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) savings bank
B) commercial bank
C) credit union
D) life insurance company
  • 2. Which of the following is NOT a financial institution?
A) A pension fund
B) A commercial bank
C) An insurance company
D) A newspaper publisher
  • 3. It is a set up so that employees of corporations or governments can receive income after retirement.
A) savings bank
B) credit union
C) life insurance company
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) Commercial banks
B) Credit Union
C) Mutual Funds
D) Savings and loans
  • 5. Most businesses raise money by selling their securities in a
A) private placement
B) public offering
C) direct placement
D) stock exchange
  • 6. Which of the following is NOT a service provided by financial institutions?
A) Lending money to customers
B) Investing customers’ savings in stocks and bonds
C) Paying savers’ interest on deposit
D) Buying the businesses of customers
  • 7. By definition, the money market involves the buying and selling of
A) short-term funds
B) stocks and bonds.
C) flows of funds.
D) funds that mature in more than one year.
  • 8. It creates financial relationship between suppliers and users of short-term funds.
A) money market
B) financial market
C) capital market
D) stock market
  • 9. Firms that require funds from external sources can obtain them from
A) All of the above.
B) private placement
C) financial institutions
D) financial markets
  • 10. The science and art of managing money
A) Management
B) Personal Finance
C) Financial Management
D) Finance
  • 11. What are the two management functions reinforce each other for the success of an organization?
A) Controlling and Directing
B) Organizing and Planning
C) Staffing and Planning
D) Planning and Controlling
  • 12. Which of the following is NOT part of financial planning process?
A) Set goals/Objectives
B) Establish strong Management
C) Identify resources
D) Identify goal related task
  • 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) Budget
B) Sales
C) Sales Budget
D) Cash 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) Budgeting
D) Cash flow 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) Budgeting
C) Inventory
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 payment, average collection period
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) There is a risk and profitability tradeoff in working capital management
B) Cash, inventory and long-term receivables are common working capital components
C) All statements are true
D) A firm’s working capital is not essential in managing its operations
  • 18. Which of the following is NOT a common collection technique for accounts receivables?
A) making phone calls
B) sending legal notices
C) sending letter of demands
D) writing off customer’s accounts
  • 19. It is a technique used in granting credit to customers.
A) All of the above
B) Credit score
C) Credit standards
D) Credit limit
  • 20. It represents assets of the entity that expected to be collected and thus, converted to cash.
A) Marketable Securities Management
B) Accounts Receivable Management
C) Cash Management
D) Inventory Management
  • 21. In a loan amortization schedule, interest payments for each period would most probably
A) Remain the same
B) Decrease overtime
C) Increase overtime
D) There are no interest payments in the schedule
  • 22. The formula (1 + i)n is also called
A) present value factor for lump-sum payment
B) future value factor for ordinary annuity
C) present value factor for ordinary annuity
D) future value factor for lump-sum payment
  • 23. An increase in the present value may be caused by
A) decrease in the discount rate
B) none of the above
C) discount rate does not affect the present value
D) increase in the discount rate
  • 24. Interest payments that are based on the original principal and previous interest recognized is based on
A) compound interest rate
B) simple interest rate
C) future value
D) present value
  • 25. The time value of money suggest that a peso received today is worth
    a peso received in the future.
A) less than
B) none of the above
C) the same as
D) more 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) None of the above.
C) It is a security that represents the equity of a government or a business that promises to pay a fixed interest.
D) It is a security that represents partial ownership in a business.
  • 27. A business owned by two or more people and operated for profit.
A) Sole Proprietorship
B) Cooperative
C) Partnership
D) Corporation
  • 28. An entity created by law owned by shareholders. Overall objective of a shareholder should be wealth maximization
A) Sole Proprietorship
B) Cooperative
C) Partnersip
D) Corporation
  • 29. Rational investors will seek efficient portfolios because these portfolios are optimal based on:
A) Expected return and risk
B) Expected return
C) Transaction cost
D) Risk
  • 30. Most investors are assumed ________.
A) Risk seekers
B) Risk neutral
C) Risk averse
D) Risk moderators
  • 31. Who will decide on the declaration of dividends in a corporation?
A) The shareholders of the corporation
B) The president of the company
C) The board of directors of the firm
D) The stock exchange on which the stock is listed
  • 32. What is the difference between shares and bonds?
A) Bonds represent ownership whereas shares do not.
B) Shares represent ownership whereas bonds do not.
C) Shares and bonds both represent liabilities
D) Shares and bonds both represent equity
  • 33. How should one think of stocks?
A) Both A and B
B) One should think of stocks as pieces of businesses.
C) One should think of stocks as chips in the casino.
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) corporate bonds
B) Treasury bonds
C) Commercial papers
D) Treasury bills
  • 36. Shares and bonds are floated in _________
A) Capital market
B) Money market
C) Commercial bank
D) Equity market
  • 37. If you want to deposit money in a bank, which will be a wise choice?
A) Compounding semi-annually
B) Compounding monthly
C) Compounding annually
D) Compounding daily
  • 38. Which of the following help determine risk tolerance?
A) Assets and liabilities
B) Net worth and risk capital
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) High income bonds
C) Government bonds
D) Money market
  • 40. Which are NOT considered as key participants in the investment process?
A) Individuals
B) Business
C) Charitable institutions
D) Government
  • 41. Saving money means giving up the opportunity cost to
A) have money in the future
B) save money
C) apply for credit cards
D) spend in the present
  • 42. What is term for the money you earn?
A) Expense
B) Income
C) Savings
D) Interest
  • 43. In order to effectively manage money, you need a:
A) High paying job
B) Budget
C) Online checking account
D) Computer
  • 44. Which of the following money management principles describe frugality?
A) The perfect is the enemy of good.
B) Large amounts matter more.
C) Small amounts matter.
D) You are the boss of you.
  • 45. Practice thrift, but always be looking for Big Wins, best illustrates what principle of saving?
A) Large amounts matter more.
B) The perfect is the enemy of good.
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) All of these
B) Proactive
C) Financial Literate
D) Smart
  • 47. The expenses listed below all reduce the amount of cash an individual has available for saving and investing EXCEPT
A) Travel
B) Entertainment
C) Food
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) 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) Taxes
B) Bonuses
C) Mutual funds
D) Hourly wages
  • 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) Saving
C) Income
D) Spending
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