Finance for Managers Test Questions
Course Introduction
Finance for Managers provides a comprehensive overview of the fundamental concepts and tools necessary for effective financial decision-making in a managerial context. The course covers topics such as financial statement analysis, budgeting, forecasting, cost control, and capital investment analysis. Emphasizing practical application, students will learn how to interpret financial data, assess business performance, allocate resources efficiently, and develop strategies to enhance organizational value. By integrating financial principles with managerial practices, the course equips students with the skills needed to make informed decisions that drive business success.
Recommended Textbook Fundamentals of Investments Valuation and Management 7th Edition by Bradford Jordan
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Page 2
Chapter 1: A Brief History of Risk and Return
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Sample Questions
Q1) Based on the period 1926-2012,the risk premium for U.S.Treasury bills was:
A)0.0 percent.
B)1.2 percent.
C)2.0 percent.
D)2.4 percent.
E)2.7 percent.
Answer: A
Q2) The arithmetic average return is the:
A)summation of the returns for a number of years, t, divided by (t - 1).
B)compound total return for a period of years, t, divided by t.
C)average compound return earned per year over a multi-year period.
D)average squared return earned in a single year.
E)return earned in an average year over a multi-year period.
Answer: E
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Chapter 2: The Investment Process
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Sample Questions
Q1) You just sold 1,200 shares of stock short at a price per share of $13.50.The initial margin requirement is 60 percent and the maintenance margin is 30 percent.What is your initial equity position?
A)$6,480
B)$7,520
C)$9,720
D)$10,520
E)$16,200
Answer: C
Q2) An investor with a long position in a security will make money:
A)if the price of the security increases.
B)if the price of the security declines.
C)if the price of the security remains stable.
D)only if the security has been purchased on margin.
E)only by shorting the security.
Answer: A
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Chapter 3: Overview of Security Types
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Sample Questions
Q1) A 7 percent coupon bond has a face value of $1,000 and pays interest annually.The current yield is 6.8 percent.What is the current price of this bond?
A)$971.43
B)$978.41
C)$1,068.00
D)$1,029.41
E)$1,104.00
Answer: D
Q2) You own 700 shares of ZZ Industries stock which you purchased for $36.60 a share.You would like to have the right to sell your shares for $32.50 a share.What will be the cost to obtain this right?
A)$0.40
B)$0.90
C)$7.00
D)$396.00
E)$900.00
Answer: C
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Chapter 4: Mutual Funds and Other Investment Companies
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Sample Questions
Q1) The net asset value of a money market mutual fund:
A)is dependent upon the value of the fund's assets.
B)is guaranteed to be $1 a share.
C)fluctuates as new shares are issued and old shares are redeemed.
D)varies inversely with market interest rates.
E)is insured by the sponsoring investment advisory firm.
Q2) Which type of stock fund focuses primarily on current income?
A)growth and income
B)small-company
C)equity income
D)capital appreciation
E)growth
Q3) The Stone Wall Fund has an offer price of $32.90 and a front-end load of 3.25 percent. What is the net asset value?
A)$31.68
B)$31.75
C)$31.83
D)$32.90
E)$34.05
Q4) What are the primary differences between an ETF and an ETN?
Page 6
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Chapter 5: The Stock Market
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Sample Questions
Q1) An order to buy shares of stock at a stated price or less is called a _____ order.
A)limit
B)stop
C)market
D)short
E)bid
Q2) After the trigger point is reached,a stop-loss order will be executed at the:
A)trigger price.
B)stop price.
C)trigger price or better.
D)stop price or better.
E)market price.
Q3) In order to currently trade on the floor of the NYSE,members must:
A)be registered as a floor trader
B)own a seat
C)purchase a trading license
D)be a specialist
E)be designated as a floor broker
Q4) Describe the primary advantage and disadvantage of a limit sell order.
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Chapter 6: Common Stock Valuation
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Sample Questions
Q1) The Satellite Shoppe has current sales per share of $8.40.The sales per share are expected to increase at an annual rate of 12 percent.The historical P/E ratio is 16.2 and the historical P/S ratio is 7.6.What is the expected price of this stock one year from now?
A)$59.72
B)$66.67
C)$71.50
D)$115.18
E)$129.00
Q2) Leslie Apparel has a current book value per share of $5.15 and current earnings per share of $1.13.The required return is 14 percent and the expected earnings growth rate is 4.5 percent.What is one share of this stock worth today?
A)$7.44
B)$8.77
C)$9.99
D)$10.65
E)$11.13
Q3) Identify three causes for a decrease in a firm's sustainable rate of growth.
