Business Finance
Exam Materials
Course Introduction
Business Finance is a foundational course that explores the principles and practices involved in managing the financial resources of organizations. Students will learn about key concepts such as financial analysis, budgeting, forecasting, capital structure, working capital management, investment decision-making, and the time value of money. The course emphasizes practical applications of financial theory, equipping students with the skills necessary to evaluate financial performance, assess investment opportunities, and understand the financial environment in which businesses operate. Through case studies and problem-solving exercises, students will develop the analytical tools needed to make informed financial decisions in a corporate setting.
Recommended Textbook Fundamentals of Corporate Finance 7th Edition by Richard
Available Study Resources on Quizplus
24 Chapters
2895 Verified Questions
2895 Flashcards
Source URL: https://quizplus.com/study-set/2674
Page 2
A. Brealey
Chapter 1: Goals and Governance of the Corporation
Available Study Resources on Quizplus for this Chatper
112 Verified Questions
112 Flashcards
Source URL: https://quizplus.com/quiz/53374
Sample Questions
Q1) The best criterion for success in a capital budgeting decision would be to:
A) minimize the cost of the investment.
B) maximize the number of capital budgeting projects.
C) maximize the difference between cash inflows and cost.
D) finance all capital budgeting projects with debt.
Answer: C
Q2) Firms can alter their capital structure by:
A) not accepting any capital budgeting projects.
B) investing in intangible assets.
C) issuing stock to repay debt.
D) becoming a limited liability company.
Answer: C
Q3) Tabulate and compare the differences among corporations,sole proprietorships,and partnerships.
Answer: 11ea6d2d_32af_812b_b460_c395971d03f5_TB2304_00
Q4) If a project's value is less than its required investment,then the project is attractive financially.
A)True
B)False
Answer: False
Page 3
To view all questions and flashcards with answers, click on the resource link above.
Chapter 2: Financial Markets and Institutions
Available Study Resources on Quizplus for this Chatper
98 Verified Questions
98 Flashcards
Source URL: https://quizplus.com/quiz/53373
Sample Questions
Q1) Excess cash held by a firm should be:
A) reinvested by the firm in projects offering the highest rate of return.
B) reinvested by the firm in projects offering rates of return higher than the cost of capital.
C) reinvested by the firm in the financial markets.
D) distributed to bondholders in the form of extra coupon payments.
Answer: B
Q2) 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?
Answer: This would not be a good investment,as the opportunity cost of capital in this situation (15%)is greater than the expected return (12%).The investment should be made only if the expected return on the project is greater than the opportunity cost of capital.
To view all questions and flashcards with answers, click on the resource link above. Page 4
Chapter 3: Accounting and Finance
Available Study Resources on Quizplus for this Chatper
122 Verified Questions
122 Flashcards
Source URL: https://quizplus.com/quiz/53352
Sample Questions
Q1) ABC Corp.'s balance sheet shows its long-term debt to be $20 million.The debt was issued with a 10% interest rate,and the current interest rate is 7%.Based on this information alone,the market value of this debt is most likely:
A) less than $20 million.
B) more than $20 million.
C) equal to $20 million.
D)unknown without knowing the maturity of the debt
Answer: B
Q2) What happens to a firm's net worth as it uses cash to repay accounts payable?
A) Net worth increases.
B) Net worth decreases.
C) Net worth remains constant.
D)Net worth decreases temporarily, until cash is replenished.
Answer: C
Q3) Which of the following statements about depreciation is correct?
A) Depreciation is subtracted from cost of goods sold to calculate net income.
B) When depreciation expense is incurred, cash balances are reduced.
C) Depreciation expense does not affect net income.
D)Depreciation reduces the book value of assets
Answer: D
To view all questions and flashcards with answers, click on the resource link above. Page 5
Chapter 4: Measuring Corporate Performance
Available Study Resources on Quizplus for this Chatper
118 Verified Questions
118 Flashcards
Source URL: https://quizplus.com/quiz/53372
Sample Questions
Q1) How does the Du Pont formula help identify the determinants of the firm's return on its assets and equity?
Q2) The higher the times interest earned ratio,the higher the interest expense.
A)True
B)False
Q3) XYZ Corp.has improved its average collection period from 55 to 40 days.Which one of XYZ's other ratios may appear worse as a result of the improved receivables collection?
