Finance Quiz 1 – Flashcards
Unlock all answers in this set
Unlock answersquestion
1. . Which of the following concerning the relationship between risk and return is correct? A. Investors do not need to be compensated for taking on risk. B. Investors generally demand higher return for lower risk investments. C. Safer investments tend to have lower returns. D. Higher risk investments provide lower returns. E. Risk and return are not related.
answer
C. Safer investments tend to have lower returns.
question
3. Calculate the stock return from the following information. Beginning Price: $50 Price 1 Year Later: $60 Dividend: $5 A. 10% B. 20% C. 30% D. 40% E. 50%
answer
C. 30%
question
5. Which type of investment has the least amount of risk? A. Treasury bills B. Government bonds C. Corporate bonds D. Large company stock E. Small company stock
answer
A. Treasury bills
question
6. Which type of investment has the greatest amount of return? A. Treasury bills B. Government bonds C. Corporate bonds D. Large company stock E. Small company stock
answer
E. Small company stock
question
Which of the following is part of the treasurer's function? A. Auditing the company's financials B. Publishing financial statements C. Managing short and long term capital requirements D. Monitoring accounting systems E. Filing the company's taxes
answer
C. Managing short and long term capital requirements
question
Which of the following is part of the controller's function? A. Determining the feasibility of various projects B. Financial planning C. Managing short and long term capital requirements D. Working capital management E. Preparing financial statements and reports
answer
E. Preparing financial statements and reports
question
According to the Theory of Efficient Capital Markets: A. Stock prices are not affected by new information B. Current stock prices reflect all publicly available information C. Stock prices adjust to new information slowly over time D. Stock Prices only reflect instantly to positive financial information E. Investors can easily beat the market
answer
B. Current stock prices reflect all publicly available information
question
10. According to the Theory of Efficient Capital Markets: A. Stock prices do not reflect all publicly available information B. Stock prices take a long time to capture new information C. Stock prices react instantaneously to new information D. Stock prices react positively to all new information E. Investors can easily predict exact stock prices
answer
C. Stock prices react instantaneously to new information
question
In the short term, stock prices are driven by: A. Supply and demand B. Corporate earnings C. Leadership structure D. Long-term value of the company E. Company cash flow
answer
A. Supply and demand
question
In the long term, stock prices are driven by: A. Short-term value of the company B. Supply and Demand C. Technical Analysis D. Corporate Earnings (fundamentals) E. Dividends
answer
D. Corporate Earnings (fundamentals)
question
13. Which of the following statements about Business Organizational Forms is true? A. Corporations are less difficult to start than partnerships B. Transfer of ownership is more difficult for corporations than for sole proprietorships C. Raising capital is easier for corporations than for sole proprietorships D. Sole proprietorships have limited liability E. Partnerships are double taxed
answer
C. Raising capital is easier for corporations than for sole proprietorships
question
14. Which of the following statements about Business Organizational Forms is true? A. Corporations are easier to start than sole proprietorships B. Owners of corporations have limited liability C. Partnerships are easier to transfer than corporations D. It is easier for sole proprietorships to raise capital than corporations E. Sole proprietorships are double taxed
answer
B. Owners of corporations have limited liability
question
The time value of money implies that: A. A dollar today is worth MORE than a dollar tomorrow B. A dollar today is worth LESS than a dollar tomorrow C. The value of money does not change over time D. Investors are indifferent to receiving a dollar today vs. a dollar in the future. E. The value of a dollar tomorrow depends on many things, but time is not one of them.
answer
A. A dollar today is worth MORE than a dollar tomorrow
question
17. The managerial defense mechanism that occurs when a company is targeted for hostile takeover, but instead finds a friendly merger candidate is referred to as______: A. the pac-man defense B. greenmail C. crown jewels D. the white knight E. golden parachutes
answer
D. the white knight
question
18. In which managerial defense does the target company sell off some of its major assets in order to discourage the takeover company from purchasing it? A. greenmail B. the white knight C. crown jewels D. golden parachutes E. poison pill
answer
C. crown jewels
question
Which of the following is an "enemy" of your investment plan? A. Strong market fundamentals B. Strong company earnings C. Transaction costs D. Dividend payouts E. Corporate governance
answer
C. Transaction costs Inflation also
question
What is working capital management? A. Determining the optimal use of debt and equity for a firm B. Managing a firm's short-term financial position C. Choosing the best option for financing an acquisition D. Managing investments in property, plant, and equipment E. Identifying investments that will return more than the targeted ROI
answer
B. Managing a firm's short-term financial position
question
Which of the following is an example of a capital structure decision? A. Determining the mixture of long-term debt and equity used to finance the company's operations B. Determining how much cash a company should keep on hand C. Determining how much in dividends to pay out per quarter D. Day-to-day management of accounts receivable E. Determining which investment project offers the best return for the company
answer
A. Determining the mixture of long-term debt and equity used to finance the company's operations
question
23. Which of the following is true of stockholders? A. It is typical of American companies that there are only one or two majority shareholders in a company. B. Stockholders are not considered stakeholders because they own the company. C. In the event of liquidation, they get paid after all other stakeholders. D. Stockholders are not permitted to work for the company. E. Stockholders are protected by contractual agreements.
answer
C. In the event of liquidation, they get paid after all other stakeholders.
question
24. Which of the following is true of stakeholders? A. Stakeholders are all entitled to some money in the event of liquidation of the company. B. Stakeholders are protected by contractual agreements. C. Stakeholders are entitled to a residual claim of the firm's cash flows. D.The Board of Directors represents all stakeholders. E. Good management works to maximize the value of the firm to the stakeholders.
