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 commercial bank
B) An insurance company
C) A pension fund
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) pension fund
C) savings bank
D) credit union
  • 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) Commercial banks
C) Mutual Funds
D) Savings and loans
  • 5. Most businesses raise money by selling their securities in a
A) public offering
B) stock exchange
C) direct placement
D) private placement
  • 6. Which of the following is NOT a service provided by financial institutions?
A) Investing customers’ savings in stocks and bonds
B) Paying savers’ interest on deposit
C) Buying the businesses of customers
D) Lending money to customers
  • 7. By definition, the money market involves the buying and selling of
A) stocks and bonds.
B) flows of funds.
C) funds that mature in more than one year.
D) short-term funds
  • 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) private placement
B) All of the above.
C) financial institutions
D) financial markets
  • 10. The science and art of managing money
A) Finance
B) Personal Finance
C) Financial Management
D) Management
  • 11. What are the two management functions reinforce each other for the success of an organization?
A) Staffing and Planning
B) Organizing and Planning
C) Planning and Controlling
D) Controlling and Directing
  • 12. Which of the following is NOT part of financial planning process?
A) Establish strong Management
B) Identify goal related task
C) Set goals/Objectives
D) Identify resources
  • 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) Statement of financial Position
B) Cash flow statement
C) Budgeting
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) Budgeting
B) Projected Financial Statement
C) Forecasting
D) Inventory
  • 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 age of inventory and average payment period
D) average payment, average collection period
  • 17. Which of the following statements is true regarding working capital management?
A) All statements are true
B) Cash, inventory and long-term receivables are common working capital components
C) There is a risk and profitability tradeoff in working capital management
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) sending legal notices
B) sending letter of demands
C) writing off customer’s accounts
D) making phone calls
  • 19. It is a technique used in granting credit to customers.
A) Credit score
B) Credit standards
C) All of the above
D) Credit limit
  • 20. It represents assets of the entity that expected to be collected and thus, converted to cash.
A) Cash Management
B) Accounts Receivable Management
C) Marketable Securities 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) present value factor for lump-sum payment
B) present value factor for ordinary annuity
C) future 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) increase in the discount rate
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) present value
B) simple interest rate
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) less than
B) more than
C) none of the above
D) the same as
  • 26. What is a bond?
A) None of the above.
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 partial ownership in a business.
D) It is a security that represents the debt of a government or a business that promises to pay a fixed amount.
  • 27. A business owned by two or more people and operated for profit.
A) Sole Proprietorship
B) Partnership
C) Corporation
D) Cooperative
  • 28. An entity created by law owned by shareholders. Overall objective of a shareholder should be wealth maximization
A) Corporation
B) Sole Proprietorship
C) Partnersip
D) Cooperative
  • 29. Rational investors will seek efficient portfolios because these portfolios are optimal based on:
A) Risk
B) Expected return and risk
C) Transaction cost
D) Expected return
  • 30. Most investors are assumed ________.
A) Risk averse
B) Risk neutral
C) Risk seekers
D) Risk moderators
  • 31. Who will decide on the declaration of dividends in a corporation?
A) The stock exchange on which the stock is listed
B) The board of directors of the firm
C) The shareholders of the corporation
D) The president of the company
  • 32. What is the difference between shares and bonds?
A) Shares and bonds both represent equity
B) Bonds represent ownership whereas shares do not.
C) Shares and bonds both represent liabilities
D) Shares represent ownership whereas bonds do not.
  • 33. How should one think of stocks?
A) One should think of stocks as pieces of businesses.
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) Both A and B
  • 34. Why do different investors estimate inputs differently? Because _____
A) every investor has his/her own risk/return preferences
B) there is a random selection process used by individual investors
C) there is an inherent uncertainty in security analysis
D) every investor has access to different information about securities
  • 35. Of the following four investments, which is considered the safest?
A) Treasury bonds
B) Treasury bills
C) corporate bonds
D) Commercial papers
  • 36. Shares and bonds are floated in _________
A) Equity market
B) Money market
C) Commercial bank
D) Capital market
  • 37. If you want to deposit money in a bank, which will be a wise choice?
A) Compounding semi-annually
B) Compounding annually
C) Compounding monthly
D) Compounding daily
  • 38. Which of the following help determine risk tolerance?
A) Net worth and risk capital
B) Expected return and risk
C) Assets and liabilities
D) Net worth and net earnings
  • 39. Which of the following assets are considered medium risk investments?
A) Money market
B) Government bonds
C) Bank deposits
D) High income bonds
  • 40. Which are NOT considered as key participants in the investment process?
A) Government
B) Business
C) Individuals
D) Charitable institutions
  • 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) Interest
B) Savings
C) Income
D) Expense
  • 43. In order to effectively manage money, you need a:
A) Online checking account
B) Computer
C) High paying job
D) Budget
  • 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) The perfect is the enemy of good.
B) Small amounts matter.
C) You are the boss of you.
D) Large amounts matter more.
  • 46. To make the most of your income and savings it is important to become:
A) Smart
B) All of these
C) Financial Literate
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) 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) Hourly wages
D) Mutual funds
  • 50. This refers to a source of cash inflow that an individual receives and then uses to support themselves and their family.
A) Spending
B) Investing
C) Saving
D) Income
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