Financial Planning
Final Test Solutions
Course Introduction
Financial Planning is a course designed to introduce students to the fundamental concepts and practices of managing personal and organizational finances. The course covers key topics such as budgeting, saving, investing, risk management, retirement planning, tax strategies, and estate planning. Students will learn how to set financial goals, analyze financial statements, evaluate financial products, and develop comprehensive financial plans. Emphasizing both theoretical principles and practical application, this course equips students with the analytical tools and critical thinking skills necessary to make informed financial decisions and achieve long-term financial security.
Recommended Textbook
Introduction to Finance Markets Investments and Financial Management 14th Edition by Ronald Available Study
18 Chapters 2711 Verified Questions 2711 Flashcards
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Chapter 1: The Financial Environment
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Sample Questions
Q1) An effective financial system must have:
A)several sets of policy makers who pass laws and make decisions relating to fiscal and monetary policies
B)an efficient monetary system for creating and transferring money
C)financial markets that facilitate the transfer of financial assets amongst individuals,institutions,and businesses
D)all of the above
Answer: D
Q2) The list of financial institutions that either failed or were merged with other firms or bailed out by the federal government during financial crisis of 2007-2009 include all of the following except:
A)Lehman Brothers
B)American International Group
C)Merrill Lynch
D)Washington Mutual
E)All of the above firms failed,merged or were bailed out
Answer: E
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Page 3
Chapter 2: Money and the Monetary System
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Sample Questions
Q1) Which of the following statements is false?
A)Until the Civil War,the federal government was the major issuer of paper money.
B)In order for traders in early economies to accept or barter for items,the supply of the item had to be limited in relation to the desire of individual in the economy to have the item.
C)Collectors of old coins and paper money are referred to as numismatists.
D)All of the above statements are false.
Answer: A
Q2) Deposit money is backed by the creditworthiness of the depository institution that issued the deposit.
A)True
B)False
Answer: True
Q3) Which of the following are not included in M1?
A)negotiable orders of withdrawal
B)automatic transfer service accounts
C)money market deposit accounts
D)credit union share draft accounts
Answer: C
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Page 4
Chapter 3: Banks and Other Financial Institutions
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Sample Questions
Q1) The Second Bank of the United States was created to:
A)replace the First Bank of the United States
B)appease political interests
C)restore order to chaotic banking conditions
D)all the above
Answer: C
Q2) The Depository Institutions Deregulation and Monetary Control Act of 1980 did not:
A)eliminate all Regulation Q requirements
B)allow all depository institutions to borrow from the Fed on the same basis
C)increase federal deposit insurance
D)amend the Home Owner's Loan Act of 1993
Answer: A
Q3) Primary capital consists of owners' capital,preferred stock,debt convertible into common stock,and loan loss reserves.
A)True
B)False
Answer: True
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Chapter 4: Federal Reserve System
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Sample Questions
Q1) The Fed has legal responsibility for administering:
A)the Bank Holding Company Act of 1956
B)the Bank Merger Act of 1960
C)the Change in Bank Control Act of 1978
D)all of the above
Q2) Federal Reserve actions that offset unexpected monetary developments and contribute to the smooth everyday functioning of the economy are called
A)defensive actions
B)dynamic actions
C)accommodative actions
D)none of the above
Q3) Three essential needs of a well-operating financial system include all of the following EXCEPT:
A)an efficient national payments system
B)an elastic or flexible money supply
C)a bank insurance system
D)a lending/borrowing mechanism
Q4) Member banks of the Federal Reserve System may not borrow from the Fed.
A)True
B)False
Page 6
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Chapter 5: Policy Makers and the Money Supply
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Sample Questions
Q1) During the 1980s and 1990s,the United States primarily:
A)imported more than it exported
B)exported more than it imported
C)imported about as much as it exported
D)none of the above
Q2) The velocity of money is expressed as the average number of times each dollar is spend on purchases of goods and services,and it is calculated as real GDP divided by M1.
A)True
B)False
Q3) In an effort to stimulate economic activity,Congress and the president passed the $787 billion _________________________________ in February,2009 with the funds to be used to provide tax relief,appropriations,and direct spending.