A) Inventory turnover
B) Quick ratio
C) Net profit margin
D) Return on equity
Q4) What effect on the growth rate of earnings can be accomplished by decreasing the dividend payout ratio from 70% to 40% if the firm has an ROE of 20%?
A) The growth rate can increase from 6% to 10.5%.
B) The growth rate can increase from 6% to 12%.
C) The growth rate can increase from 8% to 14%.
D) The growth rate can increase from 11% to 14%.
Q5) What may make simple comparisons of financial ratios misleading?
To view all questions and flashcards with answers, click on the resource link above. Page 6
Chapter 5: The Time Value of Money
Available Study Resources on Quizplus for this Chatper
118 Verified Questions
118 Flashcards
Source URL: https://quizplus.com/quiz/53371
Sample Questions
Q1) Any sequence of equally spaced,level cash flows is called an annuity.An annuity is also known as a perpetuity.
A)True
B)False
Q2) The term "constant dollars" refers to equal payments for amortizing a loan.
A)True
B)False
Q3) The Excel function for present value is PV (rate,nper,pmt,FV).
A)True
B)False
Q4) In 1973 Gordon Moore,one of Intel's founders,predicted that the number of transistors that could be placed on a single silicon chip would double every 18 months,equivalent to an annual growth of 59% .The first microprocessor was built in 1971 and had 2,250 transistors.By 2003 Intel chips contained 410 million transistors,over 182,000 times the number 32 years earlier.What has been the annual compound rate of growth in processing power? How does it compare with the prediction of Moore's law?
Q5) What is the difference between real and nominal cash flows and between real and nominal interest rates?
Q6) Discuss the statement,"Money has a time value."
Page 7
To view all questions and flashcards with answers, click on the resource link above.
Chapter 6: Valuing Bonds
Available Study Resources on Quizplus for this Chatper
120 Verified Questions
120 Flashcards
Source URL: https://quizplus.com/quiz/53370
Sample Questions
Q1) The coupon rate of a bond equals:
A) its yield to maturity.
B) a percentage of its face value.
C) the maturity value.
D) a percentage of its price.
Q2) Even when the yield curve is upward-sloping,investors might rationally stay away from long-term bonds.
A)True
B)False
Q3) The current yield tends to overstate a bond's total return when the bond sells for a premium because:
A) the bond's price will decline each year.
B) coupon payments can change at any time.
C) bonds selling for a premium have low default risk.
D) taxes must be paid on the current yield.
Q4) When the yield curve is upward-sloping,then:
A) short-maturity bonds offer high coupon rates.
B) long-maturity bonds are priced above par value.
C) short-maturity bonds yield less than long-maturity bonds.
D) long-maturity bonds increase in price when interest rates increase.
Page 8
To view all questions and flashcards with answers, click on the resource link above.
Chapter 7: Valuing Stocks
Available Study Resources on Quizplus for this Chatper
142 Verified Questions
142 Flashcards
Source URL: https://quizplus.com/quiz/53369
Sample Questions
Q1) How can an analyst feel comfortable in stating that the value of a stock is equal to the discounted value of all future dividends when a company may pay dividends indefinitely and it is virtually impossible to predict dividends beyond some reasonable horizon?
Q2) Which of the following situations is most likely to occur today for a stock that went down in price yesterday?
A) The stock will increase in price.
B) The stock will decrease in price.
C) The stock has a 30% chance of decreasing in price.
D) The stock has no predictable price-change pattern.
Q3) Your broker suggests that you can make consistent,excess profits by purchasing stocks on the 20<sup>th</sup> of the month and selling them on the last day of the month.If this is true,then:
A) the market is only semistrong-form efficient.
B) the market violates even weak-form efficiency.
C) insiders will be the only investors to profit.
D) prices follow a random walk.
Q4) Technical analysts have no effect on the efficiency of the stock market.
A)True B)False
Page 9
To view all questions and flashcards with answers, click on the resource link above.
Chapter 8: Net Present Value and Other Investment Criteria
Available Study Resources on Quizplus for this Chatper
114 Verified Questions
114 Flashcards
Source URL: https://quizplus.com/quiz/53351
Sample Questions
Q1) The profitability index for a project costing $40,000 and returning $15,000 annually for 4 years at an opportunity cost of capital of 12% is:
A) 0.139
B) 0.320
C) 0.500
D)0.861
Q2) When using a profitability index (ratio of net present value to initial investment)to select projects,a value of 0.63 is preferred over a value of 0.21.
