Deck 16: Financial Management and Securities Markets

Question 1

Astute money managers try to keep just enough cash on hand to pay employee wages and utility bills.This cash is referred to as:

A)long-term assets.
B)marketable securities.
C)transaction balances.
D)retained earnings.
E)secured bonds.

Answer 1

C

Question 2

As idle cash does not make money,a manager may choose to invest this extra cash in temporary investments called:

A)junk bonds.
B)long-term assets.
C)transaction balances.
D)marketable securities.
E)secured bonds.

Answer 2

D

Question 3

In the context of managing cash in an organization,which of the following is true?

A)Business organizations make money from idle cash.
B)Corporate checking accounts typically earn interest.
C)Money managers try to keep as much cash in their hands as possible.
D)To manage a firm's cash,companies try to speed up cash collections from customers.
E)Managers measure cash flow as the amount of cash the firm spends in a period of one year.

Answer 3

D

Question 4

Eurodollar deposits can only be made at banks located in London.

Question 5

_____ are issued by commercial banks and brokerage companies,are available in minimum amounts of $100,000,and may be traded prior to maturity.

A)Trade credits
B)U.S.Treasury bills
C)Serial bonds
D)Commercial loans
E)Commercial certificates of deposit

Question 6

_____ are marketable securities that are short-term debt obligations sold by the U.S.government to raise money.

A)Commercial certificates of deposits
B)U.S.Treasury bills
C)Eurodollar deposits
D)Secured loans
E)Trade credits

Question 7

Serial bonds are a sequence of small bond issues of progressively longer maturity.

Question 8

New issues of stocks and bonds are sold directly to the public and to institutions in what is known as the primary market.

Question 9

U.S.Treasury bills,certificates of deposit,commercial paper,and eurodollar deposits are examples of:

A)marketable securities.
B)tradable equities.
C)transaction balances.
D)stock dividends.
E)cash deposits.

Question 10

More and more companies are now using electronic funds transfer systems to pay and collect bills online because:

A)it reduces the amount of tax they need to pay on their profits.
B)it helps them collect more money than they can through checks.
C)it reduces the amount of money they need to pay off their bills.
D)it helps them increase the speed of collections and disbursements to one day.
E)it helps them quickly pay out the cash that they collect.

Question 11

Why do companies use a lockbox?

A)To effectively manage inventory balances
B)To pay off long-term loans
C)To manage long-term assets such as plants,building,and equipment
D)To speed up cash collection from customers
E)To maintain transaction balances

Question 12

The principal is the amount of money a business pays to use a bank's funds.

Question 13

A marketable security is a temporary investment of cash.

Question 14

Working capital management refers to _____.

A)managing long-term liabilities
B)managing long-term assets
C)managing short-term assets and liabilities
D)financing internal projects
E)financing small business enterprises

Question 15

The chief goal of financial managers who focus on current assets and liabilities is to:

A)maximize long-term loans.
B)minimize returns on temporary investments of idle cash.
C)maximize accrued taxes.
D)minimize returns on bond issues.
E)maximize returns on inventory.

Question 16

Which of the following is true of a lockbox?

A)It is simply a box allocated to employees for keeping their valuables.
B)It is simply an address for receiving payments.
C)It is a box used to maintain transaction balances.
D)It is a financial instrument used to pay off loans.
E)It is a financial instrument used to manage long-term assets.

Question 17

Cash,investments,accounts receivable,and inventory are:

A)retained earnings.
B)current liabilities.
C)long-term assets.
D)long-term liabilities.
E)current assets.

Question 18

_____ is a written promise from one company to another to pay a certain amount of money.

A)Commercial paper
B)U.S.Treasury bill
C)Certificate of deposit
D)Secured bond
E)Trade credit

Question 19

Which of the following is a current asset?

A)Accrued taxes
B)Short-term bank loans
C)Unsecured bonds
D)Accounts receivable
E)Long-term liabilities

Question 20

Organizations often invest the cash they earn in marketable securities,for periods as short as one day or for as long as one year,until it is needed.These investments include _____.

A)certificates of deposit
B)tradable equities
C)transaction balances
D)stock dividends
E)cash deposits

Question 21

Which of the following is the most important account payable?

A)Commercial paper
B)Trade credit
C)Treasury bills
D)Commercial certificates of deposit
E)Marketable securities

Question 22

Zainab borrows $20,000 from a bank to pay for her education.The bank charges her five percent of the amount she borrowed,that is,$1,000.In this scenario,the five percent represents the:

A)principal.
B)collateral.
C)trade credit.
D)discount.
E)interest.

