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Finance
| Question | Answer |
|---|---|
| Of the following provisions that might be found in a bond indenture,which would tend to reduce the coupon interest rate on the bond in question? | A convertible feature |
| The terms and conditions to which a bond is subject are set forth in its | Indenture |
| All of the following may serve to reduce the coupon rate that would otherwise be required on a bond issued at par, EXCEPT a | Call provision |
| Which of the factors does NOT influence a firm's long-term financing decision | all of the above factors may influence a firm's long -term financing decisions |
| Common equity refers to the sum of which of the following balance sheet accounts? | Either Common stock and retained earnings or common stock,additional paid in capital, retained earnings |
| The preemptive right is important to shareholders because it | protects the current shareholders against dilution of ownership interest |
| Companies can issue different classes of common stock. Which of the following statements concerning stock classes is correct? | None of the above statements is necessarily true |
| Which of the following statements is correct? | Each of the above statements is false |
| The New York Stock Exchange (NYSE) allows firms with dual class stock to be listed on the exchange | This statement is correct |
| An option which gives the holder the right to sell a stock at a specified price at some time in the future is called a(n) | Put option |
| The New York Stock Exchange is primarily | A secondary market, and an organized auction market |
| Money markets are markets for | Short-term debt securities |
| You have just purchased shares in the Hi-Tech Long Term Bond Fund, a mutual fund that invest in long term corporate bonds. You purchase comstitutes | An indirect transfer through a financial intermediary |
| A "prospectus" is a document which describes a company and the securities it plans to offer, and the prospectus generally must be approved by the SEC before a public offering of new securities can be made | Which of the following statements is correct |
| Large, well-known public companies can reduce the time required to register and issue securities by using a(n) | Shelf Registration |
| Which of the following statements about listing on a stock exchange is most correct? | Listing provides a company with some "free" advertising and status as a listed company may enhance the firm's prestige |
| Most American investors who are interested in investing in companies listed on foreign exchange do so by purchasing | American Deposit Receipts (ADRs) or mutual funds that hold international stocks |
| It is possible for a firm to go public, and yet not raise any additional capital | Correct statement |
| Machina Corp. is financing an ongoing construction project. The firm needs 8 million of new capital during each of the 3 yrs.The firm has a choice of issuing new debt and equity each year as the funds are needed,or issuing the debt now and the equity late | $140,809 |
| ___ efficiency states that all information contained in past price movements only is fully reflected in the current market prices | Weak-Form |
| All but which of the following financial institutions would you expect to be able to get federal deposit insurance for their customers? | Bank holding companies |
| Federal deposit insurance has | prevented bank depositor panics, but not bank failures |
| All of the following are reasons to regulate depository institutions except | to make sure banks' earnings are competitive with other financial institutions |
| The Federal Reserve System established | A source of liquidity for the banking system |
| The largest amount of pension assets are associated with | private pension funds |
| Suppose the Federal Reserve increases deposits at financial institutions by $50 billion through its open market operations. If the reserve requirement for all deposits is 8%, what is the maximum impact the Fed's actions can have on total deposits? | $575 billion increase |
| A small state bank currently has reserves equal to $300,000. If the state requirement is 20%, but the bank feels more comfortable with maintaining a 30% reserve, what amount of deposit does the bank currently have? | $1,000,000 |
| Suppose the reserve requirement for transaction deposits is10% & it is5% for non transaction deposits.What is the total reserve requirement for a bank with total deposits equal to 800 million,if 600 million of these deposits are classified as trans depos | $70 million |
| A small state bank currently has reserves equal to 300,000. If the state reserve requirement in 20%, but the bank currently maintains a 30% reserve,what amount of reserve would the bank need if it met the reserve requirements exactly? | $200,000 |
| A small state bank currently has reserves equal to $300,000. If the state reserve requirements is 20%, but the bank currently maintains a 30% reserve, how much are the excess reserves the bank currently has? | $100,000 |
| If the Federal Reserve sells $50 billion of short-term U.S. Treasury securities to the public, other things held constant, what will this tend to do to short-term security prices and interest rates? | Prices will decline and interest rates will rise |
| In a recent year,interest rates on long term gov & corporate bonds were as follows: T-bond=7.72, A=9.64 , AAA=8.72 BBB=10.18. The differences in rates among these issues were caused primarily by | Default risk differences |
| Assume that the current yield curve is upward sloping, or normal. This implies that | None of the above statements is necessarily implied by the yield curve given |
| Which statement is correct? | Reinvestment rate risk is lower, other things held constant, on long-term than on short- term bonds |
| Yield curves for gov and corp bonds can be constructed from data that exist in the marketplace.If the yield curves | statement correct |
| Treasury securities that mature in 6yrs currently have an interest rate of 8.5%.Inflation is expected to be 5% each of the next 3 yrs and 6% each year after the third. The maturity risk premium is estimated to be 0.1%(t-1) where t is equal to the maturity | 2.50% |
| Assume that the expectations theory holds,and that liquidity and maturity risk premiums are zero. If the annual rate of interest on a 2 yr Treasury bond is 10.5% and the rate on a 1 yr Treasury bond is 12%,what rate of interest should u expect on a 1yr | 9.0% |
| Given the following data, find the expected rate of inflation during the next year | 5.5% |
| Assume that expected rates of inflation over the next 5 yrs are 4%,7%,10%,8%,and 6%,respectively.What is the average expected inflation over this 5yr period. | 7.0% |
| Suppose that the annual expected rates of inflation over each of the five years are 5%,6%,9%, 13%,and 12%,respectively.What is the average expected rate of inflation over the 5 yr period? | 9% |
| Which of the following is NOT one of the things that causes a corporation to have a significant advantage over a partnership or a proprietorship? | Elimination of double taxation |
