金融学题库

Chapter OneFinancial EconomicsThis chapter contains 48 multiple choice questions, 20 short problems and 5 longer problems.Multiple Choice1.The primary goal of corporate management is to________ shareholder wealth.(a)minimize(b)maximize(c)leverage(d)mitigateAnswer: (b)2. A ________ stock market imposes ________discipline on managers to take actions to maximize the market value of the firm’s shares.(a)competitive, strong(b)dispersed, weak(c)mature, no(d)dispersed, strongAnswer: (a)3. The ________ form is especially well suited to the separation of ownership and management of firms because it allows relatively frequent changes in owners by share transfer without affecting the operations of the firm.(a)corporate(b)sole proprietorship(c)partnership(d)householdAnswer: (a)4. ________ is anything that has economic value.(a) A partnership(b)An asset(c) A balance sheet(d)An income statementAnswer: (b)5. A household’s wealth or net worth is measured by the value of its ________ minus its ________.(a)liabilities; assets(b)assets; liabilities(c)stocks; bonds(d)bonds; liabilitiesAnswer: (b)6. The branch of finance dealing with financial decisions of firms is called ________ or ________.(a)investments; international finance(b)markets; institutions(c)business finance; institutions(d)business finance; corporate financeAnswer: (d)7. Bonds promise ________ cash payments, while stocks pay the ________ value left over after all other claimants have been paid.(a)variable; residual(b)residual; fixed(c)fixed; residual(d)fixed; variableAnswer: (c)8. The day-to-day financial affairs of the firm are usually referred to as ________.(a)working capital management(b)capital structure(c)capital budgeting(d)strategic planningAnswer: (a)9. A disadvantage of the sole proprietorship is the fact that the sole proprietor has ________.(a)limited liability for the debts of the firm(b)unlimited liability for the debts of the firm(c)expensive costs to establish the firm(d)limited authority over the day-to-daybusiness decisions of the firmAnswer: (b)10. In the U.S. corporations with concentrated ownership are called ________ and corporations with broadly dispersed ownership are called ________.(a)private corporations; public corporations(b)public corporations; private corporations(c)public corporations; monopolies(d)private corporations; state ownedcorporationsAnswer: (a)11. Billy owns a house worth $350,000 and has a $55,000 bank account. Billy owes $270,000 to the bank on a home mortgage loan and has a $12,000 credit card debt outstanding. Calculate Billy’s net worth.(a)$135,000(b)$123,000(c)$497,000(d)$37,000Answer: (b)12. Marlowe owns a house worth $150,000, a car worth $25,000 and has an $18,000 bank account. Marlowe owes $135,000 to the bank on a home mortgage loan, $18,000 on the car loan and has an $18,000 credit card debt outstanding. Calculate Marlowe’s net wor th.(a)$58,000(b)$123,000(c)$22,000(d)$37,000Answer: (c)13. An advantage of the corporate form of ownership is ________.(a)no liability(b)unlimited liability(c)limited liability(d)CEO liabilityAnswer: (c)14. In the corporate form, the separated structure creates the potential for ________ between owners and managers.(a) a conflict of interest(b)increased transactional costs(c)stability in relations(d)none of the aboveAnswer: (a)15. All of the following are reasons for having a separation of management and ownership of the firm except:(a)the “going concern” effect favors theseparated structure(b)professional managers may be found whopossess a superior ability to run thebusiness(c)it prevents the possibility of a conflict ofinterest between the owners andmanagement(d)it allows for savings in the cost ofinformation gatheringAnswer: (c)16. ________ involves the evaluation of costs and benefits spread out over time, and it is largely a financial decision-making process.(a)Stock valuation(b)Bond valuation(c)Inventory costing(d)Strategic planningAnswer: (d)17. Shareholder wealth maximization depends on all of the following except:(a)production technology(b)market interest rates(c)risk aversion(d)market risk premiumsAnswer: (c)18. A problem with using the profit maximization criterion is ________.(a)d eciding which period’s profit is to bemaximized(b)the definition of “maximize profits” isambiguous(c)the failure to consider risk(d)all of the aboveAnswer: (d)19. The existence of a well functioning stock market facilitates the efficient separation of the ownership and management of firms, since stock prices can be substituted for external information about ________.