Question 23

Maria wants to start a restaurant of her own.As she does not have any savings,she approaches her bank for money and enters an agreement with the bank.According to the agreement,the bank agrees to lend her $5000 upon request provided it has sufficient funds to loan the amount.In this scenario,the type of funding obtained by Maria can be regarded as a _____.

A)line of credit
B)trade credit
C)logbook loan
D)non-recourse loan
E)personal loan

Question 24

If Linda Wilson borrows $20,000 to buy a car and ends up paying the lender a total of $24,000,the $20,000 represents the:

A)principal.
B)collateral.
C)trade credit.
D)discount.
E)interest.

Question 25

Which of the following is money that an organization owes to suppliers for goods and services?

A)Accounts receivable
B)Accounts payable
C)Trade credit
D)U.S.Treasury bill
E)Secured bond

Question 26

A finance company that buys other companies' accounts receivable for less than they are worth and assumes the responsibility for collecting the debt is known as a:

A)lockbox.
B)factor.
C)collateral.
D)brokerage.
E)conciliator.

Question 27

The _____ is the interest rate commercial banks charge their best customers for short-term loans.

A)factor rate
B)over-the-counter rate
C)prime rate
D)credit rate
E)trade rate

Question 28

If a real estate developer borrows $100,000 from a bank and ends up paying back $120,000,the $100,000 represents the:

A)collateral.
B)interest.
C)down payment.
D)principal.
E)trade credit.

Question 29

The most widely used source of short-term financing is:

A)an unsecured loan.
B)a certificate of deposit.
C)commercial paper.
D)a Treasury bill.
E)trade credit.

Question 30

Which of the following is money owed to a business by credit customers?

A)Accounts receivable
B)Accounts payable
C)Trade credit
D)U.S.Treasury bill
E)Secured bond

Question 31

Plants,offices,and equipment are considered:

A)long-term assets.
B)marketable securities.
C)common stock.
D)short-term liabilities.
E)current assets.

Question 32

Which of the following is true of commercial paper?

A)It is the most popular long-term investment for small businesses.
B)It acts as a verbal promise to pay a specific amount of money.
C)It is backed only by the name and reputation of the issuing company.
D)It is only sold to sole proprietors and small businesses.
E)It is only sold for durations of two years or more.

Question 33

Dan bought three new trucks with a loan obtained from the First National Bank.If he fails to repay the loan,the bank will repossess the trucks.The trucks typically represent:

A)a line of credit.
B)a lockbox.
C)collateral.
D)accounts payable.
E)retained earning.

Question 34

Which of the following is an arrangement by which a bank agrees to lend a specified amount of money to an organization upon request?

A)A trade credit
B)A floating-rate bond
C)A junk bond
D)A lockbox
E)A line of credit

Question 35

_____ is the credit extended by suppliers for the purchase of their goods and services.

A)Commercial paper
B)Trade credit
C)Line of credit
D)Commercial certificate of deposit
E)Marketable security

Question 36

Pooja is an entrepreneur who starts an IT firm with limited funds.In order to conduct her business,she acquires 12 laptops,15 desktops,and other accessories from a local electronics retailer.The retailer understands her financial situation and allows her to pay for the computers and accessories in installments.In this scenario,the type of funding obtained by her can be regarded as a _____.

A)line of credit
B)trade credit
C)logbook loan
D)non-recourse loan
E)personal loan

Question 37

Which of the following statements is true of the eurodollar market?

A)It refers to any dollar-denominated deposit in a U.S.bank.
B)It offers risk-free investments as they are backed by the U.S.government.
C)It is used by companies to invest idle cash in international markets.
D)It was originally developed by American banks.
E)It is used to trade the euro in the U.S.markets.

Question 38

If the interest rate on a loan changes according to the daily average of the prime rate over the life of the loan,the interest rate is said to be:

A)floating.
B)non-variable.
C)unsecured.
D)sporadic.
E)flexible.

Question 39

Which of the following is one of the utilities of the radio frequency identification (RFID)technology?

A)It is used for office communication with the help of radio waves.
B)It is used to track stock exchange developments.
C)It is used to better manage inventory by tracking inventory shipments.
D)It is used by consumers to pay bills from any chosen location.
E)It is used to relay radio signals for business promotion through radio broadcasting.

