chapter 2 Flashcards
Financial markets are used for trading:
A) both real assets and financial assets
B) the goods and services produced by a firm
C) securities, such as shares of IBM
D) the raw materials used in manufacturing
E) all of the above
C) securities, such as shares of IBM
financial markets develop to:
A) facilitate borrowing and lending among individuals
B) provide a benchmark against which proposed investments can be compared
C) govern investment decisions
D) allow corporations to accept all positive net present value (NPV) projects
E) all of the above
E) all of the above
when corporations need to raise funds through stock issues, they rely upon:
A) primary markets B) secondary markets C) over-the-counter market D) centralized NASDAQ exchange E) none of the above
A) primary markets
………. activities allow corporation to raise capital by selling stock to investors:
A) NYSE B) secondary market C) primary market D) money market E) all of the above
C) primary market
which of the following financial assets might be least likely to have an active secondary market?
A) common stock of a large firm
B) bank loans made to smaller firm
C) bonds of a major, multinational corporation
D) debt issued by the United States treasury
E) all of the above
B) bank loans made to smaller firm
when Patricia sells her General Motors common stock at the same time that Brian purchases the same amount of general motor stock, general motors receives:
A) the dollar value of the transaction
B) the dollar amount of the transaction, less brokerage fee
C) only the par value of the common stock
D) nothing
E) none of the above
D) nothing
which of the following would not interest a firm seeking a long-term financing?
A) issuing corporate bonds B) borrowing from a commercial bank C) issuing notes D) issuing commercial paper E) none of the above
B) borrowing from a commercial bank
which of the following is most liquid?
A) foreign currency B) U.S treasury bonds C) rare coins D) checking account deposit E) all of the above
D) checking account deposit
which of the following is least liquid?
A) foreign currency B) U.S treasury bonds C) rare coins D) savings deposit E) all of the above
C) rare coins
which of the following statements is correct regarding mutual funds and exchange- traded funds (ETFs)?
A) Mutual funds and exchange- traded funds are investment companies
B) mutual funds and exchange- traded funds allow investors to diversify in professionally managed portfolios
C) mutual funds are open- ended funds
D) ETFs are closed- end funds
E) All of the above
E) All of the above
which of the following statements is correct regarding mutual funds, exchange- traded funds (ETFs), and pension funds?
A) mutual finds and exchange traded funds raise money by selling units to investors
B) mutual funds, exchange- traded funds, and pension funds allow investors to diversify in professionally managed portfolios
C) pension funds offer an additional tax advantage, because the returns on pension investments are not taxed until withdrawn from the plan
D) all of the above
E) none of the above
D) all of the above
which of the following statement is true?
A) the opportunity cost of capital for risky investments is normally higher than the firms borrowing rate
B) the cost of capital is an opportunity cost determined by expected rates of return in financial markets
C) 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 firms capital investments
D) all of the above
E) only (B) and (C) of the above
D) all of the above
the first or basic principle of finance dictates that an individual will invest in a project if:
A) they are made better off in the financial market
B) they are unable to adjust their savings and consumption in the financial market
C) the project is at least as desirable as what is available in the financial markets
D) the interest rate for borrowing and lending is not equal
E) all of the above
C) the project is at least as desirable as what is available in the financial markets
a capital investment that generates a 10 percent rate of return is worthwhile if:
A) top- quality corporate bonds offer 10 percent rates of return
B) corporate bonds of similar risk offer 10 percent rates of return
C) corporate bonds of similar risk offer 8 percent rates of return
D) the expected rate of return on the stock market is 12 percent
E) none of the above
C) corporate bonds of similar risk offer 8 percent rates of return
the opportunity cost of capital for a safe investment is:
A) the rate of return on U.S treasury notes
B) the expected rate of return on he stock market
C) the interest rate that the firm pays on a loan from a bank or insurance company
D) the interest rate the firm receives on its checking account
E) none of the above
A) the rate of return on U.S treasury notes
the cost of capital:
A) is the expected rate of return on capital investment
B) is an opportunity cost determined by the risk- free rate of return
C) is the interest rate that firm pays on a loan from a bank or insurance company
D) for risky investments is normally higher than the firms borrowing rate
E) none of the above
D) for risky investments is normally higher than the firms borrowing rate
