Introduction to Finance Exam Bank
Course Introduction
Introduction to Finance provides students with a foundational understanding of the principles and concepts essential to financial decision-making within organizations and individual contexts. The course covers key topics such as time value of money, risk and return, financial markets and instruments, capital budgeting, and the basics of financial analysis. By examining real-world examples and case studies, students gain insights into how financial information is used to make informed business decisions, manage resources, and achieve long-term financial goals. This course equips students with practical skills and knowledge to analyze financial statements, assess investment opportunities, and understand the broader role of finance in the economy.
Recommended Textbook
Fundamentals of Corporate Finance 6th Canadian Edition by Richard A Brealey
Available Study Resources on Quizplus
26 Chapters
2911 Verified Questions
2911 Flashcards
Source URL: https://quizplus.com/study-set/2504 Page 2
Chapter 1: Goals and Governance of the Firm
Available Study Resources on Quizplus for this Chatper
98 Verified Questions
98 Flashcards
Source URL: https://quizplus.com/quiz/49804
Sample Questions
Q1) As your firm grows,you may decide to form a corporation.You may incorporate your firm federally,under the Canadian Business Corporation Act,or provincially,under the relevant provincial laws.
A)True
B)False
Answer: True
Q2) Discuss the interrelationship between a firm's financing and capital structure decisions.
Answer: Although the capital budgeting decision considers what to invest in and specifically how much to invest,this decision is importantly related to how the necessary funds should be raised.For example,if many other firms of similar risk have recently issued bonds,the supply of loanable funds may be low,which could affect the interest rate on such funds.Or,the current market value of common stock may be so low that management would prefer not to issue additional shares at this time.Alternatively,the existence of loan or bond covenants could restrict certain forms of borrowing.Finally,although certain forms of financing may appear attractive,they may not represent the targeted capital structure.Thus,elements of the financing decision need to be considered simultaneously with the capital budgeting decision.
To view all questions and flashcards with answers, click on the resource link above.
Page 3
Chapter 2: Financial Markets and Institutions
Available Study Resources on Quizplus for this Chatper
100 Verified Questions
100 Flashcards
Source URL: https://quizplus.com/quiz/49793
Sample Questions
Q1) The financial crisis of 2007-2009 contributed to the largest sovereign default in history by which one of these countries?
A) Italy
B) Portugal
C) Ireland
D) Greece Answer: D
Q2) The markets for long-term debt and equity are called capital markets.
A)True
B)False Answer: True
Q3) Smaller businesses are especially dependent upon internally generated funds.
A)True
B)False Answer: True
Q4) Financing for private corporations must flow through financial intermediaries. A)True
B)False Answer: False
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
109 Verified Questions
109 Flashcards
Source URL: https://quizplus.com/quiz/49785
Sample Questions
Q1) According to accrual accounting,when goods are not sold until the period after they were produced,then the cost of goods sold will be:
A) recognized when the goods are produced.
B) recognized when the goods are sold.
C) recognized when payment is received.
D) split between the production and the sale periods.
Answer: B
Q2) Which of the following statements is more likely if cash and marketable securities increase by $5,000 during a period in which cash provided by operations increases by $1,000 and cash used by investments decreases by $500?
A) cash provided by financing increases by $6,500.
B) cash used by financing decreases by $1,000.
C) debt increases by more than cash dividends paid.
D) debt is reduced by more than cash dividends paid.
Answer: C
Q3) An increase in inventories uses cash,reducing the firm's net cash balance.
A)True
B)False
Answer: True
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
97 Verified Questions
97 Flashcards
Source URL: https://quizplus.com/quiz/49784
Sample Questions
Q1) A firm's after-tax operating income was $1,000,000 in 2013.It started the year with a total capitalization of $8,000,000 and ended the year with a total capitalization of $9,000,000.The additional capital raised during 2013 started to affect the operating income in 2014.Which value best represents the return on capital for 2013?
A) 12.5%
B) 11.8%
C) 11.1%
D) 10.0%
Q2) How would you interpret an inventory turnover ratio of 10.7?
A) it takes 50 days on average to collect receivables.
B) inventory is converted into sales every 50 days.
C) the firm has sufficient inventories to maintain sales for 34.1 days.
D) assets are converted into sales every 50 days.
