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FNAN 522 Midterm Exam with complete solutions
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FNAN 522 Midterm Exam with complete solutions
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FNAN 522 Midterm Exam with completesolutions
A company needs to raise cash to cover its operating expenses. The company will only need the funds for
a short period of time. What financial market is the most appropriate for the company to use to raise
money (that is, likely the lowest cost and best-matched maturity)? - ANSWER-A. Money market.
B. Capital Market
C. Derivative market
D. All of the above
Answer: A MONEY MARKET
What is the primary goal of the Sarbanes-Oxley act according to the Module 1 video-"The Goal of
Financial Management"? - ANSWER-a. To protect investors from corporate abuse.
b. To help maintain a primary bull market.
c. To protect corporate executives from frivolous shareholder lawsuits.
d. To prevent a secular bear market.
ANSWER: a. To protect investors from corporate abuse.
Which of the following is an accurate characteristic of a sole proprietorship? - ANSWER-a. The owner is
personally liable for the business's debt and obligations.
b. There is more than one answer.
c. A sole proprietorship typically elects board members for staggered terms.
d. The owner must file for a separate tax return for the business.
ANSWER: a. The owner is personally liable for the business's debt and obligations.
Which of the following is a source of agency costs in an organization? - ANSWER-a. Parties associates
with the organization have different risk preferences.
b. The people who make the day-to-day decisions are not the owners.
c. All of these answers.
, d. The managers of the organization have different objectives than the other shareholders.
ANSWER: c. All of these answers.
Which of the following occurred during the financial crisis of 2007-2008? - ANSWER-a. All of these
answers.
b. Several major institutions failed or were subject to government takeover.
c. A currency crisis, with investors transferring their wealth to countries with stronger currencies.
d. Significant declines in consumer wealth and prolonged unemployment.
ANSWER: A. All of these answers.
Which of the following terms describes the protection of personal assets stemming from the corporate
structure? - ANSWER-a. simple transference
b. double taxation
c. articles of incorporation
d. limited liability
ANSWER: D. Limited Liability
What will $250,000 grow to be in 11 years if it is invested today in an account with an annual interest
rate of 6%? - ANSWER-$474,574.64
Approximately how many years will it take for $36,000 to grow to be $68,000 if it is invested in an
account interest rate of 8%? Choose the closest answer. - ANSWER-8 years.
You are offered a loan with a quoted annual interest rate of 13% with monthly compounding of interest.
What is your effective annual interest rate? - ANSWER-13.80%
John and Peggy would like to buy a house. They have looked at their budget and determined that they
can afford a maximum monthly mortgage payment of $1,100. Interest rates on 30-year, fixed-rate
mortgages current a nominal annual interest rate of 7 percent with monthly compounding (payments
due at the end of each month). Given these loan terms, what is the maximum amount John and Peggy
borrow today to purchase a house and not exceed a monthly payment of $1,100 on the loan? Round to
the nearest dollar. - ANSWER-$165,338
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