A)American Reconstruction and Reconfiguration Act of 2009
B)American Real Estate and Reconstruction Act of 2009
C)American Real Estate Reinvestment Act of 2009
D)American Recovery and Reinvestment Act of 2009
E)none of the above
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Chapter 6: International Finance and Trade
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Sample Questions
Q1) If the exchange rate in New York for British pounds sterling is quoted at 1 pound = $1.60,and in London the rate is quoted at 1 pound = $1.62,financial arbitragers might:
A)buy pounds in New York
B)sell dollars in London
C)simultaneously sell pounds in New York and buy dollars in London
D)simultaneously buy pounds in New York and sell dollars in London
Q2) A traveler's letter of credit is issued by a bank in one country and addressed to a list of foreign banks which are usually correspondents of the issuing bank and have agreed to purchase sight drafts presented to them by persons with appropriate letters of credit.
A)True
B)False
Q3) Foreign exchange markets may be described as:
A)specific locations in major industrial cities
B)major financial centers connected by good communications systems
C)money markets outside of the United States
D)facilities of central banks for foreign exchange
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Chapter 7: Savings and Investment Process
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Sample Questions
Q1) Which of the following statements is most correct?
A)Capital formation was $1.6 trillion in 2009 up from $2.2 billion for 2006 largely due to the steep rise in home prices;in addition,the change in private inventories for 2009 was -$125 billion reflecting the severity of the financial crisis of 2007-09.
B)Capital formation was $1.6 billion in 2009 down from $2.2 trillion for 2006 largely due to the steep decline in home prices;in addition,the change in private inventories for 2009 was +$125 billion reflecting the severity of the financial crisis of 2007-09.
C)Capital formation was $1.6 trillion in 2009 up from $2.2 trillion for 1993 largely due to the steep decline in home prices;in addition,the change in private inventories for 2009 was -$125 thousand reflecting the severity of the financial crisis of 2007-09.
D)Capital formation was $1.6 million in 2009 down from $2.2 million for 2006 largely due to the steep decline in home prices;in addition,the change in private inventories for 2009 was -$125 million reflecting the severity of the financial crisis of 2007-09.
E)none of the above.
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Chapter 8: Interest Rates
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Sample Questions
Q1) Federal obligations usually issued for maturities in excess of five years are called:
A)Treasury bonds
B)Treasury notes
C)Treasury bills
D)Agency issues
E)none of the above
Q2) The two basic sources of loanable funds are current the expansion of deposits by depository institutions and the generation of reserves through net capital inflows.
A)True
B)False
Q3) In general,inflation was lowest during:
A)1970s
B)1980s
C)1990s
D)none of the above
Q4) The demand for loanable funds comes from all sectors of the economy.
A)True
B)False
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Page 10
Chapter 9: Time Value of Money
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Sample Questions
Q1) An annuity is a series of equal payments that occur over a number of time periods.
A)True
B)False
Q2) Which of the following terms best describes an annuity due?
A)a perpetuity
B)unequal payments
C)payment at beginning of year
D)payment at the end of the year
Q3) An annuity with an infinite life is called a (n)
A)perpetuity.
B)infinity.
C)effective annual rate.
D)continuous annuity.
Q4) The present value of a $100 annuity deposited for 10 years at 10% is $1,593.74.
A)True B)False
Q5) The annual percentage rate (APR)overstates the true or effective interest cost. A)True
B)False
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Chapter 10: Bonds and Stocks: Characteristics and Valuation
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Sample Questions
Q1) The constant dividend growth model assumes:
A)a constant annual dividend
B)a constant dividend growth rate for no more than the first 10 years
C)that the discount rate must be greater than the dividend growth rate
D)two of above are true assumptions
Q2) Firms issue more equities than bonds for the following reason(s).
A)it is cheaper to raise equity than to borrow
B)bonds have a maturity date making them pricier
C)both a and b are true
D)none of the above are true
Q3) Several factors will be considered by the board of directors and management as they consider the level of dividend payout.Some of these factors include:
A)the ability of the firm to generate cash to sustain the level of dividends.
B)legal and contractual considerations
C)growth opportunities
D)cost of other financing sources
E)all of the above
Q4) Mortgage bonds are secured by home mortgages.
A)True
B)False
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Chapter 11: Securities Markets
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Sample Questions
Q1) If a Microsoft January 20 call option with a strike price of $20 were about to expire and the market price of the underlying Microsoft stock was $25.62,the price of the call option would have to be __________ to eliminate arbitrage opportunities.
A)$0.62
B)$5.62
C)$15.62
D)$25.62
E)none of the above.
Q2) Commercial banks were for many years prohibited from full-fledged investment banking by the:
A)Glass-Steagall Act
B)Garn-St.Germain Depository Institutions Act
C)Securities Act of 1933
D)National Association of Securities Dealers
Q3) The flotation costs of an initial public offering are comprised solely of direct costs and the spread.
