128 Finance Skills for Managers - D076
What area of finance involves deciding which assets to invest in to create wealth in the future? - correct
answer ✔✔Investments
(Investments are an area of finance that involves deciding which assets to invest in to create wealth in
the future.)
Hannah is the financial manager of a firm. A project that she has recommended has been approved and
will cost $5 million. Since the company does not have enough cash on reserve, Hannah must figure out
how to raise enough money to start the project. She can choose whether to issue new bonds, new
stocks, a mortgage loan, or some combination of those options.
What task is Hannah performing in this scenario? - correct answer ✔✔Making a financing decision
(Since the project has already been approved, Hannah is trying to find a way to finance the investment
and considering its capital structure.)
Maria and Mateo are setting financial goals. They decide that they need to save $200 each month to
reach their goal of taking their children to visit their grandparents in Spain next summer.
What is the objective of setting such a goal? - correct answer ✔✔To maximize individual utility
(While everyone has different personal financial goals, the objectives of such goals is to maximize
individual utility.)
Which professional works with individuals to help them achieve their financial goals? - correct answer
✔✔Financial planner
(Professional financial planners work with individuals to help them achieve their financial goals.)
,Omar is about to purchase a new car for $30,000. He knows he wants to buy the car, but he is still trying
to decide how to pay for it. He has barely over $30,000 in his bank account. He can either take out an
auto loan from a bank or use a mix of cash and an auto loan.
In this scenario, what is Omar doing? - correct answer ✔✔Financing a goal
(He has already made a decision to purchase the car and is now deciding on financing options.)
Which responsibility is a focus of the U.S. Securities and Exchange Commission? - correct answer ✔✔To
protect investors
(The responsibilities of SEC are to protect investors; maintain fair, orderly, and efficient markets; and
facilitate capital formation.)
Which type of financial institution provides individuals and firms access to financial markets? - correct
answer ✔✔Investment institutions
(Investment institutions provide both individuals and firms access to financial markets.)
Which financial institution includes entities that receive money from institutional investors and wealthy
individuals to buy troubled companies to improve them and earn returns by selling them or going
public? - correct answer ✔✔Private equity
(This is the role of a buyout private equity firm.)
Yield curve is which type of economic indicator? - correct answer ✔✔Leading
(Leading indicators change before the economy changes.)
About a year ago, the short-term Treasury bill had 1.54% interest and the long-term Treasury note had
2.54% interest. This week, the 1-year Treasury bill has an interest rate of 3.13%, while the 10-year
Treasury note has an interest rate of 2.28%.
, What does this information indicate about the future economy? - correct answer ✔✔It may indicate an
economic downturn.
(Since the long-term Treasury interest rate is lower than the short-term rate, it has an inverted yield
curve, which may indicate an economic downturn.)
What does the term legal describe? - correct answer ✔✔An action that is in accordance with the laws
and rules set by an authority.
(Legal means to follow the laws and rules set by an authority.)
Jack is a personal financial advisor. He is with a new client, and the client is asking him what he
recommends for her portfolio. Jack knows that his firm's investment product performed well last year,
but its performance changes from year to year—some years it is better than the market, and some years
it is not. Also, the fee to invest in the product is higher than the fee to invest in a market index fund. If
Jack sells his company's investment product, the customer's loyalty to the company is doubled.
Which actions should Jack take? - correct answer ✔✔Give a personal recommendation of the company's
product while explaining its performance relative to the market over the past several years.
(Giving a recommendation to sell a product is fine, but you should never hide other information. Sharing
information about index funds and comparing your product to others is a fair action to take for the
client.)
Why might a manager manipulate accounting procedures? - correct answer ✔✔To make the company's
performance look good
(A manager might manipulate accounting procedures to inflate the earnings of a company, which would
optimize bonuses and stock-price-related benefits for management.)
Which situation is an example of an agency problem? - correct answer ✔✔Managers follow their own
interests instead of the owners' interest.