Question 40

A boat manufacturer orders 50 units of fiberglass material and promises to pay the supplier at a later date.The boat manufacturer will record the amount to be paid as:

A)a secured loan.
B)accounts receivable.
C)a serial bond.
D)accounts payable.
E)a Treasury bill.

Question 41

AMZ Inc.,a company that deals with bikes,has its own manufacturing unit.The equipment used in the manufacturing unit of the company is an example of a:

A)current asset.
B)fixed asset.
C)junk bond.
D)short-term asset.
E)floating-rate bond.

Question 42

Long-term liabilities are:

A)marketable securities.
B)debts that will be repaid over a number of years.
C)frequently traded in the eurodollar market.
D)trade credits.
E)generated internally,like retained earnings.

Question 43

The face value of a bond is typically _____.

A)$1
B)$10
C)$100
D)$1,000
E)$10,000

Question 44

The process of analyzing the needs of a business and selecting the assets that will maximize its value is called _____.

A)working capital management
B)factoring
C)risk assessment
D)capital budgeting
E)investment banking

Question 45

_____ are best described as a sequence of small bond issues of progressively longer maturity.

A)Floating-rate bonds
B)Junk bonds
C)Secured bonds
D)Serial bonds
E)Debenture bonds

Question 46

Based on qualitative assessments,which of the following potential investment projects is the most risky?

A)Adding to an existing product line
B)Introducing a new product in a foreign market
C)Expanding into a new market
D)Buying new equipment for an established market
E)Repairing old equipment

Question 47

Of the following potential investment projects,the project that poses the least risk is:

A)adding to a product line.
B)introducing a new product in a foreign market.
C)expanding into a new market.
D)buying new equipment for an established market.
E)repairing old equipment.

Question 48

Which of the following statements is true of bonds?

A)They must be repaid according to the terms set in the indenture.
B)They can be defaulted without penalty.
C)They are the same as preferred stock.
D)They typically represent the fixed assets of a firm.
E)They denote a firm's current liabilities.

Question 49

Which of the following is a short-term cancelable lease that does not show up on a balance sheet?

A)A capital lease
B)A serial bond
C)A transaction balance
D)A line of credit
E)An operating lease

Question 50

The amount of money budgeted for the purchase of long-term assets is called the:

A)master budget.
B)commercial budget.
C)current budget.
D)fixed budget.
E)capital budget.

Question 51

When a company invests a lot of money in a particular project,it is concerned about the amount of risk involved.In general,if the expected life of a project is longer,its potential risk is:

A)negligible.
B)constant.
C)greater.
D)secondary.
E)nonexistent.

Question 52

_____ are also called debentures and are not backed by specific collateral.

A)Dividends
B)Treasury bills
C)Unsecured bonds
D)Trade credits
E)Commercial certificates of deposit

Question 53

Which of the following involves paying a fee for usage rather than owning a particular asset?

A)Leasing
B)Factoring
C)Purchasing
D)Acquiring
E)Merging

Question 54

Sprocket and Widget is a garment manufacturing company.Which of the following would be a fixed asset for Sprocket and Widget?

A)U.S.Treasury bills
B)Temporary workers
C)$5,000 in Treasury bills
D)$1000 trade credit
E)Office furniture

Question 55

Which of the following is a long-term debt instrument that requires the issuer to repay the lender in regular interest payments until the loan is repaid on or before the specified maturity rate?

A)A bond
B)Trade credit
C)A Treasury bill
D)Commercial paper
E)A certificate of deposit

Question 56

Factors such as a bond's face value,maturity date,and interest rate are specified in the:

A)indenture.
B)interest prospectus.
C)equity contract.
D)commercial paper.
E)lockbox portfolio.

Question 57

Which of the following statements is true of floating-rate bonds?

A)They are also called serial bonds.
B)They offer interest payments much above the prevailing rates.
C)They do not have fixed interest payments.
D)They have progressively longer maturity.
E)They are often associated with startup firms with limited track records.

Question 58

Which of the following is an example of a long-term liability?

A)Commercial paper
B)A serial bond
C)A Treasury bill
D)A certificate of deposit
E)Trade credit

Question 59

The board of directors of a leading automobile company wants to opt for an investment project that has the least risk.Which of the following projects is the board most likely to undertake?

A)Introducing a new car in a new market
B)Expanding their automobile business into a new market
C)Repairing the old manufacturing equipment
D)Buying new manufacturing equipment
E)Adding a new car to their existing line of automobiles

Question 60

Long-term assets are also called _____ assets.

