Exam 15: Financial Decisions and Risk Management

Mutual funds vary according to the investment goals emphasized by the fund managers.

Which of the following is true with regard to preferred stock? Dividends must be paid each year on preferred stock. The growth potential of preferred stock is limited due to its fixed dividend. Preferred stock is more risky than common stock. The usual par value of a preferred share is $1. It cannot be callable.

A futures contract is an agreement to purchase a specified amount of a mutual fund at a given price on a set date in the future.

Which term is used to identify a bank's requirement for the borrower to give the bank the right to seize certain assets if payments are not made as promised? Pledging accounts payable Open-book credit Pledging accounts receivable Collateral Trade acceptance

A ________ bond permits the issuing firm to retire portions of the bond issue at different predetermined dates. municipal serial secured callable convertible

Quick-X Corp. has recently sent its delivery drivers to a defensive driving course in order to reduce accidents with company vehicles. This is an example of risk shift. risk control. risk transfer. risk retention. risk avoidance.

A ________ is an organization of individuals formed to provide an institutional setting where stocks can be bought and sold. credit union commodity exchange stock exchange bank market

Which of the following is correct with respect to retained earnings? Retained earnings represent debt financing. Retained earnings equal the profits that have been paid out as dividends. Using retained earnings means that the firm will have to borrow money and pay interest on loans or bonds. The smaller dividends that may be paid to shareholders as a result of retaining earnings may decrease the demand for, and thus the price of, the company's stock. None of these are correct.

In order for a security to be listed on the Toronto Stock Exchange, the issuing corporation must have at least 200 employees. have paid a fee. never have traded its stock anywhere else. be making a profit. all of these.

What is open-book credit?

John has bought into a mutual fund that includes long-term municipal bonds, corporate bonds, and common stocks with good dividend-paying records. This mutual fund is emphasizing stability. safety. high current income. aggressive growth. growth.

Issuers of bonds are most likely to call them in when the prevailing rate of interest exceeds that stipulated on the bonds. when investor confidence goes down. the prevailing rate of interest is less than that stipulated on the bonds. when investor confidence goes up. when the government revises its capital gains tax law.

Scott is managing a company and he has been advised by his financial manager that his largest source of short-term debt is too high. What source of funding is Scott's financial manager probably talking about? Inventory loans Bank notes Credit cards Commercial paper Accounts payable

The least conservative investments are low-quality common stocks. In decreasing order of aggressiveness, the next two investments are medium-quality preferred stock and high-grade corporate bonds. commercial paper and lower-quality common stocks. junk bonds and medium-quality preferred stocks. commercial paper and medium-quality preferred stocks. junk bonds and high-quality cyclical common stocks.

What is the meaning of "par value" when discussing common stock? The current price of a share of stock The selling price of the previous day's last transactions involving that stock The average price paid on the previous day's trades The face value of a share of common stock One dollar

What is the purpose of the various provincial securities commissions? What are some of the difficulties these agencies encounter as they try to protect investors?

The market value of a share of stock is influenced by both objective factors like corporate profits and subjective factors like rumours.

Equity financing via common stock can be more expensive than issuing bonds because common stocks must be insured. there is more administration involved. common stocks are backed by retained earnings. common stock must be sold through a broker. interest paid to bondholders is a tax-deductible business expense, but stock dividends are not tax-deductible.

Give an example of how commercial paper works.

Commercial paper is generally issued by companies that have trouble getting regular bank loans.