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) savings bank
D) credit union
  • 2. Which of the following is NOT a financial institution?
A) A commercial bank
B) A pension fund
C) A newspaper publisher
D) An insurance company
  • 3. It is a set up so that employees of corporations or governments can receive income after retirement.
A) credit union
B) pension fund
C) savings bank
D) life insurance company
  • 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) Commercial banks
D) Savings and loans
  • 5. Most businesses raise money by selling their securities in a
A) private placement
B) direct placement
C) stock exchange
D) public offering
  • 6. Which of the following is NOT a service provided by financial institutions?
A) Paying savers’ interest on deposit
B) Investing customers’ savings in stocks and bonds
C) Lending money to customers
D) Buying the businesses of customers
  • 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) All of the above.
B) financial institutions
C) financial markets
D) private placement
  • 10. The science and art of managing money
A) Finance
B) Personal Finance
C) Management
D) Financial Management
  • 11. What are the two management functions reinforce each other for the success of an organization?
A) Organizing and Planning
B) Controlling and Directing
C) Staffing and Planning
D) Planning and Controlling
  • 12. Which of the following is NOT part of financial planning process?
A) Identify goal related task
B) Establish strong Management
C) Identify resources
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) Sales
B) Cash Budget
C) Budget
D) Sales Budget
  • 14. Which of the process to closely monitoring of in and out of cash in the business?
A) Budgeting
B) Income statement
C) Cash flow statement
D) Statement of financial Position
  • 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) Budgeting
C) Forecasting
D) Projected Financial Statement
  • 16. Components of a firm’s cash conversion cycle include:
A) average payment, average collection period
B) average age of inventory and average payment period
C) average collection period, average age of inventory
D) average age of inventory, average collection period and average payment
  • 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) All statements are true
C) A firm’s working capital is not essential in managing its operations
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) sending letter of demands
B) making phone calls
C) writing off customer’s accounts
D) sending legal notices
  • 19. It is a technique used in granting credit to customers.
A) Credit standards
B) Credit limit
C) All of the above
D) Credit score
  • 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) Cash Management
D) Inventory Management
  • 21. In a loan amortization schedule, interest payments for each period would most probably
A) Increase overtime
B) There are no interest payments in the schedule
C) Decrease overtime
D) Remain the same
  • 22. The formula (1 + i)n is also called
A) future value factor for ordinary annuity
B) present value factor for lump-sum payment
C) future value factor for lump-sum payment
D) present value factor for ordinary annuity
  • 23. An increase in the present value may be caused by
A) decrease in the discount rate
B) increase in the discount rate
C) none of the above
D) discount rate does not affect the present value
  • 24. Interest payments that are based on the original principal and previous interest recognized is based on
A) compound interest rate
B) present value
C) simple 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) less than
B) more than
C) none of the above
D) the same as
  • 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 partial ownership in a business.
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) Corporation
C) Sole Proprietorship
D) Cooperative
  • 28. An entity created by law owned by shareholders. Overall objective of a shareholder should be wealth maximization
A) Corporation
B) Cooperative
C) Sole Proprietorship
D) Partnersip
  • 29. Rational investors will seek efficient portfolios because these portfolios are optimal based on:
A) Expected return and risk
B) Transaction cost
C) Expected return
D) Risk
  • 30. Most investors are assumed ________.
A) Risk seekers
B) Risk averse
C) Risk moderators
D) Risk neutral
  • 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) 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) One should think of stocks as pieces of businesses.
B) Both A and B
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 his/her own risk/return preferences
B) every investor has access to different information about securities
C) there is an inherent uncertainty in security analysis
D) there is a random selection process used by individual investors
  • 35. Of the following four investments, which is considered the safest?
A) Treasury bills
B) corporate bonds
C) Commercial papers
D) Treasury bonds
  • 36. Shares and bonds are floated in _________
A) Equity market
B) Money market
C) Capital market
D) Commercial bank
  • 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 daily
D) Compounding annually
  • 38. Which of the following help determine risk tolerance?
A) Expected return and risk
B) Net worth and net earnings
C) Assets and liabilities
D) Net worth and risk capital
  • 39. Which of the following assets are considered medium risk investments?
A) Money market
B) High income bonds
C) Government bonds
D) Bank deposits
  • 40. Which are NOT considered as key participants in the investment process?
A) Charitable institutions
B) Government
C) Individuals
D) Business
  • 41. Saving money means giving up the opportunity cost to
A) have money in the future
B) save money
C) spend in the present
D) apply for credit cards
  • 42. What is term for the money you earn?
A) Interest
B) Expense
C) Income
D) Savings
  • 43. In order to effectively manage money, you need a:
A) Online checking account
B) Budget
C) Computer
D) High paying job
  • 44. Which of the following money management principles describe frugality?
A) The perfect is the enemy of good.
B) Small amounts matter.
C) Large amounts matter more.
D) You are the boss of you.
  • 45. Practice thrift, but always be looking for Big Wins, best illustrates what principle of saving?
A) You are the boss of you.
B) The perfect is the enemy of good.
C) Large amounts matter more.
D) Small amounts matter.
  • 46. To make the most of your income and savings it is important to become:
A) Financial Literate
B) Smart
C) Proactive
D) All of these
  • 47. The expenses listed below all reduce the amount of cash an individual has available for saving and investing EXCEPT
A) Food
B) Travel
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) Income
B) Protection
C) Saving
D) Investing
  • 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) Saving
B) Spending
C) Income
D) Investing
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