Question 1. A corporation sold a fixed asset for $100,000. This is A. an investment cash flow and a source of funds.

1. A corporation sold a fixed asset for $100,000. This is
A. an investment cash flow and a source of funds.
B. an operating cash flow and a source of funds.
C. an operating cash flow and a use of funds.
D. an investment cash flow and a use of funds.
2. A proxy statement is
A. a statement giving the votes of a stockholder to the CEO
B. a statement giving the votes of a stockholder to the board of director
C. a statement giving the votes of a stockholder to another party
D. None of the above.
3. The theory suggesting that for any given issuer, long-term interest rates tends to be higher
than
short-term rates is called
A.expectation hypothesis
B. liquidity preference theory
C. Market segmentation theory
D. None of the Above
4.The present value of an ordinary annuity of $350 each year for five years, assuming an
opportunity cost of 4 percent, is
A. $288 B. $1,896 C. $1,750 D.$1,558
5.Typically the long-term capital source that is the least expensive is
A. Common stock B. Current (short-term) debt C. Long-term debt D. Preferred stock
6. How much is a bond with a face value of $1,000 that matures in 3 years and pays 12%
annually worth? (pick the best answer)
$867
$1,000
$823
$952
7.________ yield curve reflects higher expected future rates of interest.
An upward­sloping
A flat
A downward­sloping
A linear

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8. The key participants in financial transactions are individuals, businesses, and
governments. Individuals are net ________ of funds, and businesses are net ________ of
funds.
demanders; suppliers
users; providers
suppliers; demanders

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purchasers; sellers
9.The ________ are sometimes referred to as the residual owners of the corporation.
preferred stockholders
unsecured creditors
common stockholders
secured creditors

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10. A firm has an outstanding issue of 1,000 shares of preferred stock with a $100 par
value and an 8 percent annual dividend. The firm also has 5,000 shares of common stock
outstanding. If the stock is cumulative and the board of directors has passed the preferred
dividend for the prior two years, how much must the preferred stockholders be paid prior
to paying dividends to common stockholders?
$ 8,000
$16,000
$24,000
$25,000

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11. What is the highest effective rate attainable with a 12 percent nominal rate?
12.00%
12.55%
12.75%

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12.95%
12. Colin would like to send her parents on a cruise for their 25th wedding anniversary.
She has priced the cruise at $15,000 and she has 5 years to accumulate this money. How
much must Janice deposit annually in an account paying 10 percent interest in order to
have enough money to send her parents on the cruise?
$1,862
$2,457
$3,000
$2,234

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13.Which of the following is a career opportunity in managerial finance?
Investment.

Real Estate and Insurance.
Capital Expenditures Management.
Personal Financial Planning.

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14.The ________ represents a summary statement of the firm’s financial position at a
given point in time.
income statement
balance sheet
statement of cash flows
statement of retained earnings

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15. Gross profits are defined as
operating profits minus depreciation.
operating profits minus cost of goods sold.
sales revenue minus operating expenses.

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sales revenue minus cost of goods sold.
16. When preparing a statement of cash flows, retained earnings adjustments are required
so that which of the following are separated on the statement?
Revenue and cost.
Assets and liabilities.
Depreciation and purchases.
Net profits and dividends.

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17. The legal contract setting forth the terms and provisions of a corporate bond is a(n)
indenture
debenture
loan document
promissory note

18. Most businesses raise money by selling their securities in a
public offering.
private placement.
direct placement.
stock exchange
19._____________ is the rate of return companies must earn on investments to support the
market value of its stock.
Internal rate of return
Cost of capital
Net present value
Gross profit margin
20. Stock represents __________ and bonds represent ____________.
debt; equity
retained earnings; debt
equity; debt
equity; current liabilities
• 21. An ADR is
a claim issued by a U.S. bank representing ownership of shares of a foreign
company’s stock held on deposit by the U.S. bank and is issued in dollars to U.S.
investors
a claim issued by a foreign bank representing ownership of shares of a foreign
company’s stock held on deposit by the foreign bank and is issued in dollars to
U.S. investors
a claim issued by a U.S. bank representing ownership of shares of a U.S.
company’s stock held on deposit by the U.S. bank and is issued in dollars to U.S.
investors
None of the above.
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22. Allocation of the historic costs of fixed assets against the annual revenue they
generate is called
net profits.
gross profits.
depreciation.
amortization
A.23.
is an expense that is a legal obligation of the firm.
Labor expense
Interest expense

Salaries expense
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Rent expense
24. Nico Nelson, a management trainee at a large New York-based bank is trying to
estimate the real rate of return expected by investors. He notes that the 3-month T-bill
currently yields 3 percent and has decided to use the consumer price index as a proxy for
expected inflation. What is the estimated real rate of interest if the CPI is currently 2
percent?
5%
1%
3%

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2%
25. One of the most influential documents issued by a publicly-held corporation is the
letter to stockholders.
annual report.
cash flow statement.
income statement.

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26. ________ is concerned with the duties of the financial manager in the business firm.
Financial Services
Financial Manager
Managerial Finance
None of the above

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27. The treasurer is commonly responsible for
taxes.
data processing.
making capital expenditures.
cost accounting

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28. Bond prices and interest rates are:
Directly related
Unrelated

Conversely related
Inversely related
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29. The cost of long-term debt generally ________ that of short-term debt.
is less than
is equal to
is greater than

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has no relation to
30. A downward-sloping yield curve that indicates generally cheaper long-term
borrowing costs than short-term borrowing costs is called
normal yield curve
inverted yield curve
flat yield curve
None of the above

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31. Preferred stockholders
do not have preference over common stockholders in the case of liquidation
do have preference over bondholders in the case of liquidation
do not have preference over bondholders in the case of liquidation
Two of the above are true statement

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32. The ________ rate of interest is typically the required rate of return on a three-month
U.S. Treasury bill.
nominal
real
risk-free
Premium

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33. The ________ is/are a graphic depiction of the term structure of interest rates.
yield curve
supply and demand functions
risk-return profile

aggregate demand curve
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