Q3) A healthy current ratio and an unhealthy quick ratio may be caused by excess inventory.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Chapter 5: The Time Value of Money
Available Study Resources on Quizplus for this Chatper
110 Verified Questions
110 Flashcards
Source URL: https://quizplus.com/quiz/49783
Sample Questions
Q1) A perpetuity of $5,000 per year beginning today is said to offer a 15% interest rate.What is its present value?
A) $33,333.33
B) $37,681.16
C) $38,333.33
D) $65,217.39
Q2) Lester's just signed a contract that will provide the firm with annual cash inflows of $28,000,$35,000,and $42,000 over the next three years with the first payment of $28,000 occurring one year from today.What is this contract worth today at a discount rate of 7.25%?
A) $88,311.08
B) $89,423.91
C) $90,580.55
D) $91,341.41
Q3) Cash flows occurring in different periods should not be compared unless:
A) interest rates are expected to be stable.
B) the flows occur no more than one year from each other.
C) high rates of interest can be earned on the flows.
D) the flows have been discounted to a common date.
To view all questions and flashcards with answers, click on the resource link above.
Page 7
Chapter 6: Valuing Bonds
Available Study Resources on Quizplus for this Chatper
99 Verified Questions
99 Flashcards
Source URL: https://quizplus.com/quiz/49782
Sample Questions
Q1) Two years ago bonds were issued at par with 10 years until maturity and a 7% annual coupon.If interest rates for that grade of bond are currently 8.25%,what will be the market price of these bonds?
A) $917.06
B) $928.84
C) $987.50
D) $1,000.00
Q2) When a financial calculator or spreadsheet program finds a bond's yield to maturity,it uses a trial-and-error process.
A)True
B)False
Q3) When market interest rates exceed a bond's coupon rate,the bond will:
A) sell for less than par value.
B) sell for more than par value.
C) decrease its coupon rate.
D) increase its coupon rate.
Q4) Bond ratings measure a bond's credit risk.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 8
Chapter 7: Valuing Stocks
Available Study Resources on Quizplus for this Chatper
125 Verified Questions
125 Flashcards
Source URL: https://quizplus.com/quiz/49781
Sample Questions
Q1) The statement that there are no free lunches on Wall Street suggests that:
A) the market is strong-form efficient.
B) there is no return to technical or fundamental analysis.
C) security prices reflect all available information.
D) food purveyors are capitalists.
Q2) The expected return on an equity security is comprised of a:
A) dividend yield and ROE.
B) current yield and a terminal value.
C) sustainable growth rate and a plowback yield.
D) dividend yield and a capital gains yield.
Q3) Securities with the same expected risk should offer the same expected rate of return.
A)True
B)False
Q4) What is the plowback ratio for a firm that has earnings per share of $12.00 and pays out $4.00 per share as dividends?
A) 25.00 percent
B) 33.33 percent
C) 66.67 percent
D) 75.00 percent
To view all questions and flashcards with answers, click on the resource link above. Page 9
Chapter 8: Net Present Value and Other Investment Criteria
Available Study Resources on Quizplus for this Chatper
122 Verified Questions
122 Flashcards
Source URL: https://quizplus.com/quiz/49780
Sample Questions
Q1) Which of the following should be assumed about a project that requires a $100,000 investment at time-period zero,then returns $20,000 annually for five years?
A) the NPV is negative
B) the NPV is zero
C) the profitability index is 1.0
D) the IRR is negative
Q2) How is the profitability index calculated,and how can it be used to choose between projects when funds are limited?
Q3) The payback rule states that a project is acceptable if you get your money back within a specified period.
A)True
B)False
Q4) What is the NPV for the following project cash flows at a discount rate of 15 percent?
CF<sub>0</sub> = ($1,000),CF<sub>1</sub> = $700,CF<sub>2</sub> = $700.
A) ($308.70)
B) ($138.00)
C) $138.00
D) $308.70
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
115 Verified Questions
115 Flashcards
Source URL: https://quizplus.com/quiz/49779
Sample Questions
Q1) The opportunity cost of an asset:
A) should be depreciated annually.
B) can differ depending on market conditions.
C) is typically ignored in capital budgeting.
D) is important only for parcels of land.
Q2) Why is it fairly easy to fall into the trap of discounting real cash flows with nominal rates?
A) it is difficult to determine real discount rates.
B) increases in nominal cash flows are often not forecast.
