Question 1

Which of the following represents the most significant reason for the collapse of the U.S.banking system in 2008?

Accepted Answer

A) In the 1990s, most large U.S. investment banks were reorganized into public trading companies. 
B) In the 2000s, most investment banks started to generate most of their income from fees charged for underwriting, consulting, and brokerage activities. 
C) New regulations introduced in the 2000s resulted in restrictions that restrained the operations of investment banks. 
D) New regulations in the 2000s allowed investment banks to issue unprecedented amounts of debt to finance their operations. 
A) In the 1990s, most large U.S. investment banks were reorganized into public trading companies. 
B) In the 2000s, most investment banks started to generate most of their income from fees charged for underwriting, consulting, and brokerage activities. 
C) New regulations introduced in the 2000s resulted in restrictions that restrained the operations of investment banks. 
D) New regulations in the 2000s allowed investment banks to issue unprecedented amounts of debt to finance their operations.

Question 2

The form of organizing a business is an unimportant issue,as this decision has very little effect on the income and wealth of the firm's owners.

Accepted Answer

A) True 
 B)False

Question 3

You recently sold to your brother 200 shares of Disney stock; the transfer was made through a broker,and the trade occurred on the TSX.Which type of transaction is this?

Accepted Answer

A) a futures market transaction 
B) a primary market transaction 
C) a secondary market transaction 
D) a money market transaction 
A) a futures market transaction 
B) a primary market transaction 
C) a secondary market transaction 
D) a money market transaction

Question 4

Which of the following statements best describes firm organization?

Accepted Answer

A) It is usually easier to transfer ownership in a corporation than it is to transfer ownership in a sole proprietorship. 
B) Corporate shareholders are exposed to unlimited liability. 
C) Corporations generally face fewer regulations than sole proprietorships. 
D) Corporate shareholders are exposed to unlimited liability, and this factor may be compounded by the tax disadvantages of incorporation. 
A) It is usually easier to transfer ownership in a corporation than it is to transfer ownership in a sole proprietorship. 
B) Corporate shareholders are exposed to unlimited liability. 
C) Corporations generally face fewer regulations than sole proprietorships. 
D) Corporate shareholders are exposed to unlimited liability, and this factor may be compounded by the tax disadvantages of incorporation.

Question 5

Which of the following is an example of a primary market transaction?

Accepted Answer

A) You sell 200 shares of IBM stock on the TSX through your broker. 
B) IBM issues 2,000,000 shares of new stock and sells them to the public through an investment banker. 
C) One financial institution buys 200,000 shares of IBM share from another institution with help of an investment banker. 
D) You invest $10,000 in a mutual fund, which then uses the money to buy $10,000 of IBM shares on the TSX. 
A) You sell 200 shares of IBM stock on the TSX through your broker. 
B) IBM issues 2,000,000 shares of new stock and sells them to the public through an investment banker. 
C) One financial institution buys 200,000 shares of IBM share from another institution with help of an investment banker. 
D) You invest $10,000 in a mutual fund, which then uses the money to buy $10,000 of IBM shares on the TSX.

Question 6

Which of the following statements best describes hedge funds?

Accepted Answer

A) Hedge funds are risky, although they may be market-neutral. 
B) Hedge funds are open to everyone. 
C) Hedge funds have low risk because they hedge their investments. 
D) Hedge funds are legal only in Canada, and they are not permitted to operate in Europe or Asia. 
A) Hedge funds are risky, although they may be market-neutral. 
B) Hedge funds are open to everyone. 
C) Hedge funds have low risk because they hedge their investments. 
D) Hedge funds are legal only in Canada, and they are not permitted to operate in Europe or Asia.

Question 7

Which of the following statements best describes interest rates?

Accepted Answer

A) The cost of money to fund users is basically determined by the rate of return required by fund providers. 
B) If individuals in general increase the percentage of their income that they save, interest rates are likely to increase. 
C) If companies have fewer good investment opportunities, interest rates are likely to increase. 
D) If expected inflation increases, interest rates are likely to decrease. 
A) The cost of money to fund users is basically determined by the rate of return required by fund providers. 
B) If individuals in general increase the percentage of their income that they save, interest rates are likely to increase. 
C) If companies have fewer good investment opportunities, interest rates are likely to increase. 
D) If expected inflation increases, interest rates are likely to decrease.

Question 8

In Canada,the Canadian Deposit Insurance Corporation (CDIC) insures personal bank account balances up to $100,000.What is the primary reason for this provision?

