Type:
Test Bank
Resource:
Fundamentals of Corporate Finance
Edition:
6th Edition
Author(s):
Richard Brealey Stewart Myers Alan Marcus Devashis Mitra Elizabeth Maynes William Lim
TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 1) Only small companies can go through financial markets to obtain financing. Answer:
True
False
2) The reinvestment of cash back into the firm's operations is an example of a flow of savings to
investment. Answer:
True
False
3) Smaller businesses are especially dependent upon internally generated funds. Answer:
True
False
4) An individual can save and invest in a corporation only by lending money to it or by
purchasing additional shares. Answer:
True
False
5) Previously issued securities are traded among investors in the secondary markets. Answer:
True
False
6) Only the IPOs for large corporations are sold in primary markets. Answer:
True
False
7) The markets for long-term debt and equity are called capital markets. Answer:
True
False
8) The derivative market is also a source of financing for corporations. Answer:
True
False
9) Apple Computer is well known for its product innovations. Access to financing was vital to
Apple's growth and profitability. Answer:
True
False
10) Whenever there is uncertainty, investors might be interested in trading, either to speculate or
to lay off their risks, and a market may rise to meet the trading demand. Answer:
True
False
11) Financing for public corporations must flow through financial markets. Answer:
True
False
12) Financing for private corporations must flow through financial intermediaries. Answer:
True
False
13) Hedge fund managers, unlike mutual fund managers, do not receive fund-performance-
related fees. Answer:
True
False
14) In the United States, banks are the most important source of long-term financing for
businesses.
Answer:
True
False
15) A financial intermediary invests in financial assets rather than real assets. Answer:
True
False
16) The stocks of major corporations trade in many markets throughout the world on a
continuous or near-continuous basis. Answer:
True
False
17) The key to the banks' ability to make illiquid loans is their ability to pool liquid deposits from
thousands of depositors. Answer:
True
False
18) For corporate bonds, the higher the credit quality of an issuer, the higher the interest rate. Answer:
True
False
19) Like public companies, private companies can also use their stock price as a measure of
performance. Answer:
True
False
20) Financial markets and intermediaries allow investors and businesses to reduce and reallocate
risk. Answer:
True
False
21) Almost all foreign exchange trading occurs on the floors of the FOREX exchanges in New York
and London. Answer:
True
False
22) The cost of capital is the interest rate paid on a loan from a bank or some other financial
institution. Answer:
True
False
23) The opportunity cost of capital is the expected rate of return that shareholders can obtain in
the financial markets on investments with the same risk as the firm's capital investments. Answer:
True
False
24) The cost of capital is the minimum acceptable rate of return for capital investment. Answer:
True
False
25) The rates of return on investments outside the corporation set the minimum return for
investment projects inside the corporation. Answer:
True
False
26) During the Financial Crisis of 2007-2009, the U.S. government bailed out all firms in danger of
failing. Answer:
True
False
27) From June 2001 to June 2006, housing prices in the United States doubled.
Answer:
True
False
28) The effects of the financial crisis of 2007-2009 were confined to the U.S. and domestic
companies. Answer:
True
False
29) One root of the financial crisis of 2007-2009 was the strict money policies promoted by the
U.S. Federal Reserve and other central banks after the technology bubble burst (i.e., money was relatively expensive during this time). Answer:
True
False
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 30) Which one of these is a money market security? A) commercial paper
B) 2-year bond
C) common stock
D) 20-year bond
Answer: A 31) Which one of these assists in shifting an individual's consumption forward in time? A) a life insurance policy
B) a bank line of credit
C) a retirement savings plan
D) a bank savings account
Answer: B 32) Which of the following is not typically considered a function of financial intermediaries? A) providing a payment mechanism B) spreading, or pooling risk among individuals C) investing in real assets D) accumulating funds from smaller investors Answer: C 33) Commodity and derivative markets: A) are always over-the-counter markets. B) deal only in foreign currencies. C) are additional sources of financing for corporate projects. D) enable the financial manager to adjust a firm's exposure to various business risks. Answer: D 34) Which one of these transports income forward in time? A) car loan B) retirement savings C) credit card purchase
D) bank line of credit
Answer: B 35) Who was responsible for the financial crisis of 2007-2009? A) The U.S. Federal Reserve, for its
policy of easy money B) The U.S. Federal Reserve, the U.S. government, rating agencies, and bankers C) The U.S. government, for pushing banks to expand credit for low-income housing D) bankers, who aggressively promoted and resold subprime mortgages
Answer: B 36) Which one of the following funds not provides a tax advantage to individual investors? A) funds that are invested in foreign countries C) balanced funds
B) bond funds D) pension funds
Answer: A 37) Which of the following financial assets is least likely to have an active secondary market? A) common stock of a large public firm B) debt issued by the U.S. Treasury C) bonds of a major, multinational corporation D) bank loans made to
smaller firms Answer: D 38) A company can pay for its expansion in all the following ways except: A) by purchasing bonds
in the secondary market. B) by using the earnings generated from its sale of obsolete equipment. C) by selling stock certificates for a new subsidiary. D) by persuading a director's mother to make a personal loan to the company. Answer: A 39) Short-term financing decisions commonly occur in the: A) money markets.
B) capital markets.
C) primary markets.
D) secondary markets.
Answer: A 40) Long-term financing decisions commonly occur in the: A) capital markets. B) money markets. C) option markets.
D) secondary markets.
Answer: A 41) Which type of financial institution generally does not accept deposits but does underwrite
stock offerings? A) Mutual fund
B)
Insurance
C) Investment bank
company D) Commercial bank
Answer: C 42) You can buy silver in the: A) commodities markets.
B) option markets.
C) foreign exchange markets. Answer: A
D) capital markets.
43) Which of the following actions does not help reduce risk? A) buying Japanese yen now when you plan to study in Japan next year B) converting your
money market account to a mutual fund account C) contracting to sell your farm produce to the neighborhood grocery D) extending the service warranty for your notebook