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) credit union
C) life insurance company
D) commercial bank
  • 2. Which of the following is NOT a financial institution?
A) A newspaper publisher
B) An insurance company
C) A pension fund
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) pension fund
C) credit union
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) Savings and loans
B) Credit Union
C) Mutual Funds
D) Commercial banks
  • 5. Most businesses raise money by selling their securities in a
A) private placement
B) stock exchange
C) direct placement
D) public offering
  • 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) funds that mature in more than one year.
B) short-term funds
C) stocks and bonds.
D) flows of funds.
  • 8. It creates financial relationship between suppliers and users of short-term funds.
A) money market
B) capital market
C) financial market
D) stock 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) Planning and Controlling
B) Staffing and Planning
C) Controlling and Directing
D) Organizing and Planning
  • 12. Which of the following is NOT part of financial planning process?
A) Establish strong Management
B) Set goals/Objectives
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) Cash Budget
B) Sales
C) Budget
D) Sales Budget
  • 14. Which of the process to closely monitoring of in and out of cash in the business?
A) Income statement
B) Statement of financial Position
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) Forecasting
D) Inventory
  • 16. Components of a firm’s cash conversion cycle include:
A) average collection period, average age of inventory
B) average payment, average collection period
C) average age of inventory, average collection period and average payment
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) A firm’s working capital is not essential in managing its operations
C) Cash, inventory and long-term receivables are common working capital components
D) All statements are true
  • 18. Which of the following is NOT a common collection technique for accounts receivables?
A) sending legal notices
B) making phone calls
C) writing off customer’s accounts
D) sending letter of demands
  • 19. It is a technique used in granting credit to customers.
A) Credit score
B) All of the above
C) Credit standards
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) There are no interest payments in the schedule
B) Remain the same
C) Decrease overtime
D) Increase overtime
  • 22. The formula (1 + i)n is also called
A) present value factor for ordinary annuity
B) future value factor for ordinary annuity
C) present value factor for lump-sum payment
D) future value factor for lump-sum payment
  • 23. An increase in the present value may be caused by
A) none of the above
B) increase in the discount rate
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) future value
B) compound interest rate
C) present value
D) simple interest rate
  • 25. The time value of money suggest that a peso received today is worth
    a peso received in the future.
A) none of the above
B) the same as
C) less than
D) more than
  • 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 the debt of a government or a business that promises to pay a fixed amount.
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) 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) Sole Proprietorship
B) Corporation
C) Cooperative
D) Partnersip
  • 29. Rational investors will seek efficient portfolios because these portfolios are optimal based on:
A) Expected return
B) Expected return and risk
C) Risk
D) Transaction cost
  • 30. Most investors are assumed ________.
A) Risk seekers
B) Risk moderators
C) Risk neutral
D) Risk averse
  • 31. Who will decide on the declaration of dividends in a corporation?
A) The president of the company
B) The shareholders of the corporation
C) The stock exchange on which the stock is listed
D) The board of directors of the firm
  • 32. What is the difference between shares and bonds?
A) Shares and bonds both represent liabilities
B) Bonds represent ownership whereas shares do not.
C) Shares represent ownership whereas bonds do not.
D) Shares and bonds both represent equity
  • 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) there is a random selection process used by individual investors
C) there is an inherent uncertainty in security analysis
D) every investor has his/her own risk/return preferences
  • 35. Of the following four investments, which is considered the safest?
A) Treasury bills
B) Commercial papers
C) Treasury bonds
D) corporate bonds
  • 36. Shares and bonds are floated in _________
A) Money market
B) Capital 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 daily
B) Compounding semi-annually
C) Compounding annually
D) Compounding monthly
  • 38. Which of the following help determine risk tolerance?
A) Net worth and risk capital
B) Assets and liabilities
C) Expected return and risk
D) Net worth and net earnings
  • 39. Which of the following assets are considered medium risk investments?
A) Government bonds
B) High income bonds
C) Bank deposits
D) Money market
  • 40. Which are NOT considered as key participants in the investment process?
A) Individuals
B) Charitable institutions
C) Business
D) Government
  • 41. Saving money means giving up the opportunity cost to
A) save money
B) have money in the future
C) spend in the present
D) apply for credit cards
  • 42. What is term for the money you earn?
A) Savings
B) Expense
C) Income
D) Interest
  • 43. In order to effectively manage money, you need a:
A) Computer
B) Online checking account
C) High paying job
D) Budget
  • 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) You are the boss of you.
B) Large amounts matter more.
C) The perfect is the enemy of good.
D) Small amounts matter.
  • 46. To make the most of your income and savings it is important to become:
A) Proactive
B) Smart
C) Financial Literate
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) Stocks
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) Protection
B) Saving
C) Investing
D) Income
  • 49. These sources of income all generate cash that an individual can use to either spend, save, or invest EXCEPT
A) Mutual funds
B) Taxes
C) Bonuses
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) Income
C) Spending
D) Investing
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