Business Finance - Pre Test
  • 1. It is a financial intermediary handling individual savings. It receives premium payments placed in loans or investments to accumulate funds to cover future benefits.
A) credit union
B) savings bank
C) life insurance company
D) commercial bank
  • 2. Which of the following is NOT a financial institution?
A) A pension fund
B) A newspaper publisher
C) An insurance company
D) A commercial bank
  • 3. It is a set up so that employees of corporations or governments can receive income after retirement.
A) life insurance company
B) credit union
C) savings bank
D) pension fund
  • 4. It is a type of financial intermediary that pools savings of individuals and makes them available to business and government users. Funds obtained through the sale of shares.
A) Mutual Funds
B) Credit Union
C) Savings and loans
D) Commercial banks
  • 5. Most businesses raise money by selling their securities in a
A) stock exchange
B) public offering
C) direct placement
D) private placement
  • 6. Which of the following is NOT a service provided by financial institutions?
A) Paying savers’ interest on deposit
B) Buying the businesses of customers
C) Lending money to customers
D) Investing customers’ savings in stocks and bonds
  • 7. By definition, the money market involves the buying and selling of
A) stocks and bonds.
B) short-term funds
C) funds that mature in more than one year.
D) flows of funds.
  • 8. It creates financial relationship between suppliers and users of short-term funds.
A) financial market
B) money market
C) capital market
D) stock market
  • 9. Firms that require funds from external sources can obtain them from
A) financial markets
B) financial institutions
C) All of the above.
D) private placement
  • 10. The science and art of managing money
A) Management
B) Finance
C) Personal Finance
D) Financial Management
  • 11. What are the two management functions reinforce each other for the success of an organization?
A) Organizing and Planning
B) Staffing and Planning
C) Controlling and Directing
D) Planning and Controlling
  • 12. Which of the following is NOT part of financial planning process?
A) Identify resources
B) Set goals/Objectives
C) Identify goal related task
D) Establish strong Management
  • 13. A plan expresses in quantitative terms, which emphasizes the resource use and resource allocation of an entity over a specified period of time?
A) Sales
B) Budget
C) Sales Budget
D) Cash Budget
  • 14. Which of the process to closely monitoring of in and out of cash in the business?
A) Budgeting
B) Cash flow statement
C) Statement of financial Position
D) Income statement
  • 15. It is a tool of the company to set an overall goal of what the company’s performance and position will be for and as of the end of the year.
A) Projected Financial Statement
B) Inventory
C) Budgeting
D) Forecasting
  • 16. Components of a firm’s cash conversion cycle include:
A) average age of inventory, average collection period and average payment
B) average collection period, average age of inventory
C) average payment, average collection period
D) average age of inventory and average payment period
  • 17. Which of the following statements is true regarding working capital management?
A) Cash, inventory and long-term receivables are common working capital components
B) There is a risk and profitability tradeoff in working capital management
C) A firm’s working capital is not essential in managing its operations
D) All statements are true
  • 18. Which of the following is NOT a common collection technique for accounts receivables?
A) sending letter of demands
B) sending legal notices
C) making phone calls
D) writing off customer’s accounts
  • 19. It is a technique used in granting credit to customers.
A) Credit score
B) All of the above
C) Credit limit
D) Credit standards
  • 20. It represents assets of the entity that expected to be collected and thus, converted to cash.
A) Marketable Securities Management
B) Inventory Management
C) Cash Management
D) Accounts Receivable Management
  • 21. In a loan amortization schedule, interest payments for each period would most probably
A) Remain the same
B) Decrease overtime
C) There are no interest payments in the schedule
D) Increase overtime
  • 22. The formula (1 + i)n is also called
A) present value factor for ordinary annuity
B) present value factor for lump-sum payment
C) future value factor for lump-sum payment
D) future value factor for ordinary annuity
  • 23. An increase in the present value may be caused by
A) decrease in the discount rate
B) discount rate does not affect the present value
C) increase in the discount rate
D) none of the above
  • 24. Interest payments that are based on the original principal and previous interest recognized is based on
A) simple interest rate
B) present value
C) compound interest rate
D) future value
  • 25. The time value of money suggest that a peso received today is worth
    a peso received in the future.