What area of finance involves deciding which assets to invest in to create wealth in the future? - correct
answer ✔✔Investments
(Investments are an area of finance that involves deciding which assets to invest in to create wealth in
the future.)
Hannah is the financial manager of a firm. A project that she has recommended has been approved and
will cost $5 million. Since the company does not have enough cash on reserve, Hannah must figure out
how to raise enough money to start the project. She can choose whether to issue new bonds, new
stocks, a mortgage loan, or some combination of those options.
What task is Hannah performing in this scenario? - correct answer ✔✔Making a financing decision
(Since the project has already been approved, Hannah is trying to find a way to finance the investment
and considering its capital structure.)
Maria and Mateo are setting financial goals. They decide that they need to save $200 each month to
reach their goal of taking their children to visit their grandparents in Spain next summer.
What is the objective of setting such a goal? - correct answer ✔✔To maximize individual utility
(While everyone has different personal financial goals, the objectives of such goals is to maximize
individual utility.)
Which professional works with individuals to help them achieve their financial goals? - correct answer
✔✔Financial planner
(Professional financial planners work with individuals to help them achieve their financial goals.)
,Omar is about to purchase a new car for $30,000. He knows he wants to buy the car, but he is still trying
to decide how to pay for it. He has barely over $30,000 in his bank account. He can either take out an
auto loan from a bank or use a mix of cash and an auto loan.
In this scenario, what is Omar doing? - correct answer ✔✔Financing a goal
(He has already made a decision to purchase the car and is now deciding on financing options.)
Which responsibility is a focus of the U.S. Securities and Exchange Commission? - correct answer ✔✔To
protect investors
(The responsibilities of SEC are to protect investors; maintain fair, orderly, and efficient markets; and
facilitate capital formation.)
Which type of financial institution provides individuals and firms access to financial markets? - correct
answer ✔✔Investment institutions
(Investment institutions provide both individuals and firms access to financial markets.)
Which financial institution includes entities that receive money from institutional investors and wealthy
individuals to buy troubled companies to improve them and earn returns by selling them or going
public? - correct answer ✔✔Private equity
(This is the role of a buyout private equity firm.)
Yield curve is which type of economic indicator? - correct answer ✔✔Leading
(Leading indicators change before the economy changes.)
About a year ago, the short-term Treasury bill had 1.54% interest and the long-term Treasury note had
2.54% interest. This week, the 1-year Treasury bill has an interest rate of 3.13%, while the 10-year
Treasury note has an interest rate of 2.28%.
, What does this information indicate about the future economy? - correct answer ✔✔It may indicate an
economic downturn.
(Since the long-term Treasury interest rate is lower than the short-term rate, it has an inverted yield
curve, which may indicate an economic downturn.)
What does the term legal describe? - correct answer ✔✔An action that is in accordance with the laws
and rules set by an authority.
(Legal means to follow the laws and rules set by an authority.)
Jack is a personal financial advisor. He is with a new client, and the client is asking him what he
recommends for her portfolio. Jack knows that his firm's investment product performed well last year,
but its performance changes from year to year—some years it is better than the market, and some years
it is not. Also, the fee to invest in the product is higher than the fee to invest in a market index fund. If
Jack sells his company's investment product, the customer's loyalty to the company is doubled.
Which actions should Jack take? - correct answer ✔✔Give a personal recommendation of the company's
product while explaining its performance relative to the market over the past several years.
(Giving a recommendation to sell a product is fine, but you should never hide other information. Sharing
information about index funds and comparing your product to others is a fair action to take for the
client.)
Why might a manager manipulate accounting procedures? - correct answer ✔✔To make the company's
performance look good
(A manager might manipulate accounting procedures to inflate the earnings of a company, which would
optimize bonuses and stock-price-related benefits for management.)
Which situation is an example of an agency problem? - correct answer ✔✔Managers follow their own
interests instead of the owners' interest.