A)True
B)False
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13
Chapter 12: Financial Return and Risk Concepts
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Sample Questions
Q1) Unsystematic risk is also known as:
A)market risk
B)nondiversifiable risk
C)firm-specific risk
D)macroeconomic risk
Q2) A stock that went from $40 per share at the beginning of the year to $45 at the end of the year and paid a $2 dividend provided an investor with a 14% return.
A)True
B)False
Q3) Diversification occurs when we invest in several different assets rather than just a single one.
A)True
B)False
Q4) Any consistent trend in the same direction as the price change would be evidence of an efficient market.
A)True
B)False
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14
Chapter 13: Business Organization and Financial Data
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Sample Questions
Q1) All of the following accounts are considered to be fixed assets on the balance sheet except:
A)buildings
B)equipment
C)plant
D)machinery
E)all of the above are fixed assets
Q2) Computation of a firm's market value added (MVA)includes all of the components EXCEPT:
A)market value of equity
B)market value of debt
C)book value of equity
D)book value of debt
E)all of the above are included
Q3) The balance sheet is a statement of a company's financial position over an accounting period.
A)True
B)False
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Chapter 14: Financial Analysis and Long-Term Financial Planning
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Sample Questions
Q1) The price/earnings ratio shows how much investors are willing to pay for each dollar of the firm's current earnings per share.
A)True B)False
Q2) The break-even quantity is inversely related to the level of a firm's variable costs.
A)True
B)False
Q3) Which of the following statements is false?
A)time series analysis evaluates a firm's performance over time.
B)industry comparative analysis compares a firm's ratios against average ratios against average ratios for other companies in the industry.
C)the average collection period is calculated as the year-end accounts receivable divided by the net sales.
D)all the above statements are correct.
Q4) Financial analysis using ratios is not useful in the firm's financial planning process.
A)True B)False
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Chapter 15: Managing Working Capital
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Sample Questions
Q1) A level production plan has problems,such as idle plant and laid-off workers during slow sales months and production bottlenecks during busy times.
A)True
B)False
Q2) Which of the following is not an advantage of short-term borrowing?
A)flexibility
B)establishing continuous relationships with a bank or financial institution
C)frequent renewals
D)lower cost
Q3) The time between ordering materials and collecting cash from receivables is known as the:
A)operating cycle
B)cash conversion cycle
C)accounts receivable period
D)none of the above
Q4) The operating cycle measures the time it takes between ordering materials and collecting cash from receivables.
A)True
B)False
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Chapter 16: Short-Term Business Financing
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Sample Questions
Q1) The ________ is the lowest rate of interest charged on business loans to the best business borrowers by the nation's leading banks.
A)premium rate
B)commercial paper rate
C)federal funds rate
D)treasury bill rate
E)none of the above
Q2) Trade credit may be considered the least formal of all forms of financing.
A)True
B)False
Q3) A receivable from the sale of merchandise on the basis of a draft or bill of exchange drawn against the buyer or the buyer's bank is termed a (n):
A)acceptance
B)assignment
C)comaker loan
D)warehouse loan
Q4) Trade credit is the single most important form of short-term business financing.
A)True
B)False
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Chapter 17: Capital Budgeting Analysis
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Sample Questions
Q1) Examples of internal financial data required for project analysis include all of the following except:
A)investment costs
B)estimates of revenues,costs,and cash flows
C)financing costs
D)transportation costs
E)all of the above are included
Q2) Capital budgeting is the process of identifying,evaluating,and implementing a firm's investment opportunities.
A)True
B)False
Q3) Sunk costs are relevant in capital budgeting analysis and should be considered in calculating a project's initial investment.
A)True
B)False
Q4) A net present value profile is a useful tool for evaluating the sensitivity of a project's NPV to changes in required return.
A)True
B)False
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Chapter 18: Capital Structure and the Cost of Capital
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Sample Questions
Q1) Which of the following costs must be adjusted to an after-tax cost?
A)cost of debt
B)cost of preferred stock
C)cost of common stock
D)cost of retained earnings
Q2) All of the following statements regarding capital structure weights in the WACC equation are correct except:
A)The weights represent a specific intended financing mix.
B)These target weights represent a mix of debt and equity that the firm will try to achieve or maintain over the planning horizon.
C)As much as possible,the target weights should reflect the combination of debt and equity that management believes will minimize the firm's weighted average cost of capital.
D)The firm should make an effort over time to move toward and maintain its target capital structure mix of debt and equity.
E)All of the above statements are correct.
Q3) Some classes of common equity may have superior voting rights.
A)True
B)False
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