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) life insurance company
C) commercial bank
D) credit union
  • 2. Which of the following is NOT a financial institution?
A) A newspaper publisher
B) A pension fund
C) A commercial bank
D) An insurance company
  • 3. It is a set up so that employees of corporations or governments can receive income after retirement.
A) life insurance company
B) savings bank
C) pension fund
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) 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) 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) short-term funds
B) stocks and bonds.
C) funds that mature in more than one year.
D) flows of funds.
  • 8. It creates financial relationship between suppliers and users of short-term funds.
A) capital market
B) stock market
C) financial market
D) money market
  • 9. Firms that require funds from external sources can obtain them from
A) financial markets
B) private placement
C) All of the above.
D) financial institutions
  • 10. The science and art of managing money
A) Financial Management
B) Finance
C) Management
D) Personal Finance
  • 11. What are the two management functions reinforce each other for the success of an organization?
A) Controlling and Directing
B) Staffing and Planning
C) Planning and Controlling
D) Organizing and Planning
  • 12. Which of the following is NOT part of financial planning process?
A) Identify goal related task
B) Identify resources
C) Set goals/Objectives
D) Establish strong Management
  • 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) Cash flow statement
C) Income statement
D) Budgeting
  • 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) Projected Financial Statement
C) Budgeting
D) Forecasting
  • 16. Components of a firm’s cash conversion cycle include:
A) average collection period, average age of inventory
B) average age of inventory and average payment period
C) average payment, average collection period
D) average age of inventory, average collection period and average payment
  • 17. Which of the following statements is true regarding working capital management?
A) A firm’s working capital is not essential in managing its operations
B) Cash, inventory and long-term receivables are common working capital components
C) All statements are true
D) There is a risk and profitability tradeoff in working capital management
  • 18. Which of the following is NOT a common collection technique for accounts receivables?
A) making phone calls
B) sending legal notices
C) writing off customer’s accounts
D) sending letter of demands
  • 19. It is a technique used in granting credit to customers.
A) Credit standards
B) All of the above
C) Credit score
D) Credit limit
  • 20. It represents assets of the entity that expected to be collected and thus, converted to cash.
A) Cash Management
B) Inventory Management
C) Accounts Receivable Management
D) Marketable Securities Management
  • 21. In a loan amortization schedule, interest payments for each period would most probably
A) Increase overtime
B) Remain the same
C) There are no interest payments in the schedule
D) Decrease overtime
  • 22. The formula (1 + i)n is also called
A) future value factor for lump-sum payment
B) future value factor for ordinary annuity
C) present 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) none of the above
B) discount rate does not affect the present value
C) decrease in the discount rate
D) increase in the discount rate
  • 24. Interest payments that are based on the original principal and previous interest recognized is based on
A) simple interest rate
B) compound 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) more than
B) the same as
C) none of the above
D) less than
  • 26. What is a bond?
A) None of the above.
B) It is a security that represents the debt of a government or a business that promises to pay a fixed amount.
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) Sole Proprietorship
B) Corporation
C) Partnership
D) Cooperative
  • 28. An entity created by law owned by shareholders. Overall objective of a shareholder should be wealth maximization
A) Cooperative
B) Partnersip
C) Corporation
D) Sole Proprietorship
  • 29. Rational investors will seek efficient portfolios because these portfolios are optimal based on:
A) Transaction cost
B) Expected return
C) Risk
D) Expected return and risk
  • 30. Most investors are assumed ________.
A) Risk averse
B) Risk moderators
C) Risk neutral
D) Risk seekers
  • 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) One should not think of stocks as being synonymous with a good business.
C) Both A and B
D) One should think of stocks as pieces of businesses.
  • 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) Commercial papers
C) Treasury bills
D) corporate bonds
  • 36. Shares and bonds are floated in _________
A) Money market
B) Commercial bank
C) Capital market
D) Equity market
  • 37. If you want to deposit money in a bank, which will be a wise choice?
A) Compounding monthly
B) Compounding annually
C) Compounding semi-annually
D) Compounding daily
  • 38. Which of the following help determine risk tolerance?
A) Net worth and net earnings
B) Net worth and risk capital
C) Assets and liabilities
D) Expected return and risk
  • 39. Which of the following assets are considered medium risk investments?
A) Government bonds
B) High income bonds
C) Money market
D) Bank deposits
  • 40. Which are NOT considered as key participants in the investment process?
A) Charitable institutions
B) Business
C) Individuals
D) Government
  • 41. Saving money means giving up the opportunity cost to
A) have money in the future
B) spend in the present
C) save money
D) apply for credit cards
  • 42. What is term for the money you earn?
A) Income
B) Interest
C) Expense
D) Savings
  • 43. In order to effectively manage money, you need a:
A) High paying job
B) Budget
C) Computer
D) Online checking account
  • 44. Which of the following money management principles describe frugality?
A) You are the boss of you.
B) Large amounts matter more.
C) The perfect is the enemy of good.
D) Small amounts matter.
  • 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) Large amounts matter more.
C) You are the boss of you.
D) Small amounts matter.
  • 46. To make the most of your income and savings it is important to become:
A) Proactive
B) Financial Literate
C) Smart
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) Stocks
B) Entertainment
C) Food
D) Travel
  • 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) Investing
B) Protection
C) Income
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) Hourly wages
C) Mutual funds
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) Income
B) Spending
C) Saving
D) Investing
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