(a)the firm’s production technology(b)the wealth, preferences, and otherinvestment opportunities of the owners(c)the historic costs of the firm’sinfrastructure(d)the firm’s ability to meet its projected goalsAnswer: (b)20. One place to look for a statement of the goals of a corporation’s top managers is the ________.(a)balance sheet(b)income statement(c)annual report(d)bankruptcy filingAnswer: (c)21. In the absence of a stock market, managers would require information that is ________ to obtain.(a)costly if not impossible(b)costless(c)readily available(d)time-consuming but inexpensiveAnswer: (a)22. Management’s task is made much easier when it can observe the ________ of its own and other firms’ shares.(a)book prices(b)market prices(c)historical prices(d)security pricesAnswer: (b)23. ________ are entitled to a share of any of the distributions from the corporation such as cash dividends.(a)Sole proprietors(b)General partners(c)Professional managers(d)ShareholdersAnswer: (d)24. ________ is the founder of modern portfolio theory.(a)Harry Markowitz(b)Merton Miller(c)William Sharpe(d)Bill GatesAnswer: (a)25. In Germany, public corporations are identifiable by ________ after the company name, whereas private companies are denoted by ________.(a)PLC, Inc.(b)GmbH, AG(c)AG, GmbH(d)SpA, GmbHAnswer: (c)26. In the United Kingdom, public corporations are identifiable by ________ after the company name, whereas private companies are denoted by ________.(a)Inc, PLC(b)LTD, PLC(c)AG, GmbH(d)PLC, LTDAnswer: (d)27. Shareholders elect ________ who in turn select________ to run the business.(a) a board of directors; a treasurer(b) a board of directors; managers(c)managers; a board of directors(d) a board of directors; accountantsAnswer: (b)28. In a competitive stock market, ________ offer(s) another important mechanism for aligning the incentives of managers with those of shareholders.(a)takeovers(b)increased taxes(c)liquidation(d)increased liabilityAnswer: (a)29. If a raider is interested in making a profit through the takeover of a prospective firm, the only expenses that need be incurred are ________.(a)the cost of identifying a mismanaged firm(b)the cost of acquiring the firm’s shares(c)physical capital(d)both (a) and (b)Answer: (d)30. The cost of identifying a mismanaged firm can be low if the raider is which of the following:(a) a supplier(b) a customer(c) a competitor(d)all of the aboveAnswer: (d)31. Takeover mechanisms can most effectively be reduced by ________.(a)directives from the board of directors(b)media intervention(c)government policies(d)public disapprovalAnswer: (c)32. The chief financial officer (CFO) of a corporation normally reports to the ________ of the company.(a)controller(b)treasurer(c)chief executive officer(d)chairman of the board of directorsAnswer: (c)33. All of the following departments typically report to the chief financial officer (CFO) except:(a)marketing(b)financial planning(c)treasury(d)controlAnswer: (a)34. The treasurer’s job includes managing all of the following except:(a)the firm’s exposure to currency and interestrate risks(b)the tax department(c)relations with the external investmentcommunity(d)the analysis of proposed mergers andacquisitionsAnswer: (d)35. The activities of the vice president for financial planning include all of the following except:(a)analyzing proposed mergers(b)analyzing proposed spin-offs(c)preparing internal reports comparingplanned and actual costs(d)analyzing major capital expendituresAnswer: (c)36.Which of the following statements is most correct?(a)The shareholders of a corporation electmanagers who in turn select a board ofdirectors to run the business.(b)Partnerships do not pay corporate tax.(c) A disadvantage of the corporation isunlimited liability.(d)The government is powerless to discouragecorporate takeovers.Answer: (b)37.For a typical firm, which of the followingstatements is most correct?(a)The CFO has three departments reportingto him: financial planning, treasury andcontrol.(b)The treasurer oversees the accounting andauditing activities of the firm.(c)The controller has responsibility formanaging the financing activities of thefirm and for working capital management.