answer
B. Stakeholders are protected by contractual agreements.
question
25. The current 10 year Treasury Yield is closest to ______ A. 0.6% B. 4.0% C. 12.5% D. 17.3% E. 21.1%
answer
B. 4.0%
question
26. The current price of crude oil is closest to ______ A. $60 per barrel B. $100 per barrel C. $240 per barrel D. $300 per barrel E. $10 per barrel
answer
B. $100 per barrel
question
Which of the following is an element of good management according to Gordon Gekko? A. Managerial efficiency is not important B. Management is not accountable to shareholders C. Management should have a stake in the company D. Shareholder value should be ignored E. Managers should not think about increasing the stock price
answer
C. Management should have a stake in the company
question
Which activity is most likely to increase shareholder value? A. Minimizing the company's cost of capital B. Minimizing the amount of projects the company spends money on C. Financing the company's business with expensive debt D. Maximizing the amount of corporate assets E. Investing in projects that are always the least risky
answer
A. Minimizing the company's cost of capital
question
Which activity is most likely to increase shareholder value? A. Minimizing the amount of projects the company spends money on B. Using only equity to finance the company's acquisitions C. Maximizing the cost of capital D. Allocating capital to investments with the highest risk-adjusted return E. Maximizing the amount of corporate assets
answer
D. Allocating capital to investments with the highest risk-adjusted return
question
Which of the following is a common element of financial crises? A. Easy financing B. Inefficient capital markets C. Increase in value of dollar D. Trade deficit E. Excessive exports
answer
A. Easy financing
question
How was corporate governance in 1990s different from corporate governance in 1980s? A. The role of Board of Directors was removed in the 1990s B. Institutional investors were more active in the 1980s than in the 1990s C. The 1990s involved more managerial stock ownership than the 1980s D. There was no diffusion of stock ownership in the 1980s E. The hostile takeovers increased in the 1990s from the 1980s
answer
C. The 1990s involved more managerial stock ownership than the 1980s
question
How was corporate governance in 1990s different from corporate governance in 1980s? A. Election of board of directors was always completely fair in 1980s B. Institutional investors became more involved in corporate governance in 1990s C. There was no diffusion of stock ownership in the 1980s. D. Managerial stock ownership was prohibited in the 1990s E. Corporate governance was not significantly different from the 1980s to the 1990s.
answer
B. Institutional investors became more involved in corporate governance in 1990s
question
Which of the following is an element of the Sarbanes Oxley Act of 2002? A. Audit committees must be composed of outside directors. B. Companies do not have to provide financial statements to shareholders. C. Directors should be allowed to take loans from the company. D. Management has no fiduciary responsibility to shareholders. E. The shareholders do not have to pay tax on their earnings.
answer
A. Audit committees must be composed of outside directors.
question
Which of the following is an element of the Sarbanes Oxley Act of 2002? A. It is meant to protect the interests of management of the company. B. It does not apply to publicly traded companies. C. CEOs must sign off on financial statements. D. Directors are encouraged to take loans from the company. E. Companies do not have to make financial statements publicly available.
answer
C. CEOs must sign off on financial statements.
question
41. Which of the following is an example of an internal control mechanism used to ensure that management acts in shareholder interests? A. Shareholder Activism B. Market for Corporate Control C. Managerial Labor Market D. Threat of Takeover by Private Equity Investors E. Audited Financial Statements
answer
E. Audited Financial Statements
question
42. Which of the following is an example of an external control mechanism used to ensure that management acts in shareholder interests? A. Audited Financial Statements B. Board of Directors C. Stock Ownership Interests D. Shareholder Activism E. Stock-Based Compensation
answer
D. Shareholder Activism
question
Which of the following about Bernie Madoff is true? A. Madoff was able to generate excellent returns through his investments. B. Madoff offered modest but steady returns to investors. C. Madoff was released after his trial in the court. D. Madoff's fraud was shorter in duration than Charles Ponzi. E. Madoff's firm did not suffer a run on the bank.
answer
B. Madoff offered modest but steady returns to investors.
question
Which of the following is TRUE about the CFO. A. The CFO reports to the head Controller B. CFO is the head accountant for an organization. C. The CFO is prohibited from signing the Annual Report D. The CFO oversees the financial activities of an organization E. The CFO is expected to serve on the Board of Directors
answer
D. The CFO oversees the financial activities of an organization
question
Which one of the following is an element of the new corporate finance environment? A. Lower economic volatility B. Excessive regulation C. Lack of complex financial instruments D. Institutionalization of markets E. Decrease in international trade
answer
D. Institutionalization of markets
question
Which one of the following is an element of the new corporate finance environment? A. Greater economic volatility and risk B. Lack of complex financial instruments C. Decrease in international trade D. Inflation no longer a factor in corporate finance E. No access to global markets
answer
A. Greater economic volatility and risk
question
Which of the following is true about the corporate governance model in the US? A. Majority owner manages the company. B. Equity is not publicly sold. C. The Board of Directors represents shareholders interests. D. Investment is restricted to the managers of the firm. E. Government has representation in every company's board.
answer
C. The Board of Directors represents shareholders interests.
question
How is the corporate governance model in the US different from Japan? A. Corporate governance in US focuses on shareholders interest only. B. There are more takeovers in Japan than in the US. C. Only majority shareholders are represented in board of US companies. D. Large equity holders do not have an active role in the Japanese companies. E. Both corporate governance models are same in all ways.
answer
A. Corporate governance in US focuses on shareholders interest only.
