project is less risky than the firm’s existing projects, then it should be charged the firm’s cost of capitalc. If a new project is less risky than the firm’s existing projects, then it should be charged a higher cost of capital. a. If a new project is less risky, than the firm’s existing projects, then it should be charged a lower cost of capital.
The research chemists at MegaClean created a new cleaner that keeps car trick and tired shiny and clean for one year. They believe that this product will be highly successful and will attract customers to purchase their existing line of household cleaning product. This is an example of: Complementary effect
Which of these is used as a measure of the total amount of available cash flow from a project?a. Investment in operating capitalb. Operating cash flowc. Free cash flowd. Sunk cash flow c. Free cash flow
Which of the following statements is TRUE?a. Because interest rates may be quoted for different time intervals, it is often necessary to adjust the interest rate to an annual rate to discount cash flowsb. The annual percentage rate indicates the amount of simple interest earned in one yearc. The annual percentage rate indicates the amount of interest including the effect of compoundingd. The effective annual rate indicates the amount of interest that will be earned each cash flow period b. The annual percentage rate indicates the amount of the simple interest earned in one year
The length of time of the annuity is very important in accumulating wealth within an annuity. What other factor also has this effect? Interest rate for compounding
Many people who want to start investing for their future want to start today, which implies an annuity stream that is paid at the beginning of the period. Beginning-of-period cash flows are referred as: Annuities due
Compounding monthly versus annually causes interest rate to be effectively higher, and thus the future value Grows
Which of these feature debt securities or instruments with maturities of one year or less?a. Primary marketsb. Secondary marketsc. Money marketsd. Over-the-counter stocks c. Money markets
All of the following are benefits that financial institutions provide to our economy EXCEPT:a. Increased liquidityb. Increased dollar amount of funds flowing from suppliers to fund usersc. Increased price riskd. Increased monitoring c. Increased price risk
Your credit rating and current economic conditions determine… The interest rate that a lender will offer
Which of the following is NOT a factor that determines the coupon rate of a company’s bonds?a. The level of interest rates in the overall economy at the timeb. The amount of uncertainty about whether the company will be able to make all the paymentsc. The term of the loand. All of these are factors that determine the coupon rate of a company’s bonds d. All of these are factors that determine the coupon rate of a company’s bonds
Which of the following is a true statement?a. If interest rates fall, no bonds will enjoy rising valuesb. If interest rates fall, all bonds will enjoy rising values c. If interest rates fall, U.S Treasury bonds will have decreasing values…d. If interest rates fall, corporate bonds will have decreasing values… b. If interest rates fall, all bonds will enjoy rising values
Which of the following is a reason municipal bonds offer lower rates of interest income for their investors?a. They are able to avoid interest rate riskb. They are tax exempt – at least at the federal levelc. They are able to avoid reinvestment rate risk d. They are able to offer reduced credit risk as they are backed by the federal government They are tax exempt – at least at the federal level
For corporations, maximizing the value of owners’ equity can also be stated as: Maximizing the stock price
Which of the following managers would NOT use finance?a. Operational managersb. Marketing managersc. Human resource managersd. All of these would use finance d. ALL would use finance
Which of the following is an example of aligning managers’ personal interests with those of the owners?a. Allow the managers to have as many perks as they requestb. Pay the managers high salariesc. Offer the manager an equity stake in the firmd. Trust managers’ actions as they will always act in the owners’ best interest c. Offer the manager an equity stake in the firm
Which of the following does NOT describe why firms produce financial statement?a. To provide interested parties, both inside and outside the company, with an overview of the short and long term financial condition of business b. To use a tool when planning future investments within the firmc. To provide a means of enticing new investors to a firmd. To show what activities the company has undertaken in the previous financial year, and what activities are planned for the near future c. To provide a means of enticing new investors to a firm
Which of the following activities result in a decrease in a firm’s cash?a. Receipt of tax benefitb. Decrease in accounts receivablec. Decrease in fixed assetsd. Decrease in accounts payable d. Decrease in accounts payable
Debt management ratios measure the leverage of a firm. Lower leverage means… Lower debt use and lower risk
To trace cash flows from the time a firm pays for raw materials, turn them into finished goods, sells them, and receives payment for them, we must measure which of the following?a. Transaction cycleb. Production cyclec. Operating cycled. Cash cycle Cash Cycle
When a bank or creditor assesses creditworthiness of an individual or credit borrower, which of the following is not one of the characteristics analyzed?a. Characterb. Capacityc. Cash paymentsd. Capital c. Cash Payments
Time value of money concepts can be used by:a. Individuals doing personal business decisionsb. CFO and CEOs to make business decisionsc. Investors calculating a return on investmentd. All of these are users of time value of money concepts d. All of these are users of time value of money concepts
How are present values affected by changes in interest rates?a. The lower the interest rate, the larger the present value will be.b. The higher the interest rate, the larger the present value will bec. Present values are not affected by changes in interest ratesd. One would need to know the future value in order to determine the impact a. The lower the interest rate, the larger the present value will be.

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