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Business Finance - Pre Test
Contributed by: Escalera
  • 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) credit union
D) commercial bank
  • 2. Which of the following is NOT a financial institution?
A) A pension fund
B) An insurance company
C) A commercial bank
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) 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) Savings and loans
B) Commercial banks
C) Mutual Funds
D) Credit Union
  • 5. Most businesses raise money by selling their securities in a
A) direct placement
B) public offering
C) private placement
D) stock exchange
  • 6. Which of the following is NOT a service provided by financial institutions?
A) Lending money to customers
B) Investing customers’ savings in stocks and bonds
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) 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) financial markets
B) financial institutions
C) All of the above.
D) private placement
  • 10. The science and art of managing money
A) Financial Management
B) Management
C) Finance
D) Personal Finance
  • 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) Planning and Controlling
D) Staffing and Planning
  • 12. Which of the following is NOT part of financial planning process?
A) Establish strong Management
B) Set goals/Objectives
C) Identify goal related task
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) Budget
B) Cash Budget
C) Sales
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) Statement of financial Position
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) Inventory
B) Projected Financial Statement
C) Forecasting
D) Budgeting
  • 16. Components of a firm’s cash conversion cycle include:
A) average age of inventory, average collection period and average payment
B) average payment, average collection period
C) average age of inventory and average payment period
D) average collection period, average age of inventory
  • 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) A firm’s working capital is not essential in managing its operations
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) sending legal notices
B) writing off customer’s accounts
C) sending letter of demands
D) making phone calls
  • 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) Inventory Management
B) Cash Management
C) Marketable Securities Management
D) Accounts Receivable 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) Increase overtime
D) Decrease 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) future value factor for lump-sum payment
D) present value factor for lump-sum payment
  • 23. An increase in the present value may be caused by
A) none of the above
B) decrease in the discount rate
C) discount rate does not affect the present value
D) increase in the discount rate
  • 24. Interest payments that are based on the original principal and previous interest recognized is based on
A) compound interest rate
B) simple interest rate
C) present value
D) future value
  • 25. The time value of money suggest that a peso received today is worth
    a peso received in the future.
A) the same as
B) less than
C) none of the above
D) more than
  • 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) Sole Proprietorship
C) Cooperative
D) Corporation
  • 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) Transaction cost
B) Risk
C) Expected return
D) Expected return and risk
  • 30. Most investors are assumed ________.
A) Risk moderators
B) Risk seekers
C) Risk averse
D) Risk neutral
  • 31. Who will decide on the declaration of dividends in a corporation?
A) The board of directors of the firm
B) The stock exchange on which the stock is listed
C) The president of the company
D) The shareholders of the corporation
  • 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 not think of stocks as being synonymous with a good business.
B) One should think of stocks as pieces of businesses.
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) there is an inherent uncertainty in security analysis
B) every investor has access to different information about securities
C) there is a random selection process used by individual investors
D) every investor has his/her own risk/return preferences
  • 35. Of the following four investments, which is considered the safest?
A) corporate bonds
B) Commercial papers
C) Treasury bonds
D) Treasury bills
  • 36. Shares and bonds are floated in _________
A) Commercial bank
B) Equity market
C) Capital market
D) Money market
  • 37. If you want to deposit money in a bank, which will be a wise choice?
A) Compounding monthly
B) Compounding daily
C) Compounding semi-annually
D) Compounding annually
  • 38. Which of the following help determine risk tolerance?
A) Net worth and net earnings
B) Assets and liabilities
C) Expected return and risk
D) Net worth and risk capital
  • 39. Which of the following assets are considered medium risk investments?
A) Bank deposits
B) Money market
C) High income bonds
D) Government bonds
  • 40. Which are NOT considered as key participants in the investment process?
A) Individuals
B) Government
C) Charitable institutions
D) Business
  • 41. Saving money means giving up the opportunity cost to
A) spend in the present
B) apply for credit cards
C) save money
D) have money in the future
  • 42. What is term for the money you earn?
A) Interest
B) Savings
C) Expense
D) Income
  • 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) Large amounts matter more.
B) Small amounts matter.
C) The perfect is the enemy of good.
D) You are the boss of you.
  • 45. Practice thrift, but always be looking for Big Wins, best illustrates what principle of saving?
A) Small amounts matter.
B) The perfect is the enemy of good.
C) Large amounts matter more.
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) All of these
D) Proactive
  • 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) Saving
B) Income
C) Investing
D) Protection
  • 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) Saving
C) Investing
D) Income
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