(d)The CEO is a senior vice president withresponsibility for all the financial functionsin the firm.Answer: (a)38.Which of the following are financial decisions afirm has to make?(a)financing decisions(b)capital budgeting decisions(c)working capital decisions(d)all of the aboveAnswer: (d)39.The controller’s job includes responsibility for________.(a)relations with the external investmentcommunity(b)preparation of financial statements for useby shareholders, creditors and regulatoryauthorities(c)analysis of proposed mergers, acquisitionsand spin-offs(d)all of the aboveAnswer: (b)40.The basic unit of analysis in capital budgeting is the________.(a)financing project(b)investment project(c)strategic project(d)variable projectAnswer: (b)41.The steps involved in any capital budgeting processinclude:(a)evaluating projects(b)deciding which projects to undertake(c)identifying ideas for new investmentprojects(d)all of the aboveAnswer: (d)42.Preferred stock, bonds, and convertible securitiesare also known as ________.(a)nonmarketable claims(b)standardized securities(c)variable securities(d)covenantsAnswer: (b)43.The basic unit of analysis in capital structuredecisions is the ________.(a)firm as a whole(b)investment project(c)firm’s personnel(d)financial systemAnswer: (a)44.Which one of the following correctly orders thesteps involved in capital structure decisions?(a)determining a feasible financing plan;identifying new ideas for investmentprojects(b)determining the optimal financing mix;determining a feasible financing plan(c)identifying ideas for investment projects;determining the optimal financing mix(d)determining a feasible financing plan;determining the optimal financing mix Answer: (d)45.Which of the following is not a financial functionof a corporation?(a)investor relations(b)tax administration(c)provision of capital(d)regulatory legislationAnswer: (d)46.Which of the following functions may becategorized as administration of funds?(a)custodial responsibilities(b)tax administration(c)internal auditing(d)all of the aboveAnswer: (a)47.Investor relations includes:(a)government reporting(b)establishment and maintenance ofcommunications with companystockholders(c)relations with taxing agencies(d)consultation with and advice to othercorporate executivesAnswer: (b)48.Oscar owns a boat worth $2 million, a house worth$lion and has $900,000 in a bank account.Oscar owes $1.1 million to the bank on the boatloan, $2 million on the home loan and has $20,000credit card debt. Calculate Oscar’s net worth.(a)$3.12 million(b)$5.28 million(c)$7.28 million(d)$8.4 millionAnswer: (b)Short Problems1.Give a brief definition of the financial system.Answer: A financial system is defined as the set of markets and other institutions used for financial contracting and the exchange of assets and risks.2.List the markets that the financial system likelyincludes.Answer: A financial system includes the markets for stocks, bonds and other financial instruments, financial intermediaries, financial service firms and the regulatory bodies that govern all of these institutions. 3.Briefly describe the distinction between physicalcapital and financial capital.Answer: Physical capital includes items such as buildings, machinery and other intermediate products used in the production process. Financial capital, however, includes stocks, bonds and loans used to finance the acquisition of physical capital.4. Give a brief description of the wide range of financial instruments and claims a firm can issue.Answer: These include common stock, preferred stock, bonds and convertible securities (standardized securities that can be traded in organized markets). Financial instruments and claims can also include nonmarketable claims such as bank loans, employee stock options, leases and pension liabilities.5.Siggy owns a house worth $200,000, a car worth$25,000 and has an $18,000 bank account. He also has furniture worth $4,000 and jewelry worth $10,000. However, Siggy owes $145,000 to the bank on a home mortgage loan, $17,000 on the car loan, $40,000 on student loans and has an $16,000 credit card debt outstanding. Calculate Siggy’s net worth.Answer: Net Worth = Total Assets – Total Liabilities= ($200,000 + $25,000 + $18,000 + $4,000 + $10,000) – ($145,000 + $17,000 + $40,000 + $16,000)= $39,0006.Briefly list the problems associated with profitmaximization as the chief goal of corporatemanagers.Answer: The profit-maximization criterion has two problems associated with