Sample Question of Fin110

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Section A (20 Multiple Choice Questions) (50 marks)

Select the appropriate response:

1.The primary financial goal of a corporation is to maximize

AShareholder’s wealth
BEarnings per share
CStock price
DA & C

2.Which of the following is not one of the three major areas of finance?

BInvestments and financial markets
CFinancial management of companies
DThe banking system

3.A savings-surplus unit is one:

Athat needs to borrow funds from a surplus unit
Bwhose income exceeds its spending
Cwhose spending exceeds its income
Dthat generally is a company

4. A _______ is a financial intermediary that receives premium payments that are used to purchase assets to cover future possible payments.

Abuilding society
Bcredit union
Csavings bank
Dlife insurance office

5.Financial markets:

Aact as intermediaries by holding a collection of assets and issuing claims based on them to savers
Bissue claims on future cash flows of individual borrowers directly to lenders
Ctransmit funds indirectly between lenders and borrowers
Dusually provide lenders with lower returns than other financial intermediaries

6. The stock market is:
AAn interconnected network of brokers and exchanges licensed by the government to assist investors in trading securities
BLocated in a large building in Kuala Lumpur called the stock exchange
CAn exchange that allows people to trade stock certificates in person
DVery much like a department store in that stocks from different industries are traded

7. The principle behind time value of money is based on the fact that:

AA sum of money in hand today is worth more than the same sum in the future
BA sum of money in hand today is worth less than the same sum in the future
CA sum of money in the future is worth less than the same sum in hand today
DA & C

8.If an investor is indifferent between $1.00 today and $1.33 in three years

A$1.00 must be the present value of $1.33 in three years
B$1.33 must be the future value of $1.00 today
CThe relevant interest rate is positive
DAll of the above

9. More frequent compounding results in _____________ future values and ___________ present values than less frequent compounding at the same nominal interest rate.

AHigher; higher
BLower; higher
CHigher; lower
DLower; lower

10. How much $1,000 deposited in a savings account paying 8% compounded annually will be worth after 5 years ?

A$5, 526
C$1, 400

11.The principal financial advantage of the corporate form of organization is:

AEase of transferability of ownership
BAccumulation of earnings for retention for the business
CLimited liability
DEase of raising money through selling stock

12. Bonds are also referred to as non-amortized debt, which means:

AInterest is paid regularly during the term, usually semiannually, whereas repayments of principal are annual
BInterest is paid regularly during the term, usually semiannually, and repayments of principal are semiannual
CInterest is paid regularly during the term, usually semiannually, whereas repayment of principal does not occur until the maturity
DInterest and principal are paid regularly during the term, usually annually

13. Which of the following is most correct?
AWhen coupon rates exceed market rates, bonds will sell at a premium
BWhen market rates exceed coupon rates, bonds will sell at a premium
CWhen coupon rates
DAll above

14. With respect to valuation, stocks and bonds are dissimilar in that

ABond cash flows are known precisely while stock cash flows are estimates
BPeriodic bond interest payments form an annuity while dividends are unlikely to be constant
CBond cash flows are contractual commitments, stock cash flows are not
DAll of the above

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