A)True
B)False
Q3) How many IRRs are possible for the following set of cash flows? CF<sub>0</sub>= 1,000,C<sub>1</sub>= +500,C<sub>2</sub>= -300,C<sub>3</sub>= +1,000,C<sub>4</sub>= +200.
A) 1
B) 2
C) 3
D)4
Q4) Discuss reasons why a firm may want to impose soft capital rationing.
Q5) What is the net present value of an investment,and how do you calculate it?
To view all questions and flashcards with answers, click on the resource link above. Page 10
Chapter 9: Using Discounted Cash-Flow Analysis to Make Investment
Decisions
Available Study Resources on Quizplus for this Chatper
118 Verified Questions
118 Flashcards
Source URL: https://quizplus.com/quiz/53368
Sample Questions
Q1) The correct method to handle overhead costs in capital budgeting is to:
A) allocate a portion to each project.
B) allocate them to projects with the highest NPVs.
C) ignore all except identifiable incremental amounts.
D) ignore them in all cases.
Q2) Capital budgeting analysis focuses on cash flow as opposed to profits.
A)True
B)False
Q3) Methods of accelerated depreciation:
A) allow more depreciation over the asset's life.
B) decrease the depreciation tax shield.
C) increase the depreciation tax shield.
D) allow assets to be depreciated more rapidly.
Q4) Changes in net working capital can occur at:
A) the beginning of a project.
B) the end of a project.
C) any time during the life of a project.
D) the beginning of any accounting period.
To view all questions and flashcards with answers, click on the resource link above. Page 11
Q5) How can the cash flows of a project be computed from standard financial statements?
Chapter 10: Project Analysis
Available Study Resources on Quizplus for this Chatper
118 Verified Questions
118 Flashcards
Source URL: https://quizplus.com/quiz/53367
Sample Questions
Q1) How much depreciation expense exists in a firm that has a break-even level of revenues of $2 million,fixed costs of $400,000,and a 60% ratio of variable costs to sales?
A) $144,000
B) $266,667
C) $400,000
D) $666,667
Q2) If sensitivity analysis indicates none of the individual variables will cause a negative NPV under pessimistic conditions,then the:
A) project is ensured to be successful.
B) project's discount rate should be reduced.
C) economic forecasts are possibly overly optimistic.
D) interaction of the variables should be considered.
Q3) Soft capital rationing may be beneficial to a firm if it:
A) reduces a firm's interest expense.
B) weeds out proposals with weaker or biased NPVs.
C) allows managers to select their favorite projects.
D) increases funds to be used for other purposes.
Q4) Define DOL and discuss what affects it and how to interpret it.
Q5) Why is managerial flexibility important in capital budgeting?
To view all questions and flashcards with answers, click on the resource link above. Page 12
Chapter 11: Introduction to Risk,Return,and the Opportunity
Cost
of Capital
Available Study Resources on Quizplus for this Chatper
115 Verified Questions
115 Flashcards
Source URL: https://quizplus.com/quiz/53366
Sample Questions
Q1) Common stocks have offered an annual risk premium in nominal terms,but they have:
A) also offered the risk premium in real terms.
B) not offered a risk premium in real terms.
C) not offered more than corporate bonds in real terms.
D) offered only slightly more than Treasury bonds in real terms.
Q2) What is the variance of return of a three-stock portfolio (each stock being equally weighted)that produced returns of 20%,25%,and 30%?
A) 16.67
B) 33.33
C) 50.00
D) 100.00
Q3) The risk that remains in a stock portfolio after efforts to diversify is known as unique risk.
A)True
B)False
Q4) Calculate the expected return,variance,and standard deviations for investments in either stock A or stock B,or an equally weighted portfolio of both.
B.
13
To view all questions and flashcards with answers, click on the resource link above.
Chapter 12: Risk,Return,and Capital Budgeting
Available Study Resources on Quizplus for this Chatper
125 Verified Questions
125 Flashcards
Source URL: https://quizplus.com/quiz/53365
Sample Questions
Q1) Which of the following statements is correct when Treasury bills yield 7.5% and the market risk premium is 9.5%?
A) The S&P 500 would be expected to yield about 8.50%.
B) The S&P 500 would be expected to yield about 9.50%.
C) The S&P 500 would be expected to yield about 12.68%.
D) The S&P 500 would be expected to yield about 17.00%.
Q2) Given the CAPM's noted empirical difficulties,which of the following statements may be correct concerning a low price-earnings ratio stock?