it. The first is that it is difficult to determine which period’s profit is to be maximized if the production process requires many periods. Secondly, if either future revenues or expenses are uncertain, then what exactly is the meaning of “maximize profits” if profits are described by a probability distribution?7.Kecia owns a house worth $220,000, a car worth$20,000 and has a $13,000 bank account. She also has furniture worth $8,000. However, Kecia owes $165,000 to the bank on a home mortgage loan, $17,000 on the car loan, $50,000 on student loans and has an $18,000 credit card debt outstanding.Calculate Kecia's net worth.Answer: Net Worth = Total Assets – Total Liabilities= ($220,000 + $20,000 + $13,000+ $8,000) – ($165,000 + $17,000 +$50,000 + $18,000)= $261,000 - $250,000= $11,0008.Give an example of a potential conflict of interestthat can arise between owners and managers of afirm.Answer: Managers being concerned with their own personal welfare may lead to concern about job security in the long run. This concern about long run survival may cause managers to limit the risk incurred by the firm and make other decisions not with the objective of shareholder wealth maximization.9.What use does the existence of a stock market serveto the manager of a firm?Answer: Observing its own and other firms’ market price of shares helps it make decisions about maximizing the firm’s value to its shareholders. If there was not a stock market, then managers would be required to obtain information that is costly, if not impossible, to obtain. This includes the wealth, preferences and other investment opportunities of the owners. 10.Outline the role of the takeover in aligning theincentives of managers with those of shareholders. Answer: The threat of a takeover provides a strong incentive for current managers to act in the interests of the firm’s current shareholders by maximizing market value. If managers fail to maximize the market value of the firm’s shares, the firm will be vulnerable to a takeover in which the managers may lose their jobs. 11.Outline the role of the chief financial officer (CFO)in a corporation.Answer: The CFO is a senior vice president with responsibility for all the financial functions in the firm and reports directly to the CEO. Three departments report to the CFO: financial planning, treasury, and control.12.Discuss the role of the treasurer in a corporation. Answer: The treasurer has responsibility for managing the financing activities of the firm and for working capital management. The treasurer is responsible for managing relations with the external investor community, managing the firm’s exposure to currency and interest rate risks, and managing the tax department.13. Discuss the tasks performed by the controller of a corporation.Answer: The controller oversees the accounting and auditing tasks of the firm. The controller is responsible for the preparation of internal reports comparing planned and actual costs, revenues, and profits from the corporation’s various busi ness units. The controller will also be involved with preparation of financial statements for use by shareholders, creditors and regulatory authorities.14.Discuss why voting rights for shareholders are notadequate to compel managers to act in the bestinterests of the shareholders.Answer: Because a major benefit of the separated structure is that the owners can remain relatively uninformed about the operations of the firm, it is not apparent how these owners could know whether their firm is being mismanaged. The value of voting rights is further cast into doubt if ownership of the firm is widely dispersed. If that is the situation, then the holdings of any single owner are likely to be so small that he or she would not incur the expense to become informed and to convey this information to the other owners.15.Is it possible for government to reduce theeffectiveness of the takeover mechanism?Answer: Yes. It is possible for government policy to prevent the formation of monopolies in various product markets – as in the case of the United States Department of Justice, which can take legal action under the antitrust laws to prevent mergers and acquisitions that might reduce competition.16.In terms of the financial functions of a corporation,what responsibilities do administration of fundsentail?Answer: Management of cash; maintenance of banking arrangements; receipt, custody