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Chapter 7: Stock Price Behavior and Market Efficiency
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Q1) Swenson Co.announced its merger plans on August 25 and had a daily return of 0.8 percent.Tyler Co.announced its merger plans on August 26 and had a daily return of 0.6 percent.The Underwood Co.announced its merger plans on August 27 and had a daily return of -0.5 percent.The daily market returns for August 25 through August 27 were 0.2,0.3,and -0.4,respectively.What is the combined cumulative abnormal return for the announcement date?
A)0.0 percent
B)0.2 percent
C)0.6 percent
D)0.8 percent
E)1.0 percent
Q2) Which one of the following terms is used to describe a market situation where prices are much higher than either fundamental or rational analysis would tend to support?
A)bear market
B)cloud
C)inversion
D)bubble
E)crash aversion
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Page 9
Chapter 8: Behavioral Finance and the Psychology of Investing
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Sample Questions
Q1) Which one of the following is seen as a bearish indicator?
A)decreased short selling
B)increased buying by odd-lot traders
C)shorter skirt lengths
D)a Super Bowl win by a National Football League team
E)tight Bollinger bands
Q2) Which one of the following risks is related to irrational beliefs?
A)systematic
B)firm-specific
C)industry-specific
D)sentiment-based
E)market
Q3) What is the primary purpose of Dow theory?
A)to measure the level of investor optimism and pessimism
B)to analyze daily market movements
C)to identify and measure market waves
D)to eliminate market corrections
E)to signal changes in the market's primary direction
Q4) Explain the basics of prospect theory and provide an example that illustrates this theory.
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Chapter 9: Interest Rates
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Sample Questions
Q1) Inflation-indexed Treasury securities:
I.adjust the principal amount on an annual basis.
II.are default-free.
III.offer a positive real rate of return.
IV.have a variable coupon rate.
A)II and III only
B)III and IV only
C)I, II, and III only
D)I, II, and IV only
E)I, II, III, and IV
Q2) Which one of the following rates is used by brokerage firms as the basis for determining margin loan rates?
A)discount
B)Fed funds
C)prime
D)brokerage
E)call money
Q3) Write a short paragraph comparing a bank discount rate to a bond equivalent rate.
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Chapter 10: Bond Prices and Yields
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Q1) All else constant,which of the following will decrease the Macaulay duration of a straight bond?
I.reducing the coupon payment
II.shortening the time to maturity
III.lowering the yield to maturity
A)I only
B)II only
C)II and III only
D)I and II only
E)I and III only
Q2) Dynamic immunization is primarily aimed at reducing which one of the following risks?
A)default
B)liquidity
C)reinvestment
D)inflation
E)taxation
Q3) Josh is saving money to purchase a home in 9 years.Explain why Josh should create a coupon bond portfolio with a duration of 9 years,rather than purchasing coupon bonds that mature in 9 years.
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Chapter 11: Diversification and Risky Asset Allocation
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Sample Questions
Q1) Alicia has a portfolio consisting of two stocks,X and Y,which is valued at $89,100.Stock X is worth $57,800.What is the portfolio weight of stock Y?
A).351
B).390
C).523
D).610
E).649
Q2) Assume the returns on Stock X were positive in January,February,April,July,and November.The other months the returns on Stock X were negative.The returns on Stock Y were positive in January,April,May,July,August,and October and negative the remaining months.Which one of the following correlation coefficients best describes the relationship between Stock X and Stock Y?
A)-1.0
B)-0.5
C)0.0
D)0.5
E)1.0
Q3) Explain the primary goal of portfolio diversification as it relates to asset allocation and correlation.
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Chapter 12: Return, Risk, and the Security Market Line
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Q1) The risk-free rate is 4.1 percent,the market rate is 13.2 percent,and the expected return on a stock is 15.84 percent.What is the beta of the stock?
A).52
B).81
C)1.13
D)1.19
E)1.29
Q2) Where will a security plot in relation to the security market line (SML)if it is considered to be a good purchase because it is underpriced?
A)above the SML
B)either on or above the SML
C)on the SML
D)on or below the SML
E)below the SML
Q3) Explain the relationship between the security market line and market efficiency.
Q4) Identify and describe each of the three components of a security's expected return according to the capital asset pricing model.
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14
Chapter 13: Performance Evaluation and Risk Management
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Q1) Your portfolio has an expected annual return of 11.6 percent.What is the two-year expected return?
A)11.60 percent
B)14.65 percent
C)16.40 percent
D)21.60 percent
E)23.20 percent
Q2) Which one of the following statements is true concerning VaR?
A)VaR ignores time.
B)VaR only applies to time periods of one year.
C)VaR applies only to time periods equal to or greater than one year.
D)VaR values can be computed for monthly time periods.
E)VaR is accurate only for time periods less than one year.
Q3) Your portfolio has a standard deviation of 11.7 percent.What is the two-year standard deviation?