| The primary goal of a publicly-owned firm interested in serving its stockholders should be to | Maximized the stock price per share |
| Which of the following does NOT need to be considered when assessing the impact of financial decisions? | All of the above must be considered |
| Which of the following mechanisms is NOT used by shareholders to get managers to act in shareholders best interest? | Performance shares |
| Taking poison pills and offering greenmail are | Two actions managers might take to ward off hostile takeovers |
| A good example of an agency relationships is the one between stockholders and managers | This is a valid statement |
| Correct statement is which one? | Bond covenants,or restriction on debt, are an important device to reduce agency conflicts between stockholders and bondholders. Compensation packages are designed,in part, to reduce agency conflicts between shareholders and managers |
| Current tax laws have which of the following effects? | Favor capital gains because the tax does not have to be paid until the stock is sold |
| Statements in reference to federal tax rate are progressive, Bonds issued by a municipality such as the city of Miami. Our federal tax laws tend to encourage corp to finance. Our federal tax laws . Which is a true statement | All of the above statements are correct |
| A loss incurred by a corporation | Can be carried back 2 years, then carried forward up to 20 years following the loss |
| Which of the following statements is most correct? If a company lowers its DSO, but no changes occur in the sales or operating cost, then | The company might well end up with a lower debt ratio |
| Which of the following statements is correct? | If two firms pay the same interest rate on their debt and have the same rate of return on assets,and if that ROA is positive, the firm with the higher debt ration will also have a higher rate of return on common equity |
| The key importance of annual report information is that it is used by investors when they form their expectations about the firm's future earning and dividend and the riskiness of those cash flows | This statement is correct |
| Which of the following statement is correct | High inflation can seriously distort firms' balance sheets, and since inflation also affects depreciation and inventory costs,profits can also be affected |
| A firm's current ratio has steadily increased over the past 5 years, from 1.9 five years ago to 3.8 today. What would a financial analysist be MOST justified in concluding? | The firms liquidity position probably has improved |
| The charleston company is a relatively small, privately owned firm. Last year the company had after-tax income of $15,000 and 10,000 shares were outstanding. The owners were trying to determine the market value. Using the info give estimate the market val | 7.50 |
| You are given the following information: Stockholders equity=1250; price/earnings ration=5 shares outstanding=25;market/book ratio=1.5.Calculate the market price of a share of the company | $75.00 |
| If Boyd Corporation has sales of 2 million per year (all credit) and days sales outstanding of 35 days, what is its average amount of accounts receivable outstanding (assume a 360 day year)? | 194,444 |
| A firm has a profit margin of 15 percent on sales of 20,000,000. If the firm has debt of 7,500,000,total assets of 22,500,000, and an after tax interest cost on total debt of 5%, what is the firms ROA? | 13.3% |
| Culver Inc. has earnings after interest but before taxes of 300. The company's before tax times interest earned ration is 7.00.Calculate the company's interest charges. | $50.00 |
| Velcraft Company has 20,000,000 shares of common stock authorized, but to date, has only 12,000,000 shares outstanding, each with a $1.00 par value. The company has $24,000,000 in additional paid-in-capital and retained earning are $96,000,000.Book value? | $11.00 |
| The degree if financial leverage for ABC Inc.is 2.5, and the degree of financial leverage for XYZ Corporation is 1.5.According to this information,which firm is considered to have greater financial risk? | ABC Inc. |
| Which of the following is a key determinant of financial leverage(meaning borrowing)? | Level of debt |
| The financial breakeven point for a firm is defined as the level of ___ that produces___ equal to zero | EDIT;EPS |
| Which of the following is (are) typically part of the cash budget? | Payment lag; Payment for plan construction; cumulative cash |
| Considering each action independently and holding other things constant,which of the following actions would REDUCE the firm's need for additional capital? | A decrease in the days sales outstanding |
| Holding other things constant, the additional funds required for financing the firm's operations would be reduced with an INCREASE in the firm's | Profit Margin |
| Which of the following statement is true | The projected balance sheet method forces recognition of the fact that new financing creates additional financial obligations. For instance, new financing can increase expenses which can actually decrease taxes but increase the projected financial need |
| The degree of operating leverage has which of the following characteristics? | The DOL is not a fixed number for a given firm, but will depend upon the time zero values of the economic variables Quantity, Price,Volume |
| The degree of financial leverage for Aries Inc. is 3.0 and the degree of financial leverage for Common Capital Corporation is 6.2.According to this information,which firm is considered to have greater overall total risk? | The degree of financial leverage is a measure of financial risk,so the only conclusion that can be made with the information given is that Common Corporation has greater financial risk than Aries Inc. we cannot tell which which firm has greater totalrisk |
| The degree of financial leverage has which of the following characteristics? | For a particular firm, the DFL is not a fixed number-its value depends on the level of operations and the fixed financial costs associated with those operations |
| If a firm's degree of total leverage (DTL) is 8.0, which of the following must be corrected? | The firm must have some fixed costs,but not enough information is given to determine whether the fixed costs are operating,financial, or both |
| Other things held constant, which of the following statements is correct if a firm currently is operating at its financial breakeven point? | EBIT would equal zero if the firm is financed only with common stock |
| Which of the following statements is correct | If new debt and new stock are used to meet new financing needs, net income will decrease from the first pass to the second pass even though taxes decrease. In addition, if dividends are to be paid on new stock, this will further decreased the amount of RE |
| Which of the following statements about cash management is false | if cash flows are not uniform during the month, then weekly or perhaps daily cash budgets should be prepared rather than monthly budgets |
Created by:
zuzelbarrera