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