A)14.87 percent
B)15.80 percent
C)16.55 percent
D)23.40 percent
E)24.15 percent
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Chapter 14: Futures Contracts
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Sample Questions
Q1) An investor who shifts risk is referred to as which one of the following?
A)hedger
B)short seller
C)speculator
D)broker
E)dealer
Q2) You have a market position which allows you to profit when market prices increase but causes you a loss when market prices decline.This position is defined by which one of the following terms?
A)forward position
B)futures position
C)long position
D)short position
E)speculative position
Q3) How is a futures contract on the S&P 500 settled?
A)cash
B)shares of stock selected by the contract buyer
C)shares of stock selected by the contract seller
D)shares of stock equivalent to those in the index
E)delivery of a Treasury bill equal in value to the settlement amount
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Chapter 15: Stock Options
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Questions
Q1) Which one of the following terms is defined as an option that would have a positive payoff if exercised now?
A)in-the-money option
B)out-of-the-money option
C)straddle
D)crossed option
E)cash-settled
Q2) Gerold purchased 3 put option contracts at an option premium of $0.95 and a strike price of $40.At expiration,the stock price was $42.25 per share.What is his percentage return?
A)-100 percent
B)0 percent
C)15.79 percent
D)21.62 percent
E)31.58 percent
Q3) You wrote a put with a strike price of $20 and a premium of $1.Draw a graph depicting your profits or losses for stock prices ranging from $0 to $40.Be sure to completely label your graph.
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Chapter 16: Option Valuation
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Q1) Which one of the following is defined as an estimate of stock price volatility obtained from an option price?
A)calculated alpha
B)estimated variance
C)implied theta
D)VIX
E)implied standard deviation
Q2) Which two of the following are key to making SPX options an easy choice as a hedge against an equity portfolio?
I.European style
II.American style
III.trade in whole or partial contracts
IV.cash settlement
A)III only
B)I and III only
C)I and IV only
D)II and III only
E)II and IV only
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Chapter 17: Projecting Cash Flow and Earnings
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Q1) Smith's Corner Market had annual sales of $425,300 and total assets of $366,000.What is the return on assets if the profit margin is 11 percent?
A)8.2 percent
B)9.8 percent
C)10.6 percent
D)11.0 percent
E)12.8 percent
Q2) Which one of the following is defined as anything a firm owns that has value?
A)equity
B)asset
C)liability
D)cash inflow
E)cash outflow
Q3) Income and expense items NOT realized in cash form are called which one of the following?
A)deductible expenses
B)noncash items
C)intangible assets
D)operating income
E)financing activities
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Chapter 18: Corporate and Government Bonds
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Q1) A pension fund purchases bonds so that the payments from the bonds provide sufficient cash inflow in a timely manner to offset the cash outflows from the pension fund.What is this investment strategy called?
A)cash flow matching
B)cash diversification
C)cash stabilization
D)in-out investing
E)plain vanilla matching
Q2) Which one of the following defines an in-the-money bond?
A)secured bond with collateral value that exceeds the bond's price
B)callable bond with a call price that exceeds the current market price
C)put bond with a put price that exceeds the current market price
D)convertible bond with a call price that exceeds its conversion value
E)convertible bond with a conversion value that exceeds its call price
Q3) Why would an investor prefer a TIPS which offers a lower coupon rate over a comparable T-note with a higher coupon rate?
Q4) Explain how the imputed interest is computed on a U.S.Treasury bill.
Q5) What is the advantage of purchasing a STRIPS over a Treasury note?
Q6) How is the minimal value for a convertible bond determined?
Page 20
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Chapter 19: Global Economic Activity and Industry Analysis
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Q1) If wages grew 3.15 percent in 2013,but inflation was 2.75 percent,what was the approximate real increase in wages?
A)0.10%
B)0.20%
C)0.30%
D)0.40%
E)0.50%
Q2) Which one of the following is not one of the elements in the industry life cycle?
A)Start-up
B)Rapid growth
C)Consolidation
D)Maturity
E)relative decline
Q3) The so-called "M1" money supply includes which of the following?
A)currency and checking deposits
B)currency and money markets
C)currency and time deposits
D)currency, time deposits and money markets
E)checking and time deposits
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Chapter 20: Mortgage-Backed Securities
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Q1) The _____ duration for mortgage-backed securities is the duration measure that accounts for how mortgage prepayments are affected by changes in interest rates.
A)mean
B)modified
C)average
D)effective
E)adjusted
Q2) Which one of the following is the type of mortgage pool that guarantees timely payment of interest and principal?
A)prepaid
B)refinanced
C)secured
D)fully amortized
E)fully modified
Q3) How do CMOs increase the availability of mortgage funds?
Q4) Explain what a reverse mortgage is,how it works,and who it is intended to help.
Q5) What are the advantages and the disadvantages of a homeowner selecting a 30-year mortgage rather than a 20-year mortgage?
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