and disbursement of the company’s monies and securities; credit and collection management; management of pension funds; management of investments and custodial responsibilities.17.Discuss the liability a partnership faces.Answer: Unless otherwise specified, all partners have unlimited liability as in the sole proprietorship. However, it is possible to limit the liability for somep artners called “limited partners”. At least one of the partners, called the general partner, has unlimited liability for the debts of the firm.18.Describe the advantages of the corporate form ofbusiness organization.Answer: The corporate form of ownership has the advantage that ownership shares can usually be transferred without disrupting the business. Limited liability is also another advantage of the corporate form. In this case, if the corporation fails to pay its debts, the creditors can seize the assets of the corporation but have no recourse to the personal assets of the shareholders.19.Briefly outline the process of capital budgeting.Answer:The process of capital budgeting includes identifying ideas for new investment projects, evaluating them, deciding which ones to undertake, and then implementing them.20.Briefly discuss the process of working capitalmanagement.Answer: Working capital management refers to the day-to-day financial affairs of the business, such as whether to extend credit to customers or demand cash on delivery or managing cash flow. Longer Problems1.Describe the four basic types of financial decisionsfaced by householders.Answer: Investment decisions– whether to invest in stocks or bondsConsumption/Savings Decisions– how muchto save for one’s retirement or a child’seducationRisk management decisions– whether to buy disability insuranceFinancing decisions– what type of loan to adopt in order to finance the purchase of a home or car.2.Give a brief description of each of the four mainareas of financial decision-making in a business. Answer: Strategic Planning: Evaluating thecosts and benefits associated with thefirm’s business line, which may changeover time.Capital Budgeting: Identifying ideasfor new investment projects, evaluatingthem, deciding which ones toundertake, and then implementingthem.Capital Structure: The initial step isdeciding upon a feasible financing planfor the firm. The next decisioninvolves the optimal debt/equity mix touse.Working Capital Management: Theday-to-day affairs of the business.This includes paying bills as they comedue, collecting from customers,managing the firm’s cash flows toensure that operating cash flowsdeficits are financed and that cash flowsurpluses are efficiently invested toearn a good return.3.Explain the five basic reasons for separating themanagement from the ownership of an enterprise. Answer:•Professional managers may be found who have a superior ability to run the business.•To achieve the efficient scale of a business the resources of many households may have to bepooled.•In an uncertain economic environment, owners will want to diversify their risks across manyfirms.•The separated structure allows for savings in the costs of information gathering.•There is a “learning curve” or “going concern”effect, which favors to separated structure.4.Discuss the types of decisions that firms must make. Answer: Capital budgeting decisions– whether to build a new plant or produce a new product.Financing decisions– how much equity andhow much debt a firm should adopt in itscapitalstructure.Working Capital decisions– whether creditshould be extended to a customer or cashdemanded on delivery.5.Outline the roles of the three departments that reportto the Chief Financial Officer.Answer: Treasury: This department is responsible for managing the financing activitiesof the firm and for working capitalmanagement. This includes managingrelations with the external investmentcommunity, managing the firm’s exposure tocurrency and interest rate risks, andmanaging the tax department.Financial Planning: This department isresponsible for analyzing major capitalexpenditures such as proposals to enter newlines of business or to exit existing businesses.This includes analyzing proposed mergers,acquisitions and spin-offs.Controller: This department oversees theaccounting and auditing activities of the firm.Activities include preparation of financialstatements for use by shareholders, creditorsand regulatory authorities, as well as thepreparation of internal reports comparingplanned and actual costs, revenues, andprofits from the corporation’s variousbusiness units.Chapter TwoFinancial Markets and InstitutionsThis chapter contains 49 multiple-choice questions, 20 short problems and 10 longer problems. Multiple Choice1. A market that has no one specific location is termed a(n) ________ market.