A) The stock has too much systematic risk.
B) The stock plots above the security market line.
C) The stock plots below the security market line.
D) The stock has a zero beta.
Q3) The stock of Newmont Mining,the world's largest gold producer,has above-average volatility but relatively low beta.Why?
Q4) Investing borrowed funds in a stock portfolio will:
A) increase the beta of the portfolio.
B) decrease the volatility of the portfolio.
C) decrease the expected return on the portfolio.
D) increase the market risk premium.
To view all questions and flashcards with answers, click on the resource link above. Page 14
Chapter 13: The Weighted-Average Cost of Capital and Company Valuation
Available Study Resources on Quizplus for this Chatper
113 Verified Questions
113 Flashcards
Source URL: https://quizplus.com/quiz/53364
Sample Questions
Q1) A company's CFO wants to maintain a target debt-to-equity ratio of 1/4.If the WACC is 18.6%,and the pretax cost of debt is 9.4%,what is the cost of common equity assuming a tax rate of 34%?
A) 19.90%
B) 20.90%
C) 21.70%
D) 22.73%
Q2) The company cost of capital is always at least as large as the weighted-average cost of capital for the same firm.
A)True
B)False
Q3) What is the after-tax cost of preferred stock that sells for $10.00 per share and offers a $1.20 dividend when the tax rate is 35%?
A) 4.20%
B) 7.80%
C) 8.33%
D) 12.00%
Q4) Why is it important to use market values rather than book values when determining the weighted-average cost of capital?
Page 15
To view all questions and flashcards with answers, click on the resource link above.
Chapter 14: Introduction to Corporate Financing
Available Study Resources on Quizplus for this Chatper
130 Verified Questions
130 Flashcards
Source URL: https://quizplus.com/quiz/53363
Sample Questions
Q1) Eurobonds are long-term,corporate liabilities that:
A) are issued by European firms.
B) must be held inside the United States by foreigners.
C) are marketed in many countries.
D) are repaid in U.S. dollars.
Q2) Jay's Jams Inc.was just established with an investment of $5 million in stereo equipment.Jay expects his company to generate $800,000 a year for the next 10 years,followed by $1 million a year for the following 10 years.If Jay's cost of capital is 15%,find the market value and book value of his company.
A) market value = $9.0 million; book value = $5.0 million
B) market value = $5.0 million; book value = $5.3 million
C) market value = $5.3 million; book value = $5.0 million
D) market value = $18.0 million; book value = $5.0 million
Q3) Differences in classes of stock often appear in their right to vote.
A)True
B)False
Q4) In a situation of bankruptcy,only the funded debt will be repaid.
A)True
B)False
Q5) What does it mean to say that financing is a zero-NPV transaction?
To view all questions and flashcards with answers, click on the resource link above. Page 16
Chapter 15: How Corporations Raise Venture Capital and Issue Securities
Available Study Resources on Quizplus for this Chatper
118 Verified Questions
118 Flashcards
Source URL: https://quizplus.com/quiz/53362
Sample Questions
Q1) The Securities and Exchange Commission will not permit securities to be sold:
A) if they have been overpriced.
B) prior to approval of the registration statement.
C) unless the issuer guarantees their value.
D) until a shelf registration exists.
Q2) In a rights offering,the shares are priced at a substantial discount to current market value,which ensures that the shareholders will either exercise the rights themselves or sell them to other investors.
A)True
B)False
Q3) Discuss the potential agency issue with managers' issuance of new equity.
Q4) One advantage to private placements is the low cost associated with its issue.
A)True
B)False
Q5) Discuss the market's reaction to new stock issues.
Q6) Blue-sky laws exist in order to:
A) protect stock underwriters from fraudulent firms.
B) restrict the amount of profit from IPOs.
Page 17
C) control the amount of stock owned by one investor.
D) protect investors from deceptive firms.
To view all questions and flashcards with answers, click on the resource link above.
Page 18
Chapter 16: Debt Policy
Available Study Resources on Quizplus for this Chatper
134 Verified Questions
134 Flashcards
Source URL: https://quizplus.com/quiz/53361
Sample Questions
Q1) When asked about key factors of debt policy,financial managers commonly mention:
A) the tax advantage of debt.
B) the importance of maintaining their credit rating.
C) financial slack.
D) all of these.
Q2) Loan covenants can ensure that companies will accept all positive-NPV investments and reject negative ones.
