Question 1

The rates of return on investments outside the corporation set the minimum return for investment projects inside the corporation.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following financial intermediaries can loan money directly to businesses?

Accepted Answer

A)  Mutual funds 
B)  Pension funds 
C)  Insurance companies 
D)  All of these 
A)  Mutual funds 
B)  Pension funds 
C)  Insurance companies 
D)  All of these

Question 3

Investing $100,000 in additional raw materials today-mostly in palladium-should allow Cryogenic Concepts to increase production and earn an additional $112,000 next year.This payoff would cover the investment today,plus a 12% return.Palladium is traded in commodity markets.The CFO has studied the history of returns on investments in palladium and believes that investors in that precious metal can reasonably expect a 15% return.Is Cryogenic's investment in palladium a good idea? Why or why not?

Accepted Answer

This would not be a good investment,as t

Question 4

A share of IBM stock is purchased by an individual investor for $75 and later sold to another investor for $125.Who profits from this sale?

Accepted Answer

A)  IBM. 
B)  The first investor. 
C)  The second investor. 
D)  Profit is split between IBM and the investor. 
A)  IBM. 
B)  The first investor. 
C)  The second investor. 
D)  Profit is split between IBM and the investor.

Question 5

In the context of housing,what is an ARM?

Accepted Answer

A)  A mortgage with high initial payments, offset by significantly lower payments later 
B)  A mortgage with low initial payments, offset by significantly higher payments later 
C)  A mortgage with no initial payments, offset by significantly high payments later 
D)  A mortgage with equal payments per period 
A)  A mortgage with high initial payments, offset by significantly lower payments later 
B)  A mortgage with low initial payments, offset by significantly higher payments later 
C)  A mortgage with no initial payments, offset by significantly high payments later 
D)  A mortgage with equal payments per period

Question 6

From June 2001 to June 2006,housing prices in the United States doubled.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following actions does not help reduce risk?

Accepted Answer

A)  Extending the service warranty for your notebook 
B)  Converting your money market account to a mutual fund account 
C)  Contracting to sell your farm produce to the neighborhood grocery 
D)  Buying Japanese yen now when you plan to study in Japan next year 
A)  Extending the service warranty for your notebook 
B)  Converting your money market account to a mutual fund account 
C)  Contracting to sell your farm produce to the neighborhood grocery 
D)  Buying Japanese yen now when you plan to study in Japan next year

Question 8

For corporate bonds,the higher the credit quality of an issuer,the higher the interest rate.

Accepted Answer

A) True 
 B)False

Question 9

During the Financial Crisis of 2007-2009,the U.S.government bailed out all firms in danger of failing.

Accepted Answer

A) True 
 B)False

Question 10

"Reinvestment" means:

Accepted Answer

A)  new investment in new operations. 
B)  additional investment in existing operations. 
C)  new investment by new shareholders. 
D)  additional investment by existing shareholders. 
A)  new investment in new operations. 
B)  additional investment in existing operations. 
C)  new investment by new shareholders. 
D)  additional investment by existing shareholders.

Question 11

The primary distinction between securities sold in the primary and secondary markets is the:

Accepted Answer

A)  riskiness of the securities. 
B)  price of the securities. 
C)  previous issuance of the securities. 
D)  profitability of the issuing corporation. 
A)  riskiness of the securities. 
B)  price of the securities. 
C)  previous issuance of the securities. 
D)  profitability of the issuing corporation.

Question 12

Only the IPOs for large corporations are sold in primary markets.

Accepted Answer

A) True 
 B)False

Question 13

The opportunity cost of capital is the expected rate of return that shareholders can obtain in the financial markets on investments with the same risk as the firm's capital investments.

Accepted Answer

A) True 
 B)False

Question 14

The cost of capital is the interest rate paid on a loan from a bank or some other financial institution.

Accepted Answer

A) True 
 B)False

Question 15

Insurance companies can usually cover the claims of policyholders because:

Accepted Answer

A)  the incidence of claims normally averages out. 
B)  they issue thousands of insurance policies. 
C)  the cost of paying for claims has already been factored into the price of the policies. 
D)  all of these. 
A)  the incidence of claims normally averages out. 
B)  they issue thousands of insurance policies. 
C)  the cost of paying for claims has already been factored into the price of the policies. 
D)  all of these.

Question 16

What are the advantages of investing indirectly in stocks and bonds via mutual funds and pension funds?

Accepted Answer

Mutual funds pool savings from many indi

Question 17

Previously issued securities are traded among investors in the secondary markets.

Accepted Answer

A) True 
 B)False

Question 18

Households hold more than half of U.S.corporate equities.

Accepted Answer

A) True 
 B)False

Exam 2: Financial Markets and Institutions

The rates of return on investments outside the corporation set the minimum return for investment projects inside the corporation.

Which of the following financial intermediaries can loan money directly to businesses?

A share of IBM stock is purchased by an individual investor for $75 and later sold to another investor for $125.Who profits from this sale?

In the context of housing,what is an ARM?

From June 2001 to June 2006,housing prices in the United States doubled.

Which of the following actions does not help reduce risk?

For corporate bonds,the higher the credit quality of an issuer,the higher the interest rate.

During the Financial Crisis of 2007-2009,the U.S.government bailed out all firms in danger of failing.

"Reinvestment" means:

The primary distinction between securities sold in the primary and secondary markets is the:

Only the IPOs for large corporations are sold in primary markets.

The opportunity cost of capital is the expected rate of return that shareholders can obtain in the financial markets on investments with the same risk as the firm's capital investments.

The cost of capital is the interest rate paid on a loan from a bank or some other financial institution.

Insurance companies can usually cover the claims of policyholders because:

What are the advantages of investing indirectly in stocks and bonds via mutual funds and pension funds?

Previously issued securities are traded among investors in the secondary markets.

Households hold more than half of U.S.corporate equities.

Goals and Governance of the Corporation

Accounting and Finance

Measuring Corporate Performance

The Time Value of Money

Valuing Bonds

Valuing Stocks

Net Present Value and Other Investment Criteria

Using Discounted Cash-Flow Analysis to Make Investment Decisions

Project Analysis

Introduction to Risk,Return,and the Opportunity Cost of Capital

Risk,Return,and Capital Budgeting

The Weighted-Average Cost of Capital and Company Valuation

Introduction to Corporate Financing

How Corporations Raise Venture Capital and Issue Securities

Debt Policy

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Risk, Return, and Capital Budgeting

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

Filters