Financial Decision Making Test
Bank
Course Introduction
Financial Decision Making introduces students to the essential concepts, tools, and analytical techniques necessary for making informed financial choices within organizations and personal contexts. The course covers key topics such as time value of money, risk and return analysis, capital budgeting, valuation of assets, cost of capital, financial statement interpretation, and strategic investment decisions. Through real-world case studies and practical exercises, students develop the ability to assess financial situations, evaluate alternative courses of action, and recommend solutions that align with organizational objectives and risk tolerances. By the end of the course, students will be equipped with decision-making frameworks that support effective financial management and value creation.
Recommended Textbook
Introduction to Finance Markets Investments and Financial Management 15th Edition by Ronald
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18 Chapters
2654 Verified Questions
2654 Flashcards
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Chapter 1: The Financial Environment
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104 Verified Questions
104 Flashcards
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Sample Questions
Q1) _______________ is the study of how growth-driven, performance-focused, early-stage (from development through early rapid growth) firms raise financial capital and manage their operations and assets.
A)Personal finance
B)Corporate finance
C)Entrepreneurial finance
D)Investment banking
E)none of the above
Answer: C
Q2) Financial markets encourage investment by:
A)providing capital at lower rates than provided by banks
B)providing electronic execution of transactions which are faster and cheaper than other methods
C)providing the means for savers to easily and quickly convert financial assets into cash when needed
D)none of the above
Answer: C
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Chapter 2: Money and the Monetary System
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148 Verified Questions
148 Flashcards
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Sample Questions
Q1) _____________ is a short-term debt instrument issued by commercial banks in denominations of $100,000 or more with typical maturities ranging from one month to one year that have an active secondary market that allows short-term investors to easily match their cash or liquidity needs when they arise.
A)A negotiable certificate of deposit (NCD)
B)A repurchase agreement
C)Commercial paper
D)Government bond
E)all of the above
Answer: A
Q2) Which of the following describes the basic function of money?
A)store of purchasing power
B)standard of value
C)medium of exchange
D)liquidity
Answer: C
Q3) M1 includes currency and demand deposits but excludes travelers' checks.
A)True
B)False
Answer: False
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Chapter 3: Banks and Other Financial Institutions
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150 Verified Questions
150 Flashcards
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Sample Questions
Q1) _______________ are cooperative nonprofit organizations that exist primarily to provide member depositors with consumer credit, including the financing of automobiles and the purchase of homes, and derive their funds almost entirely from the savings of their members.
A)Commercial banks
B)Thrift institutions
C)Savings banks
D)Brokerage firms
E)none of the above
Answer: E
Q2) __________________ are the two important forms of contractual savings organizations.
A)Insurance companies and brokerage firms
B)banks and insurance companies
C)Investment banks and pension funds
D)Pension funds and brokerage firms
E)none of the above
Answer: E
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Page 5
Chapter 4: Federal Reserve System
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155 Verified Questions
155 Flashcards
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Sample Questions
Q1) All commercial banks are members of the Fed.
A)True
B)False
Q2) Discount policy is still a major instrument of monetary policy.
A)True
B)False
Q3) The interest rate that a bank must pay to borrow from its regional federal reserve bank is called
A)the National Discount Rate
B)the Prime Rate
C)the Federal Discount Rate
D)none of the above
Q4) The only bank asset that can be counted as reserve is deposits with the Reserve Banks.
A)True
B)False
Q5) Open market operations involve the buying and selling of U.S.government securities.
A)True
B)False
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Chapter 5: Policy Makers and the Money Supply
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139 Verified Questions
139 Flashcards
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Sample Questions
Q1) The multiplying capacity of primary deposits is reduced if:
A)no additional cash is withdrawn for hand-to-hand circulation
B)businesses increase their petty cash funds in U.S.banks
C)foreign countries deposit funds in U.S.banks
D)the U.S.Treasury deposits funds
Q2) Nations that continually operate with an international trade surplus will become economically stronger.
A)True
B)False
Q3) Price inflation:
A)is relatively unimportant to individuals
B)is considered to be acceptable in the nation's quest for high levels of employment
C)levels the playing field and encourages investment by reducing the uncertainty about future returns
D)is almost always due to financing wars
E)none of the above
Q4) The U.S.Treasury has little power to influence money markets.