(a)over-the-counter(b)geographic location(c)intermediary(d)conceptualAnswer: (a)2. ________ problems arise because parties to contracts often cannot easily monitor or control one another.(a)Payment(b)Counter(c)Incentive(d)ExchangeAnswer: (c)3. Incentive problems take a variety of forms and include:(a)moral hazard(b)adverse selection(c)principal-agent(d)all of the aboveAnswer: (d)4. The ________ problem exists when having insurance against some risk causes the insured party to take greater risk or to take less care in preventing the event that gives rise to the loss.(a)moral hazard(b)adverse selection(c)principal-agent(d)all of the aboveAnswer: (a)5. Life annuities are examples of ________ problems.(a)moral hazard(b)adverse selection(c)principal-agent(d)all of the aboveAnswer: (b)6. ________ means giving the lender the right to seize specific business assets in the event of default.(a)Increasing moral hazard(b)Increasing adverse selection(c)Collateralization of loans(d)All of the aboveAnswer: (c)7. ________ instruments are also called fixed-income instruments.(a)Debt(b)Equity(c)Derivative(d)All of the aboveAnswer: (a)8. The market for short-term debt (less than one year) is called the ________ market, and the market forlong-term debt and equity securities is called the________ market.(a)capital; money(b)money; capital(c)fixed-income; money(d)derivative; equityAnswer: (b)9. ________ securities are financial instruments that derive their value from the prices of one or more other assets.(a)Debt(b)Equity(c)Derivative(d)Fixed-incomeAnswer: (c)10. A call option gives its holder the right to ________ some asset at a specified price on or before some specified expiration date.(a)sell(b)buy(c)loan(d)borrowAnswer: (b)11. A put option gives its holder the right to ________ some asset at a specified price on or before some specified expiration date.(a)sell(b)buy(c)loan(d)borrowAnswer: (a)12. ________ contracts oblige one party to the contract to buy, and the other party to sell, some asset at a specified price on some specified date.(a)Options(b)Uncertainty(c)Money market(d)ForwardAnswer: (d)13.The ________ curve depicts the relation betweeninterest rates on fixed-income instruments issued by the U.S. Treasury and the maturity of theinstrument.(a)long-term(b)short-term(c)yield(d)exchange rateAnswer: (c)14.If the short-term rates are higher than the long-termrates, then the yield curve is ________.(a)upward sloping(b)downward sloping(c)horizontal(d)verticalAnswer: (b) Questions 15 and 16 are intended to be calculated as a pair.15.Suppose you are a French investor, who wants asafe investment in terms of francs. You are investing for one year and the interest rate on a one-year French government bond is 5% and at the same time it is 9% on a U.S. government bond. The exchange rate is currently 6.15 French francs to the dollar. Suppose you invest $1,000 in a U.S. bond.Also suppose that a year from now the French franc/dollar exchange rate is 6.50 French francs to the dollar. What will be the realized French franc rate of return on the U.S. bond?(a) 5.69%(b)9.00%(c)15.2%(d)7.00%Answer: (c)16.In question 15, what would the exchange rate atyear’s end have to be in order for the Fr enchinvestor to earn exactly 4% per year on theinvestment in U.S. bonds?(a) 6.20 FF/$(b) 5.87 FF/$(c) 6.40 FF/$(d) 5.42 FF/$Answer: (b)Use the following yield data to answer questions 17 and 18.2/29/98Treasury 1-10 yr 5.58%10+ yr 5.72Corporate 1-10 yr High Qlty 5.98Med Qlty 6.17Corporate 10+ yr High Qlty 6.26Med Qlty 6.5717. Calculate the yield spread for Treasury bonds with maturity 1-10 year and corporate bonds of high quality of the same maturity.(a)11.56%(b)0.68%(c)0.59%(d)0.40%Answer: (d)18. Calculate the yield spread for Treasury bonds with maturity 10+ years and corporate bonds of medium quality of the same maturity.(a)12.29%(b)0.85%(c)0.54%(d)0.45%Answer: (b)19.You invest in a stock that costs $45.50 per share. Itpays a cash dividend during the year of $1.20 andyou expect its price to be $49 at year’s end. What is。