A) the same as
B) less than
C) more than
D) none of the above
  • 26. What is a bond?
A) It is a security that represents partial ownership in a business.
B) It is a security that represents the equity of a government or a business that promises to pay a fixed interest.
C) It is a security that represents the debt of a government or a business that promises to pay a fixed amount.
D) None of the above.
  • 27. A business owned by two or more people and operated for profit.
A) Corporation
B) Partnership
C) Sole Proprietorship
D) Cooperative
  • 28. An entity created by law owned by shareholders. Overall objective of a shareholder should be wealth maximization
A) Cooperative
B) Corporation
C) Partnersip
D) Sole Proprietorship
  • 29. Rational investors will seek efficient portfolios because these portfolios are optimal based on:
A) Transaction cost
B) Risk
C) Expected return
D) Expected return and risk
  • 30. Most investors are assumed ________.
A) Risk neutral
B) Risk seekers
C) Risk moderators
D) Risk averse
  • 31. Who will decide on the declaration of dividends in a corporation?
A) The shareholders of the corporation
B) The board of directors of the firm
C) The stock exchange on which the stock is listed
D) The president of the company
  • 32. What is the difference between shares and bonds?
A) Shares and bonds both represent equity
B) Shares and bonds both represent liabilities
C) Bonds represent ownership whereas shares do not.
D) Shares represent ownership whereas bonds do not.
  • 33. How should one think of stocks?
A) One should think of stocks as chips in the casino.
B) Both A and B
C) One should think of stocks as pieces of businesses.
D) One should not think of stocks as being synonymous with a good business.
  • 34. Why do different investors estimate inputs differently? Because _____
A) every investor has access to different information about securities
B) every investor has his/her own risk/return preferences
C) there is a random selection process used by individual investors
D) there is an inherent uncertainty in security analysis
  • 35. Of the following four investments, which is considered the safest?
A) Commercial papers
B) corporate bonds
C) Treasury bills
D) Treasury bonds
  • 36. Shares and bonds are floated in _________
A) Commercial bank
B) Equity market
C) Money market
D) Capital market
  • 37. If you want to deposit money in a bank, which will be a wise choice?
A) Compounding annually
B) Compounding monthly
C) Compounding semi-annually
D) Compounding daily
  • 38. Which of the following help determine risk tolerance?
A) Net worth and risk capital
B) Assets and liabilities
C) Net worth and net earnings
D) Expected return and risk
  • 39. Which of the following assets are considered medium risk investments?
A) Bank deposits
B) Money market
C) High income bonds
D) Government bonds
  • 40. Which are NOT considered as key participants in the investment process?
A) Government
B) Charitable institutions
C) Individuals
D) Business
  • 41. Saving money means giving up the opportunity cost to
A) spend in the present
B) save money
C) have money in the future
D) apply for credit cards
  • 42. What is term for the money you earn?
A) Income
B) Interest
C) Expense
D) Savings
  • 43. In order to effectively manage money, you need a:
A) High paying job
B) Budget
C) Computer
D) Online checking account
  • 44. Which of the following money management principles describe frugality?
A) Large amounts matter more.
B) You are the boss of you.
C) Small amounts matter.
D) The perfect is the enemy of good.
  • 45. Practice thrift, but always be looking for Big Wins, best illustrates what principle of saving?
A) Small amounts matter.
B) The perfect is the enemy of good.
C) Large amounts matter more.
D) You are the boss of you.
  • 46. To make the most of your income and savings it is important to become:
A) All of these
B) Financial Literate
C) Smart
D) Proactive
  • 47. The expenses listed below all reduce the amount of cash an individual has available for saving and investing EXCEPT
A) Travel
B) Food
C) Entertainment
D) Stocks
  • 48. This relates to the purchase of assets that are expected to generate a rate of return, with the hope that over time the individual will receive back more money than they originally invested.
A) Investing
B) Protection
C) Saving
D) Income
  • 49. These sources of income all generate cash that an individual can use to either spend, save, or invest EXCEPT
A) Bonuses
B) Mutual funds
C) Hourly wages
D) Taxes
  • 50. This refers to a source of cash inflow that an individual receives and then uses to support themselves and their family.
A) Investing
B) Income
C) Spending
D) Saving
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