A)True
B)False
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Chapter 6: International Finance and Trade
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151 Verified Questions
151 Flashcards
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Sample Questions
Q1) The Export-Import Bank:
A)makes loans and offers guarantees to foreign exporters to the United States
B)may offer emergency credits to assist other countries to maintain their level of exports to the United States
C)makes loans or offers guarantees when the soundness of the transaction is in doubt
D)makes loans to domestic exporters to encourage foreign trade
E)none of the above
Q2) Political risk is the risk associated with possible slow or negative economic growth, as well as with the likelihood of variability.
A)True
B)False
Q3) Quotations of foreign exchange rates in the many cities of the world are identical or nearly so because of:
A)central bank control
B)price fixing
C)clearinghouse activities
D)arbitrage activities
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Page 8
Chapter 7: Savings and Investment Process
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146 Verified Questions
146 Flashcards
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Sample Questions
Q1) Direct securities:
A)are contracts between savers and institutions
B)are deposited directly into an investor's account
C)represent the financial asset of the borrower and the claim on the saver
D)represent the claim on the institution
E)none of the above
Q2) Which of the following is an example of indirect financing?
A)corporate bonds
B)corporate stocks
C)business bank loans
D)U.S.government bonds
Q3) BDirect benefit payments for individuals amount to over half of total expenditures of the federal government.
A)True
B)False
Q4) Securitization is the process of insuring mortgage loans against default.
A)True
B)False
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Page 9
Chapter 8: Interest Rates
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162 Verified Questions
162 Flashcards
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Sample Questions
Q1) As the economy begins moving out of a recessionary period, the yield curve is generally:
A)upward sloping
B)flattened out
C)downward sloping
D)discontinuous
Q2) When investors expect __________ inflation rates they will require __________ nominal interest rates so that a real rate of return will remain after the inflation.
A)higher, higher
B)higher, lower
C)lower, higher
D)none of the above
Q3) The term structure of interest rates indicates the relation between interest rates and the maturity of comparable quality debt instruments.
A)True
B)False
Q4) The most important holders of Treasury bills are corporations and individuals.
A)True
B)False
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Chapter 9: Time Value of Money
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137 Verified Questions
137 Flashcards
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Sample Questions
Q1) You have just won a lottery! You will receive $50,000 a year beginning one year from now for 20 years.If your required rate of return is 10%, what is the present value of your winning lottery ticket?
A)$418,250
B)$425,700
C)$444,640
D)$453,850
Q2) If the interest rate is 0% for 10 years, then the present value will be less than the future value.
A)True
B)False
Q3) The values of stocks and bonds are not affected by time value of money concepts.
A)True B)False
Q4) Level cash flow amounts that occur at the end of each period, beginning starting at the end of the first period, form are an annuity due.
A)True
B)False
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11
Chapter 10: Bonds and Stocks: Characteristics and Valuation
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158 Verified Questions
158 Flashcards
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Sample Questions
Q1) A debt holder may force the firm to abide by the terms of the debt contract even if the result is reorganization or dissolution of the firm.
A)True
B)False
Q2) A bond will sell at a premium if its required return or discount rate is greater than its coupon rate.
A)True
B)False
Q3) A bond's value is the same as its principal amount when the coupon rate is:
A)the same as the required rate of return
B)higher than the required rate of return
C)lower than the required rate of return
D)lower than the inflation rate
Q4) A bond that allows investors to force the issuer to redeem the bond prior to maturity is called a:
A)convertible bond
B)callable bond
C)debenture bond
D)putable bond
Chapter 11: Securities Markets
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153 Verified Questions
153 Flashcards
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Sample Questions
Q1) If a Microsoft January 20 put option with a strike price of $20 were about to expire and the market price of the underlying Microsoft stock was $15.00, the price of the put option would have to be __________ to eliminate arbitrage opportunities.
A)$1.00
B)$2.00
C)$4.00
D)$6.00
E)none of the above.
Q2) Which one of the following is not a cost to the issuing firm of going public with an initial stock offering?
A)direct costs (legal fees, accounting fees, etc.)
