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) life insurance company
B) commercial bank
C) credit union
D) savings bank
  • 2. Which of the following is NOT a financial institution?
A) A newspaper publisher
B) A pension fund
C) An insurance company
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) credit union
C) savings bank
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) Savings and loans
B) Mutual Funds
C) Credit Union
D) Commercial banks
  • 5. Most businesses raise money by selling their securities in a
A) public offering
B) private placement
C) direct placement
D) stock exchange
  • 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) Paying savers’ interest on deposit
D) Buying the businesses of customers
  • 7. By definition, the money market involves the buying and selling of
A) funds that mature in more than one year.
B) flows of funds.
C) short-term funds
D) stocks and bonds.
  • 8. It creates financial relationship between suppliers and users of short-term funds.
A) capital market
B) stock market
C) money market
D) financial 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) Financial Management
B) Finance
C) Personal Finance
D) Management
  • 11. What are the two management functions reinforce each other for the success of an organization?
A) Controlling and Directing
B) Planning and Controlling
C) Staffing and Planning
D) Organizing and Planning
  • 12. Which of the following is NOT part of financial planning process?
A) Identify resources
B) Identify goal related task
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) Sales Budget
B) Budget
C) Cash Budget
D) Sales
  • 14. Which of the process to closely monitoring of in and out of cash in the business?
A) Budgeting
B) Cash flow statement
C) Income 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) Projected Financial Statement
B) Forecasting
C) Budgeting
D) Inventory
  • 16. Components of a firm’s cash conversion cycle include:
A) average age of inventory and average payment period
B) average age of inventory, average collection period and average payment
C) average collection period, average age of inventory
D) average payment, average collection period
  • 17. Which of the following statements is true regarding working capital management?
A) Cash, inventory and long-term receivables are common working capital components
B) There is a risk and profitability tradeoff in working capital management
C) A firm’s working capital is not essential in managing its operations
D) All statements are true
  • 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 legal notices
D) sending letter of demands
  • 19. It is a technique used in granting credit to customers.
A) Credit limit
B) Credit score
C) All of the above
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) Cash Management
C) Marketable Securities Management
D) Inventory Management
  • 21. In a loan amortization schedule, interest payments for each period would most probably
A) Remain the same
B) Increase overtime
C) There are no interest payments in the schedule
D) Decrease overtime
  • 22. The formula (1 + i)n is also called
A) present value factor for lump-sum payment
B) future value factor for lump-sum payment
C) present value factor for ordinary annuity
D) future value factor for ordinary annuity
  • 23. An increase in the present value may be caused by
A) discount rate does not affect the present value
B) increase in the discount rate
C) decrease in the discount rate
D) none of the above
  • 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 equity of a government or a business that promises to pay a fixed interest.
B) None of the above.
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) Corporation
B) Cooperative
C) Partnership
D) Sole Proprietorship
  • 28. An entity created by law owned by shareholders. Overall objective of a shareholder should be wealth maximization
A) Sole Proprietorship
B) Partnersip
C) Corporation
D) Cooperative
  • 29. Rational investors will seek efficient portfolios because these portfolios are optimal based on:
A) Expected return
B) Risk
C) Transaction cost
D) Expected return and risk
  • 30. Most investors are assumed ________.
A) Risk moderators
B) Risk neutral
C) Risk seekers
D) Risk averse
  • 31. Who will decide on the declaration of dividends in a corporation?
A) The president of the company
B) The board of directors of the firm
C) The stock exchange on which the stock is listed
D) The shareholders of the corporation
  • 32. What is the difference between shares and bonds?
A) Shares and bonds both represent liabilities
B) Shares represent ownership whereas bonds do not.
C) Bonds represent ownership whereas shares 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) One should think of stocks as pieces of businesses.
C) One should not think of stocks as being synonymous with a good business.
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 an inherent uncertainty in security analysis
C) every investor has access to different information about securities
D) there is a random selection process used by individual investors
  • 35. Of the following four investments, which is considered the safest?
A) Commercial papers
B) Treasury bonds
C) corporate bonds
D) Treasury bills
  • 36. Shares and bonds are floated in _________
A) Commercial bank
B) Money market
C) Capital market
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 daily
C) Compounding annually
D) Compounding monthly
  • 38. Which of the following help determine risk tolerance?
A) Assets and liabilities
B) Expected return and risk
C) Net worth and risk capital
D) Net worth and net earnings
  • 39. Which of the following assets are considered medium risk investments?
A) High income bonds
B) Government bonds
C) Bank deposits
D) Money market
  • 40. Which are NOT considered as key participants in the investment process?
A) Individuals
B) Government
C) Business
D) Charitable institutions
  • 41. Saving money means giving up the opportunity cost to
A) apply for credit cards
B) spend in the present
C) have money in the future
D) save money
  • 42. What is term for the money you earn?
A) Savings
B) Interest
C) Expense
D) Income
  • 43. In order to effectively manage money, you need a:
A) Computer
B) Online checking account
C) Budget
D) High paying job
  • 44. Which of the following money management principles describe frugality?
A) The perfect is the enemy of good.
B) You are the boss of you.
C) Small amounts matter.
D) Large amounts matter more.
  • 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) Smart
B) Financial Literate
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) Travel
B) Food
C) Stocks
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) Investing
C) Protection
D) Saving
  • 49. These sources of income all generate cash that an individual can use to either spend, save, or invest EXCEPT
A) Taxes
B) Mutual funds
C) Hourly wages
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) Spending
B) Income
C) Investing
D) Saving
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