Accepted Answer

A) This can prevent a "bank run" in times of economic uncertainty. 
B) This can provide additional support to the shareholders of banking institutions. 
C) This provides an opportunity for the government to increase its influence over the banking system. 
D) This mirrors practices followed in all other developed economies. 
A) This can prevent a "bank run" in times of economic uncertainty. 
B) This can provide additional support to the shareholders of banking institutions. 
C) This provides an opportunity for the government to increase its influence over the banking system. 
D) This mirrors practices followed in all other developed economies.

Question 9

Two key advantages to proprietorship are that,as a business,it pays no corporate income tax and is easily and inexpensively formed.

Accepted Answer

A) True 
 B)False

Question 10

Besides skillful workers,what else supports good businesses?

Accepted Answer

A) adequate capital 
B) adequate regulation 
C) adequate self-interest 
D) adequate government intervention 
A) adequate capital 
B) adequate regulation 
C) adequate self-interest 
D) adequate government intervention

Question 11

Which of the following statements best describes financial markets?

Accepted Answer

A) Rates of return on T-bills are the highest among all major financial securities. 
B) Money market mutual funds are illiquid. 
C) Money markets are markets for long-term debt and common stocks. 
D) Euro-Canadian market time deposits are instruments issued by banks outside Canada. 
A) Rates of return on T-bills are the highest among all major financial securities. 
B) Money market mutual funds are illiquid. 
C) Money markets are markets for long-term debt and common stocks. 
D) Euro-Canadian market time deposits are instruments issued by banks outside Canada.

Question 12

Two disadvantages of a proprietorship are (1) the relative difficulty of raising new capital and (2) the owner's unlimited personal liability for the business's debts.

Accepted Answer

A) True 
 B)False

Question 13

Fighting recession with low interest rates is technically impossible when a country has large trade deficits and huge national debt.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following statements best describes articles of incorporation and bylaws?

Accepted Answer

A) The corporate bylaws are a standard set of rules established by the state of incorporation. These rules are identical for all corporations, and their purpose is to ensure that the firm's managers run the firm in accordance with government laws. 
B) Companies must establish a home office in a particular province, and that province must be the one in which most of their business is conducted. 
C) Attorney fees are generally involved when a company develops its articles of incorporation and bylaws, but since these documents are voluntary, a new corporation can avoid these costs by deciding not to have any. 
D) The articles of incorporation are concerned with things like what business the company will engage in, whereas the bylaws are concerned with things like procedures for electing the board of directors. 
A) The corporate bylaws are a standard set of rules established by the state of incorporation. These rules are identical for all corporations, and their purpose is to ensure that the firm's managers run the firm in accordance with government laws. 
B) Companies must establish a home office in a particular province, and that province must be the one in which most of their business is conducted. 
C) Attorney fees are generally involved when a company develops its articles of incorporation and bylaws, but since these documents are voluntary, a new corporation can avoid these costs by deciding not to have any. 
D) The articles of incorporation are concerned with things like what business the company will engage in, whereas the bylaws are concerned with things like procedures for electing the board of directors.

Question 15

If the market price of a stock reflects all relevant information,what does its market price reflect?

Accepted Answer

A) the stock's exogenous value 
B) the stock's extrinsic value 
C) the stock's par value 
D) the stock's intrinsic value 
A) the stock's exogenous value 
B) the stock's extrinsic value 
C) the stock's par value 
D) the stock's intrinsic value

Question 16

Which of the following best describes the market price of a stock?

Accepted Answer

A) the price observed by investors in the financial media 
B) the price observed in the OTC markets only 
C) the price observed in the broad financial markets 
D) the firm's book valued as reported in its financial statements 
A) the price observed by investors in the financial media 
B) the price observed in the OTC markets only 
C) the price observed in the broad financial markets 
D) the firm's book valued as reported in its financial statements

Question 17

Which circumstance would be most likely to lead to higher interest rates on all debt securities in the economy?

Accepted Answer

A) Households start saving a larger percentage of their income. 
B) The economy moves from a boom to a recession. 
C) The level of inflation begins to decline. 
D) With expansion plans, corporate increase their demand for capital. 
A) Households start saving a larger percentage of their income. 
B) The economy moves from a boom to a recession. 
C) The level of inflation begins to decline. 
D) With expansion plans, corporate increase their demand for capital.

Question 18

You recently sold 100 shares of your new company,XYZ Corporation,to your brother at a family reunion.At the reunion your brother gave you a cheque for the shares and you gave your brother the share certificates.Which statement best describes this transaction?