C) inflation does not impact cash flows, but it does impact discount rates.
D) increases in revenues are offset by increases in costs.
Q3) Higher depreciation rates:
A) allow more depreciation over the asset's life.
B) decrease the CCA depreciation tax shield.
C) Have no effect on the CCA tax shield.
D) allow assets to be depreciated more rapidly.
Q4) Describe how adding depreciation expense to net income can approximate cash flow from operations.Does depreciation expense really reflect a cash flow?
Q5) How should the cash flows of a proposed new project be calculated?
To view all questions and flashcards with answers, click on the resource link above. Page 11
Chapter 10: Project Analysis
Available Study Resources on Quizplus for this Chatper
124 Verified Questions
124 Flashcards
Source URL: https://quizplus.com/quiz/49803
Sample Questions
Q1) Using a computer model to repeatedly vary the combination of project variables in order to compare NPVs is called:
A) scenario analysis.
B) sensitivity analysis.
C) NPV break-even analysis.
D) simulation analysis.
Q2) Briefly describe several factors that increase the difficulty in selecting appropriate capital budgeting proposals.
Q3) 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 percent ratio of variable costs to sales?
A) $144,000
B) $266,667
C) $400,000
D) $666,667
Q4) Managers that accept projects that only break even on an accounting basis are helping their shareholders.
A)True
B)False
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
113 Verified Questions
113 Flashcards
Source URL: https://quizplus.com/quiz/49802
Sample Questions
Q1) One common reason for reporting standard deviations rather than variances is that standard deviations:
A) are lower.
B) are stated in understandable units.
C) account properly for negative returns.
D) take probability estimates into consideration.
Q2) What real rate of return is earned by a one-year investor in a bond that was purchased for $1,000,has an 8 percent coupon,and was sold for $960 when the inflation rate was 6 percent?
A) -1.89 percent
B) 1.92 percent
C) 5.66 percent
D) 11.47 percent
Q3) Define the term "risk" and explain how it is related to the expected return.
Q4) Although the TSX 300 contains a small proportion of Canadian publicly traded stocks,it represents:
A) all stocks that prefer to be equal-weighted.
B) all stocks that prefer to be value-weighted.
C) approximately 50 percent of Canadian stocks traded, in value.
D) approximately 70 percent of Canadian stocks traded, in value.
To view all questions and flashcards with answers, click on the resource link above. Page 13
Chapter 12: Risk, Return, and Capital Budgeting
Available Study Resources on Quizplus for this Chatper
114 Verified Questions
114 Flashcards
Source URL: https://quizplus.com/quiz/49801
Sample Questions
Q1) Discuss how Betas are measured and used for individual stocks.
Q2) In practice,the market portfolio is often represented by:
A) a portfolio of Canadian Treasury securities.
B) a diversified stock market index.
C) an investor's mutual fund portfolio.
D) the historic record of stock market returns.
Q3) Investors expect the market rate of return this year to be 14%.A stock with a Beta of .8 has an expected rate of return on the market portfolio is 11%,is a security with a Beta of 1.25 and an expected rate of return of 11% overpriced or underpriced?
Q4) Determine the risk free rate if a company's rate of return is 12%,its Beta is -1.2 and the expected return on the stock market is 14%.
A) 11.19%
B) 12.29%
C) 13.09%
D) 14.19%
Q5) Stock A has a current price of $25.00,a Beta of 1.25,and a dividend yield of 6%.If the Treasury bill yield is 5% and the market portfolio is expected to return 14%,what should Stock A sell for at the end of an investor's two year investment horizon?
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
116 Verified Questions
116 Flashcards
Source URL: https://quizplus.com/quiz/49800
Sample Questions
Q1) The interest tax shield generated by a project's actual equity financing is accounted for by using the after-tax cost of equity in the WACC.
A)True
B)False
Q2) When using the WACC as a discount rate,it is often adjusted upward for riskier projects and downward for safer projects.
A)True
B)False
Q3) The company cost of capital does not make an adjustment for the tax effect.
A)True
B)False
Q4) Using market values rather than book values for cost of capital computations insures that the firm:
A) does not ignore the value of retained earnings.
B) gets the full value of the debt tax shield.
C) uses expected rates of return.
D) will not invest in negative NPV projects.
Q5) Can WACC be used to value an entire business?