A)True
B)False
Q3) What is the goal of the capital structure decision? What is the financial manager trying to do?
Q4) If the present value of the tax shield equals the present value of the costs of financial distress,then the:
A) firm is using the optimal level of debt.
B) firm is paying too high an interest rate.
C) firm's market value equals the value of the unlevered firm.
D) firm should increase its use of debt.
Q5) What can be promised by loan covenants? What cannot be ensured by loan covenants?
Q6) Does firm value increase when more debt is used?
Page 19
To view all questions and flashcards with answers, click on the resource link above.
Chapter 17: Payout Policy
Available Study Resources on Quizplus for this Chatper
125 Verified Questions
125 Flashcards
Source URL: https://quizplus.com/quiz/53360
Sample Questions
Q1) Research has shown all of the following to be true of the way corporations determine dividends except:
A) Firms have short-run target payout ratios.
B) Firms have long-run target payout ratios.
C) The focus is more on dividend changes rather than absolute dividends.
D) Managers try to avoid dividend changes that may need to be reversed.
Q2) A firm's dividend policy involves a trade-off between:
A) a large asset base and a small asset base.
B) high share price versus low share price.
C) internal versus external financing of investment.
D) all of these.
Q3) With a stock repurchase:
A) no cash flow is extended from the company.
B) the company obtains some of its stock, and the price may rise.
C) shareholders' ownership in the company will decrease.
D) the equity of the firm will increase.
Q4) Congratulations! A stock of which you own 100 shares has just split three for two.Its market price before the split was $30 per share.Now discuss what you would expect to happen with this stock and your ownership interests.
To view all questions and flashcards with answers, click on the resource link above. Page 20
Chapter 18: Long-Term Financial Planning
Available Study Resources on Quizplus for this Chatper
119 Verified Questions
119 Flashcards
Source URL: https://quizplus.com/quiz/53359
Sample Questions
Q1) Which of the following is not a reason for building financial plans?
A) Considering options
B) Contingency planning
C) Choosing the optimal plan
D) Forcing consistency
Q2) Calculate the sustainable growth rate for a firm with an 8% profit margin,an asset turnover of 1.25,a total debt ratio of 45%,and a plowback ratio of 65%.Assuming that the ROE remains constant,how large can the sustainable growth rate become?
Q3) Financial planning is a process of deciding which risks to take.
A)True
B)False
Q4) How much is required in external financing if first-stage pro forma statements indicate $1 million in net income,$300,000 in dividends,and a $900,000 increase in total assets?
A) $200,000
B) $500,000
C) $800,000
D) No external financing is required.
Q5) How are financial planning models constructed?
To view all questions and flashcards with answers, click on the resource link above. Page 21
Chapter 19: Short-Term Financial Planning
Available Study Resources on Quizplus for this Chatper
120 Verified Questions
120 Flashcards
Source URL: https://quizplus.com/quiz/53358
Sample Questions
Q1) A firm can reduce the cash conversion cycle by selling fewer goods on credit.
A)True
B)False
Q2) If a firm decided to speed up its collection from its customers by reducing the receivables period and kept the inventory period and payable period the same,then:
A) cash conversion cycle will increase.
B) cash conversion cycle will decrease.
C) the firm's investment in working capital will be minimized.
D) unable to determine from the information provided.
Q3) A firm's permanent working capital refers to the:
A) difference between current assets and current liabilities.
B) minimum difference between current assets and current liabilities.
C) portion of net working capital that is financed from long-term sources.
D) amounts that must be held to meet debt covenants.
Q4) As for the preparation of cash budgets,capital expenditures are:
A) not included because these items are depreciated.
B) included as sources of operating cash.
C) included as uses of cash and make the budget lumpy.
D) traditionally offset as a use of cash by interest income.
To view all questions and flashcards with answers, click on the resource link above. Page 22
Chapter 12: Risk, Return, and Capital Budgeting
Available Study Resources on Quizplus for this Chatper
141 Verified Questions
141 Flashcards
Source URL: https://quizplus.com/quiz/53357
Sample Questions
Q1) Which of the following statements is typically correct concerning the break-even probability of collection for repeat sale customers?
A) Break-even probability is higher than for single sale customers.
B) Break-even probability is lower than for single sale customers.
C) The break-even probability does not change between single sale and repeat sale customers.
D) Sales should never be refused for customers offering the potential of repeat sales.