Accepted Answer

A) This is an example of an exchange of physical assets. 
B) This is an example of a primary market transaction. 
C) This is an example of a direct transfer of capital. 
D) This is an example of a money market transaction. 
A) This is an example of an exchange of physical assets. 
B) This is an example of a primary market transaction. 
C) This is an example of a direct transfer of capital. 
D) This is an example of a money market transaction.

Question 19

Which of the following statements best describes corporate goals?

Accepted Answer

A) The proper goal of the financial manager should be to attempt to maximize the firm's expected cash flows, because this will add the most to the wealth of the individual shareholders. 
B) The financial manager should seek that combination of assets, liabilities, and capital that will generate the largest expected projected after-tax income over the relevant time horizon, generally the coming year. 
C) The riskiness inherent in a firm's earnings per share (EPS) depends on the characteristics of the projects the firm selects, and thus on the firm's assets. However, EPS is not affected by the manner in which those assets are financed. 
D) Potential agency problems can arise between shareholders and managers, because managers hired as agents to act on behalf of the owners may instead make decisions favourable to themselves rather than the shareholders. 
A) The proper goal of the financial manager should be to attempt to maximize the firm's expected cash flows, because this will add the most to the wealth of the individual shareholders. 
B) The financial manager should seek that combination of assets, liabilities, and capital that will generate the largest expected projected after-tax income over the relevant time horizon, generally the coming year. 
C) The riskiness inherent in a firm's earnings per share (EPS) depends on the characteristics of the projects the firm selects, and thus on the firm's assets. However, EPS is not affected by the manner in which those assets are financed. 
D) Potential agency problems can arise between shareholders and managers, because managers hired as agents to act on behalf of the owners may instead make decisions favourable to themselves rather than the shareholders.

Question 20

The primary goal of a company's management is the maximization of which of the following?

Accepted Answer

A) reported profit 
B) fundamental share price 
C) market share 
D) personal wealth 
A) reported profit 
B) fundamental share price 
C) market share 
D) personal wealth

Exam 1: An Overview of Financial Management and the Financial Environment

Which of the following represents the most significant reason for the collapse of the U.S.banking system in 2008?

The form of organizing a business is an unimportant issue,as this decision has very little effect on the income and wealth of the firm's owners.

You recently sold to your brother 200 shares of Disney stock; the transfer was made through a broker,and the trade occurred on the TSX.Which type of transaction is this?

Which of the following statements best describes firm organization?

Which of the following is an example of a primary market transaction?

Which of the following statements best describes hedge funds?

Which of the following statements best describes interest rates?

In Canada,the Canadian Deposit Insurance Corporation (CDIC) insures personal bank account balances up to $100,000.What is the primary reason for this provision?

Two key advantages to proprietorship are that,as a business,it pays no corporate income tax and is easily and inexpensively formed.

Besides skillful workers,what else supports good businesses?

Which of the following statements best describes financial markets?

Two disadvantages of a proprietorship are (1) the relative difficulty of raising new capital and (2) the owner's unlimited personal liability for the business's debts.

Fighting recession with low interest rates is technically impossible when a country has large trade deficits and huge national debt.

Which of the following statements best describes articles of incorporation and bylaws?

If the market price of a stock reflects all relevant information,what does its market price reflect?

Which of the following best describes the market price of a stock?

Which circumstance would be most likely to lead to higher interest rates on all debt securities in the economy?

You recently sold 100 shares of your new company,XYZ Corporation,to your brother at a family reunion.At the reunion your brother gave you a cheque for the shares and you gave your brother the share certificates.Which statement best describes this transaction?

Which of the following statements best describes corporate goals?

The primary goal of a company's management is the maximization of which of the following?

Financial Statements, Cash Flow, and Taxes

Analysis of Financial Statements

Time Value of Money

Financial Planning and Forecasting Financial Statements

Bonds, Bond Valuation, and Interest Rates

Risk, Return, and the Capital Asset Pricing Model

Stocks, Stock Valuation, and Stock Market Equilibrium

The Cost of Capital

The Basics of Capital Budgeting: Evaluating Cash Flows

Cash Flow Estimation and Risk Analysis

Capital Structure Decisions

Distributions to Shareholders: Dividends and Repurchases

Initial Public Offerings Investment Banking and Financial Restructuring

Lease Financing

Capital Market Financing: Hybrid and Other Securities

Working Capital Management and Short-Term Financing

Current Asset Management

Financial Options and Applications in Corporate Finance

Enterprise Risk Management

International Financial Management

Corporate Valuation and Governance

Mergers,Acquisitions,and Restructuring

Decision Trees,real Options and Other Capital Budgeting Techniques

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