Q6) Why are investors interested in free cash flow?
To view all questions and flashcards with answers, click on the resource link above. Page 15
Chapter 14: Introduction to Corporate Financing and Governance
Available Study Resources on Quizplus for this Chatper
116 Verified Questions
116 Flashcards
Source URL: https://quizplus.com/quiz/49799
Sample Questions
Q1) Callable bonds require the issuer to borrow money at a higher interest rate when rates rise.
A)True
B)False
Q2) The value of retained earnings on the corporate balance sheet represents the amount of earnings:
A) not paid out in dividends this period.
B) that remains in cash.
C) over and above corporate income taxes.
D) reinvested in the firm since its inception.
Q3) Jay's Jams Inc.was just established with an investment of $5 million into 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.(Use values in millions)
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=$7.0 million; book value=$5.0 million
Q4) Outline the impact of Bill C198
To view all questions and flashcards with answers, click on the resource link above. Page 16
Chapter 15: Venture Capital, IPOs, and Seasoned Offerings
Available Study Resources on Quizplus for this Chatper
126 Verified Questions
126 Flashcards
Source URL: https://quizplus.com/quiz/49798
Sample Questions
Q1) Stock underwriters are:
A) investors seeking low prices.
B) regulatory agencies that evaluate equity offerings.
C) the firm's founders who guarantee a stock's performance.
D) investment banking firms that coordinate equity offerings.
Q2) The consent of a corporation's shareholders must be received prior to any:
A) issue of new securities.
B) selection of an underwriter.
C) increase in authorized capital.
D) private placement of securities.
Q3) Studies have shown that,on average,new security issues are:
A) subject to flotation costs of approximately 32%.
B) overpriced by the amount of the spread.
C) Underpriced.
D) overpriced to reward venture capitalists.
Q4) Second-stage financing occurs:
A) prior to the initial public offering.
B) when company founders sell a portion of their shares.
C) after the best efforts of the underwriters.
D) when the IPO does not raise sufficient cash.
To view all questions and flashcards with answers, click on the resource link above. Page 17
Chapter 16: Debt and Payout Policy
Available Study Resources on Quizplus for this Chatper
120 Verified Questions
120 Flashcards
Source URL: https://quizplus.com/quiz/49797
Sample Questions
Q1) The optimal capital structure is met when:
A) additional borrowing results in lower financial distress costs.
B) additional borrowing is offset by the interest tax shield.
C) the tax savings from additional leverage is just offset by the costs of distress.
D) the present value of the tax shield is greater than the value of an all-equity financed firm.
Q2) Financial risk refers to the:
A) risk of owning equity securities.
B) risk faced by equity holders when debt is used.
C) general business risk of the firm.
D) possibility that interest rates will increase.
Q3) MM's Proposition II states that the expected return on equity increases as the firm's debt-equity ratio increases.
A)True
B)False
Q4) What's the pecking order theory?
Q5) Calculate the required return on the debt.
Q6) What is the goal of the capital structure decision? What is the financial manager trying to do?
Page 18
To view all questions and flashcards with answers, click on the resource link above.
Chapter 17: Leasing
Available Study Resources on Quizplus for this Chatper
104 Verified Questions
104 Flashcards
Source URL: https://quizplus.com/quiz/49796
Sample Questions
Q1) A lessor and lessee have the same exposure to financial risk.
A)True
B)False
Q2) If a financial analysis of a lease shows a negative result of $500,a manufacturer could alter the lease terms to make leasing profitable by:
A) cutting his price to the lessor by more than $500.
B) raising the CCA rate for the lessor.
C) raising salvage value by lowering the discount rate.
D) raising the lease terms.
Q3) What is the undepreciated capital cost of $800,000 asset after five CCA calculations of 30% declining balance,with the half-year rule?
A) $0
B) $240,000
C) $163,268
D) $145,564
Q4) When a lease is terminated,the equipment always reverts to the lessor.
A)True
B)False
Q5) Provide a critique of two weak or dubious reasons for leasing.
To view all questions and flashcards with answers, click on the resource link above. Page 19
Chapter 18: Payout Policy
Available Study Resources on Quizplus for this Chatper
119 Verified Questions
119 Flashcards
Source URL: https://quizplus.com/quiz/49795
Sample Questions
Q1) StoreWideInc.'s shares are selling for $40 per share.Determine the new price per share,if the company a 5 for 4 stock split.