B)underwriter's spread
C)overpricing
D)underpricing
Q3) Existing securities are traded:
A)in the primary markets
B)in the secondary markets
C)only on organized exchanges
D)only over-the-counter
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Page 13
Chapter 12: Financial Return and Risk Concepts
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145 Verified Questions
145 Flashcards
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Sample Questions
Q1) A (n) ________ portfolio maximizes return for a given level of risk, or minimizes risk for a given level of return. Same as 86 with "none of the above" answer
A)technical
B)profit maximizing
C)idiosyncratic
D)diverse
E)none of the above
Q2) Systematic risk is rewarded with a premiumhigher returns in the market because:
A)it is associated with market movements which cannot be eliminated through diversification
B)it is a microeconomic risk
C)that risk is unique to a firm or an industry
D)none of the above
Q3) In an efficient market:
A)it is fairly easy to find stocks whose prices do not fairly reflect the present value of future expected cash flows
B)unexpected news will cause a rapid change in prices
C)information flows are random, both in timing and in content
D)all the above
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Chapter 13: Business Organization and Financial Data
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151 Flashcards
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Sample Questions
Q1) On the income statement, gross profit is defined as:
A)operating profits minus operating expenses
B)gross profit minus operating expenses
C)sales revenue minus cost of goods sold
D)sales revenue minus operating expenses
E)none of the above
Q2) The U.S.federal government body that regulates the sale and listing of securities on U.S.financial markets is the:receives corporations' annual reports is the:
A)IRS
B)FRS
C)SEC
D)FBI
E)none of the above
Q3) Cash flows from financing activities might include:
A)increase in notes bonds payable
B)increase in accounts payable
C)depreciation
D)all the above
E)none of the above
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Page 15
Chapter 14: Financial Analysis and Long-Term Financial Planning
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145 Verified Questions
145 Flashcards
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Sample Questions
Q1) The quick ratio of a firm with current assets of $300,000, current liabilities of $100,000 and inventory of $100,000 is:
A)1:1
B)2:1
C)3:1
D)4:1
Q2) Cross-sectional analysis is used to evaluate a firm's performance over time.
A)True
B)False
Q3) All other things being equal, an increase in the amount of fixed operating costs for a firm would:
A)increase the break-even point
B)decrease the break-even point
C)have no impact on the break-even point
D)not enough information given
Q4) Ratio analysis is a financial technique that involves dividing various financial statements numbers into one another.
A)True
B)False
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Chapter 15: Managing Working Capital
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153 Verified Questions
153 Flashcards
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Sample Questions
Q1) The ________ is the time period that elapses from the point when the firm makes the outlay to purchase raw materials on account to the point when payment is made to the supplier of the goods. None of the above clone of prior item.
A)cash conversion cycle
B)operating cycle
C)average age of inventory
D)average collection period
E)none of the above
Q2) BP has an operating cycle of 120 150 days, an average collection period of 40 days, and an average payment period of 30 20 days.Based on this information, BPs average age of inventory is ________ days.
A)50130
B)60
C)7090
D)80110
E)none of the above
Q3) A financial manager should strive to maximize the investment in current assets.
A)True
B)False
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Page 17
Chapter 16: Short-Term Business Financing
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143 Verified Questions
143 Flashcards
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Sample Questions
Q1) Industry characteristics can affect whether the firm chooses an aggressive, conservative, or maturity matching strategy for financing its assets.
A)True
B)False
Q2) An advantage of short-term borrowing is the need for frequent renewals.
A)True
B)False
Q3) Under ___________________ a factor pays the firm for its receivables before the account due date.
A)reverse factoring
B)maturity factoring
C)advance factoring
D)nonrecourse factoring
Q4) Service industries tend to have larger proportions of fixed assets to current assets.
A)True
B)False
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Chapter 17: Capital Budgeting Analysis
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163 Verified Questions
163 Flashcards
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Sample Questions
Q1) When considering the time value of money, which of the following four methods of project evaluation would appear to be the least satisfactory?
A)internal rate of return
B)profitability index
C)net present value
D)payback period method
Q2) The profitability index is calculated by subtracting the net investment from the present value of the cash flows.
A)True
B)False
Q3) Cannibalization occurs when a project robs cash flow from the firm's existing line of business.
A)True
B)False
Q4) The selection stage involves applying the appropriate capital budgeting techniques to help make a final decision.
A)True
B)False
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Page 19
Chapter 18: Capital Structure and the Cost of Capital
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151 Verified Questions
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Sample Questions
Q1) The internal growth rate measures how quickly a firm can grow when it uses both internal equity and debt financing to keep its capital structure constant over time.
A)True
B)False
Q2) All of the following methods can be used to estimate the cost of equity except:
A)Like debt and preferred stock, cash flows from common equity are fixed.
B)Firms have two sources of common equity, retained earnings and new stock issues, but only one single cost of common equity.
C)From the shareholders' perspective, the opportunity cost of retained earnings is the return the shareholders could earn by investing the funds in long-term treasury securities.
D)If the firm cannot invest its retained earnings to achieve a sufficient risk-adjusted return, shareholders would be better off receiving additional shares of stock.
E)None of the above statements are correct.
Clone of 2 prior items
Q3) A non-optimal capital structure may lead to higher financing costs.
A)True
B)False
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