Q2) Would it ever make financial sense to forgo cash discounts that are offered from suppliers? Can you provide an example?
Q3) One way of handling uncertain cash flows is to set an upper and lower limit for cash balances and a return point to which the cash balance is brought to when the upper or lower limit is reached.
A)True B)False
Q4) Bond ratings are an inexpensive source of credit information on publicly traded companies.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Chapter 21: Mergers, Acquisitions, and Corporate Control
Available Study Resources on Quizplus for this Chatper
125 Verified Questions
125 Flashcards
Source URL: https://quizplus.com/quiz/53356
Sample Questions
Q1) When one firm merges with another,the:
A) boards of directors will merge also.
B) merger must be approved by 75% of the shareholders of the target firm.
C) merger must be approved by at least 50% of the shareholders of the target firm.
D) target firm will cease to exist.
Q2) In high-tech industries an acrimonious takeover battle may cause many of the target's most valued staff to leave.
A)True
B)False
Q3) Which of the following is not correct concerning a proposed merger of firms?
A) The acquired firm will cease to exist.
B) Shareholders of the acquired firm may receive securities in the acquiring firm.
C) Mergers are sometimes combinations of equals.
D) Shareholder approval to merge is not required.
Q4) A tender offer is an agreement between the management and shareholders of a firm to buy back its own shares.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 24
Chapter 22: International Financial Management
Available Study Resources on Quizplus for this Chatper
117 Verified Questions
117 Flashcards
Source URL: https://quizplus.com/quiz/53355
Sample Questions
Q1) According to the theory of purchasing power parity,exchange rates will adjust so that differences in:
A) interest rates across countries are offset.
B) forward rates across countries are offset.
C) expected inflation across countries are offset.
D) international Fisher rates are offset.
Q2) If the mark is trading at a forward discount relative to the dollar,then you'll receive less marks per dollar in the future.
A)True
B)False
Q3) How many dollars will it take for a U.S.citizen to purchase a Japanese product priced at 60,000 yen if the indirect exchange rate is 104/1?
A) $577
B) $700
C) $5,769
D) $62,400
Q4) Transaction risk is easily identified and hedged.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 25
Chapter 23: Options
Available Study Resources on Quizplus for this Chatper
115 Verified Questions
115 Flashcards
Source URL: https://quizplus.com/quiz/53354
Sample Questions
Q1) Which of the following conditions will typically be present when a firm calls a bond prior to maturity?
A) The firm is in poor financial health.
B) Interest rates have risen substantially since the bond was issued.
C) Interest rates have fallen substantially since the bond was issued.
D) The call option is ready to expire.
Q2) Define and briefly explain the relationship between the value of a call option and the following five factors: stock price,exercise price,interest rate,time to expiration,volatility of stock price.
Q3) A stock is selling at $85 at the expiration of an option contract.Which of the following options will most likely be exercised?
A) Buyer of a call option with exercise price of $65
B) Buyer of a put option with exercise price of $65
C) Buyer of a call option with exercise price of $85
D) Buyer of a put option with exercise price of $85
Q4) At expiration a call option will have no value if the stock price is less than exercise price.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 26
Chapter 24: Risk Management
Available Study Resources on Quizplus for this Chatper
118 Verified Questions
118 Flashcards
Source URL: https://quizplus.com/quiz/53353
Sample Questions
Q1) The seller of a copper futures contract noticed that his account was marked with a $500 gain yesterday.If the standardized contract requires delivery of 25,000 pounds of copper,what happened that day to the price of copper?
A) The price closed down $0.02 per pound.
B) The price closed up $0.02 per pound.
C) The price closed down $0.20 per pound.
D) The price closed up $0.20 per pound.
Q2) Consolidated Bakeries needs to acquire 100,000 bushels of wheat each quarter.The spot price is $3.75 per bushel but is expected to increase.Consolidated can purchase call options on 5,000 bushels of wheat with a strike price of $3.80 per bushel and a premium of $0.03 per bushel.Calculate total expected savings from purchasing the options if wheat is forecasted to sell at $3.90 per bushel in 3 months.Conversely,how much did it cost to hedge if the wheat price is unchanged in 3 months?
Q3) Speculators are a necessary component of well-functioning futures markets. A)True B)False
Q4) There is perhaps a negative connotation about the term "speculators." Discuss the essential purpose that they serve in providing the ability to hedge.
To view all questions and flashcards with answers, click on the resource link above.
Page 27