A) $32
B) $36
C) $40
D) $44
Q2) Xian Inc.has 7,000,000 shares outstanding.If the company declares a 3 for 2 reverse stock split,determine the number of shares outstanding afterwards.
A) 10,050,000
B) 10,080,000
C) 10,200,000
D) 10,220,000
Q3) A two-for-one stock split is like a 200% stock dividend.
A)True
B)False
Q4) Investors forego the right to the dividend if they purchase after the cum-dividend date.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 20
Chapter 19: Long-Term Financial Planning
Available Study Resources on Quizplus for this Chatper
114 Verified Questions
114 Flashcards
Source URL: https://quizplus.com/quiz/49794
Sample Questions
Q1) Which of the following statements is correct concerning the sustainable growth rate?
A) It increases as ROE decreases
B) It increases as the payout ratio decreases
C) It is maximized when the plowback ratio equals zero
D) It is always less than the internal growth rate
Q2) A firm cannot expect to expand its profit margin by acquiring one of its own suppliers.
A)True
B)False
Q3) Describe the percentage of sales model and its potential pitfalls in the financial planning process.
Q4) What new investment is required for a firm that projects 12% growth has $400,000 in assets,and retained earnings of $40,000?
A) $0
B) $4,800
C) $8,000
D) $66,667
Q5) List and briefly describe the components of a financial planning model.
Q6) How are financial planning models constructed?
To view all questions and flashcards with answers, click on the resource link above. Page 21
Chapter 20: Short-Term Financial Planning
Available Study Resources on Quizplus for this Chatper
123 Verified Questions
123 Flashcards
Source URL: https://quizplus.com/quiz/49792
Sample Questions
Q1) A firm needs spare cash to deal with capital budget appropriations,dividend payments,and other large outlays.The interest rate on bank loans is simply quoted as:
A) precautionary motive
B) transactions motive
C) speculative motive
D) simple interest
Q2) The goal of managing working capital,such as inventory,should be to minimize the: A) costs of carrying inventory
B) opportunity cost of capital
C) aggregate of carrying and shortage costs
D) amount of spoilage or pilferage
Q3) Field warehousing can be an important source of:
A) additional storage space for cash-strapped firms
B) investing for those who follow the "relaxed cash strategy"
C) cash management for those who factor receivables
D) short-term financing with low risk to the lender
Q4) Describe a firm's cash conversion cycle and its uses.
Q5) Discuss the usefulness of the concept of "maturities matching" in finance.
To view all questions and flashcards with answers, click on the resource link above. Page 22
Chapter 21: Cash and Inventory Management
Available Study Resources on Quizplus for this Chatper
88 Verified Questions
88 Flashcards
Source URL: https://quizplus.com/quiz/49791
Sample Questions
Q1) A firm using Baumol's model will do one of the following if the interest rate on short-term securities went up.
A) increase the average cash balance
B) increase the collection period
C) decrease the collection period
D) decrease the average cash balance
Q2) Which of the following represents a serious concern for those firms employing the Baumol model of cash management?
A) market illiquidity when selling bills
B) high interest-rate risk
C) low rates of return on treasury bills
D) a volatile rate of cash disbursements
Q3) What are the expected annual savings from a lock-box system that collects 150 cheques per day averaging $500 each,and reduces mailing and processing times by 2.5 and 1.5 days respectively,if the annual interest rate is 7 percent?
A) $5,250
B) $13,125
C) $21,000
D) $300,000
To view all questions and flashcards with answers, click on the resource link above.
Page 23
Chapter 22: Credit Management and Collection
Available Study Resources on Quizplus for this Chatper
92 Verified Questions
92 Flashcards
Source URL: https://quizplus.com/quiz/49790
Sample Questions
Q1) You are buying goods worth $75,000 from a firm that offers the credit terms of 2/10,net 30.What will be the actual payment if you paid within 10 days?
A) $73,500
B) $74,250
C) $75,000
D) $76,500
Q2) The more liberal the terms of the collection policy,the less the potential for bad debts and unprofitable sales.
A)True
B)False
Q3) Suppose CumChan Inc.sells goods on terms 2/10 net 20.On January 1 you would buy goods from CumChan with invoice value of $40,000.How much would you need to pay if you took the cash discount? What is the latest date on which the cash discount is available? By what date should you pay for your purchase if you decide not to take the cash discount?
