Finance 301 Exam Practice Questions and Answers

Finance 301 Exam Practice Questions and Answers Which of the following is a stakeholder? - Ans:-anyone who has claim to the company; an employee, a lender, the IRS The cash remaining with the firm after paying its operating expenses, making payments to creditors, and taxes is called - Ans:-residual cash flows The capital budgeting decision process addresses - Ans:-which productive assets a firm should purchase which productive assets a firm should purchase - Ans:-Both Sole proprietorship and General partnership Which of the following owners is protected by limited liability? - Ans:-Owner of a corporation Which of the following reports directly to the owners of a firm? (Assume that the firm is a public corporation.) - Ans:-Board of directors One reason for the existence of agency problems between managers and stockholders is that - Ans:-there is a significant degree of separation between management and ownership GRACEAMELIA 2024/2025 ACADEMIC YEAR ©2024. ALL RIGHTS RESERVED. FIRST PUBLISH OCTOBER, 2024 Page 2/16 Who among the following is the principal in the agency relationship of a corporation? - Ans:- stockholders A director who is not an employee of the firm is called - Ans:-an independent director Corruption in business - Ans:-creates inefficiencies in an economy,inhibits growth in an economy,slows the rate of economic growth in a country Which of the following is considered a hybrid organizational form? - Ans:-Limited liability partnership Which of the following is the advantage of the corporate form of organization? - Ans:- Greater access to capital markets Which of the following cannot be engaged in managing the business? - Ans:-A limited partner A financial system's primary concern is funneling money from - Ans:-lender-savers to borrower-spenders Which of the following is a process by which investment bankers purchase new securities directly from the issuing company and resell them to the investors? - Ans:-Underwriting Stocks that are traded in the _____ are typically those of smaller and lesser known firms. - Ans:-over-the-counter GRACEAMELIA 2024/2025 ACADEMIC YEAR ©2024. ALL RIGHTS RESERVED. FIRST PUBLISH OCTOBER, 2024 Page 3/16 Secondary financial markets are similar to: - Ans:-used-car markets The ease with which a security can be sold and converted into cash is called - Ans:- marketability Which of the following theories states that security prices reflect all public information, but not all private information? - Ans:-Semistrong-form efficiency The idea that all information about a security is reflected in its price is known as - Ans:- strong-form efficiency This hypothesis holds that all information contained in past prices of a security is reflected in current prices but that there is both public and private information that is not - Ans:-Weak- form efficiency The process of converting financial securities with one set of characteristics into securities with another set of characteristics is called - Ans:-financial intermediation If you are a borrower, which would you prefer to occur during the life of your loan? - Ans:-A level of inflation that is higher than that anticipated at the outset of the loan If inflation is anticipated to be 5 percent during the next year, while the real rate of interest for a one-year loan is 5 percent, then what should the nominal rate of interest be for a risk-free one- year loan? - Ans:-10 percent GRACEAMELIA 2024/2025 ACADEMIC YEAR ©2024. ALL RIGHTS RESERVED. FIRST PUBLISH OCTOBER, 2024 Page 4/16 If the supply of loanable funds decreases relative to the demand for those funds, then we would expect - Ans:-interest rates to increase You just purchased a share of IBM stock on the New York Stock Exchange. What kind of transaction was this? - Ans:-Secondary market transaction The NYSE is an example of? - Ans:-an organized exchange During an economic expansion, we would expect? - Ans:-interest rates to increase Your parents have given you $1,400 a year before your graduation so that you can take a trip when you graduate. You wisely decide to invest the money in a bank CD that pays 8.23 percent interest. You know that the trip costs $1,384 right now and that inflation for the year is predicted to be 4.04 percent. Will you have enough money in a year to purchase the trip? - Ans:-yes Which of the following sections do annual reports typically contain? - Ans:-Financial summary related to the past year's performance, Information about the company, its products, and its activities, Audited financial statements, including limited historical financial data The generally accepted accounting principles (GAAP) are - Ans:-rules and procedures that define how companies are to maintain financial records and prepare financial statements According to the realization principle, revenue from a sale