A)current
B)floating
C)unsecured
D)fixed
E)junk

Question 61

Which of the following statements is true of dividend yield?

A)When the dividend of a stock is subtracted from the par value,the result is the dividend yield.
B)When the market value of a stock is subtracted from the dividend,the result is the dividend yield.
C)When the dividend of a stock is divided by the price,the result is the dividend yield.
D)When the dividend of a stock is divided by the market cap,the result is the dividend yield.
E)When the capital of a stock is added to the dividend,the result is the dividend yield.

Question 62

If the dividend of a stock is $20 and its price is $4,then its dividend yield is:

A)$2
B)$8
C)$5
D)$1
E)$3

Question 63

If the par value of a stock is $5 and the capital in excess of par is $3,then its offering price is:

A)$2.00.
B)$3.50.
C)$7.00.
D)$4.00.
E)$5.00.

Question 64

The primary advantage of owning preferred stock is that:

A)it offers more voting rights than common stock.
B)it yields higher profits than common stock.
C)it offers more business control than common stock.
D)it is a cheaper investment than common stock.
E)it is a safer investment than common stock.

Question 65

The dollar amount printed on a stock certificate is known as its:

A)dividend yield.
B)capital in excess of par value.
C)market value.
D)par value.
E)prime rate.

Question 66

_____ is the price at which a particular common stock is currently trading.

A)Beta score
B)Alpha score
C)Par value
D)Market value
E)Capital value

Question 67

CorpoNeeds is an e-commerce company that sells office supplies.In an attempt to raise long-term funds,the company decides to issue bonds to lenders.These bonds do not have fixed interest payments,and the rate of interest changes depending on economic conditions.The bonds issued by CorpoNeeds are examples of:

A)floating-rate bonds.
B)junk bonds.
C)secured bonds.
D)serial bonds.
E)debenture bonds.

Question 68

_____ are reinvested in the assets of the firm and belong to the owners in the form of equity.

A)Dividend yields
B)Secured bonds
C)Retained earnings
D)Transaction balances
E)Trade credits

Question 69

Which of the following is called capital in excess of par?

A)The dollar amount printed on the stock certificate
B)The difference between a stock's par value and its offering price
C)The price at which the common stock is currently trading
D)The difference between a stock's par value and its estimated price
E)The potential price of the common stock

Question 70

_____ is the single most important source of capital for most new companies.

A)Commercial paper
B)Common stock
C)A floating-rate bond
D)A Treasury bill
E)Trade credit

Question 71

The interest rate for _____ changes with current interest rates otherwise available in the economy.

A)floating-rate bonds
B)junk bonds
C)secured bonds
D)serial bonds
E)debenture bonds

Question 72

The cash return as a percentage of a stock's price is called its:

A)capital in excess of par value.
B)dividend yield.
C)price-earnings ratio.
D)retained earnings.
E)par value.

Question 73

Stockholders who are prioritized in the distribution of a firm's dividends but cannot vote are called:

A)common stockholders.
B)proxy stockholders.
C)preemptive stockholders.
D)secured stockholders.
E)preferred stockholders.

Question 74

If the par value of a stock is $5 and the offering price of the stock is $2,the capital in excess of par is:

A)$10.00.
B)$3.50.
C)$7.00.
D)$2.00.
E)$3.00.

Question 75

If the offering price of a stock is $2 and its capital in excess of par is $3,the par value of the stock is:

A)$10.00.
B)$3.50.
C)$7.00.
D)$2.00.
E)$5.00.

Question 76

Which of the following types of bonds offer relatively high rates of interest because they have higher inherent risks?

A)Secured bonds
B)Serial bonds
C)Unsecured bonds
D)Junk bonds
E)Floating-rate bonds

Question 77

Historically,_____ have been associated with companies in poor financial health and/or startup firms with limited track records.

A)secured bonds
B)serial bonds
C)unsecured bonds
D)junk bonds
E)floating-rate bonds

Question 78

The _____ is an analysts' consensus of the potential stock price of a company.

A)market value
B)par value
C)target price
D)beta score
E)market cap

Question 79

Which of the following statements is true of junk bonds?

A)They are short-term liabilities.
B)They are a sequence of small bond issues of progressively longer maturity.
C)They have low inherent risks.
D)They are typically associated with companies in good financial health.
E)They offer relatively high rates of interest.

Question 80

If the price of a stock is $4 and its dividend yield is $5,then the dividend of the stock is:

A)$20
B)$80
C)$50
D)$10
E)$30