Q4) What information can the financial manager obtain from an aging schedule of accounts receivable?
Q5) List three factors that affect a company's desired minimum cash balance.
Q6) How do firms decide whether to grant credit to a customer?
Page 24
To view all questions and flashcards with answers, click on the resource link above.
Chapter 23: Mergers, Acquisitions, and Corporate Control
Available Study Resources on Quizplus for this Chatper
119 Verified Questions
119 Flashcards
Source URL: https://quizplus.com/quiz/49789
Sample Questions
Q1) When shareholders attempt to garner additional votes in an attempt to oust management,it is called a:
A) Management buyout.
B) Tender offer.
C) Proxy contest.
D) Poison pill.
Q2) Mergers may provide reductions in average production cost as a result of:
A) increased market share.
B) a more efficient management.
C) economies of scale.
D) diversification.
Q3) For firms in a mature stage of life with free cash flow,do you accept the charge that there might be some actual incentive to waste cash?
Q4) Which of the following methods is the least likely to provide a change of corporate management?
A) Successful proxy fight
B) Voluntary resignation of all managers
C) Leveraged buyout of the firm
D) Merger or acquisition
To view all questions and flashcards with answers, click on the resource link above. Page 25
Chapter 24: International Financial Management
Available Study Resources on Quizplus for this Chatper
116 Verified Questions
116 Flashcards
Source URL: https://quizplus.com/quiz/49788
Sample Questions
Q1) The Toronto Stock Exchange is one of few markets to have a higher daily volume than the foreign exchange market.
A)True
B)False
Q2) Countries with high inflation will have the:
A) weakest currency.
B) highest nominal interest rate.
C) strongest currency.
D) highest real interest rate.
Q3) On average,empirical evidence suggests that those who cover foreign exchange commitments in the forward market pay a premium of approximately _____ to avoid exchange-rate risk.
A) 0.0%
B) 3.1%
C) 5.0%
D) 7.3%
Q4) What is the difference between forward and spot exchange rate rates?
Q5) What are some simple strategies to protect the firm against exchange rate risk?
Q6) Discuss similarities and differences between futures contracts and forward contracts.
Page 26
To view all questions and flashcards with answers, click on the resource link above.
Chapter 25: Options
Available Study Resources on Quizplus for this Chatper
115 Verified Questions
115 Flashcards
Source URL: https://quizplus.com/quiz/49787
Sample Questions
Q1) Stocks that have more volatile price changes have more valuable call options because call holders:
A) capture upside potential without downside risk.
B) realize that volatility decreases the present value of the exercise price.
C) have too little variability in the exercise price.
D) have transferred all risk to put holders.
Q2) Unlike call options,the option to abandon a real asset project does not become more valuable as time to expiration increases.
A)True
B)False
Q3) The value of a convertible bond is less than the value of a straight bond with similar coupon and maturity.
A)True
B)False
Q4) An investor can create a straddle position by doing the following:
A) buy a stock and write a call option.
B) buy a stock and buy a call option.
C) buy a stock and buy a put option.
D) buy a call option and a put option with the same exercise price.
To view all questions and flashcards with answers, click on the resource link above. Page 27
Chapter 26: Risk Management
Available Study Resources on Quizplus for this Chatper
117 Verified Questions
117 Flashcards
Source URL: https://quizplus.com/quiz/49786
Sample Questions
Q1) Discuss similarities and differences between futures contracts and forward contracts.
Q2) The most common use of hedging in finance is to reduce,rather than increase,risk.
A)True
B)False
Q3) Forward contracts are equivalent to tailor-made futures contracts.
A)True
B)False
Q4) The seller of a pork bellies futures contract at $.41 per pound noted that the closing price of pork bellies was $0.44 today.What will happen to this contract,which requires delivery of 40,000 of pork bellies at expiration?
A) A loss of $400 is posted to the account
B) A gain of $400 is posted to the account
C) A loss of $1,200 is posted to the account
D) A gain of $1,200 is posted to the account
Q5) Discuss what it means for a futures contract to be "marked to market." If you provide an example,assume that the hedger has purchased a 5,000-bushel wheat contract at a price of $3.90 per bushel.
To view all questions and flashcards with answers, click on the resource link above.
Page 28