1) Which of the following is a reason why an expertise in international finance is important?
A) Because the process of assessing risk among many countries is more difficult than assessing risk for a single country
B) Because financial regulatory rules and requirements differ from country to country
C) Because changes in economic conditions impact the relative values of currency among countries
D) All of the above are reasons for gaining expertise in international finance.
2) Financial assets that will mature within a year are bought and sold in the ________ market.
A) debt
B) capital
C) stock
D) money
3) ________ is the typical title of the corporate executive charged with determining the best repayment structure for borrowed funds to ensure timely repayment and sufficient cash for daily operations.
A) Chief Executive Officer (CEO)
B) Chief Financial Officer (CFO)
C) Chairman
D) Chief Operating Officer (COO)
4) A firm's stock price most closely reflects which of the following?
A) Current interest rates
B) Expected future cash flows of the firm
C) The amount of debt held by the firm
D) None of the above
5) A ________ has limited liability, is a legal entity, and has the greatest potential to raise capital.
A) sole proprietorship
B) general partnership
C) limited partnership
D) corporation
6) Which of the statements below is FALSE?
A) The purpose of studying financial statements is to understand those portions of the statements that have relevance for financial decision making.
B) We need to understand how to interpret and use the information presented in financial statements to form a picture of the financial profile of the firm.
C) Accounting, it has been said, looks back to where a company has been — somewhat like looking through a rear view mirror.
D) Accounting and finance view the numbers in the same way.
7) Net income is ________.
A) the accounting profit from the operations of the company during the period
B) cash flow
C) the accounting profit from the non-operating assets of the company during the period
D) always the dividends paid shareholders
8) Which of the statements below is FALSE?
A) The cash account is much like your individual checkbook, because it tells you how much money you currently have for paying bills or spending on new items.
B) Long-term assets are accounts that will normally be turned into cash over the course of the operating or business cycle of the firm, and current liabilities are the accounts that will come due for payment over the operating or business cycle.
C) The long-term capital asset accounts of the balance sheet represent the capital investment of the company and reflect assets that the company owns and that provide the basis for producing goods and services for sale.
D) The Plant, Property and Equipment account is straightforward in its description, yet it really contains two pieces: the original value (purchase price) of the equipment and the accumulated depreciation.
9) Free cash flow is the ________.
A) cash flow from assets.
B) the remaining cash free to distribute to creditors and owners of the firm
C) cash that a a company generates to to operate the company
D) All of the above
10) The SEC has a site named EDGAR that ________.
A) provides, at a cost, on-line access to a company's financial reports
B) offers investors free advice on what stocks to pick
C) provides an on-line tutorial on how to understand the government's role in affecting stock prices
D) provides an on-line tutorial that will help new viewers find a company and its financial statements
11) Steve would like to buy a new car but must complete a two-year commitment to the Peace Corp before he will drive the new car. The current price of the car Steve wants to buy is $22,000, and the dealer expects the price of a similar new car to be $24,000 in two years. If Steve can earn an annual interest rate of 3% on his money, should he buy the car now or wait for two years? Note: Storage costs if Steve purchases the car are $0. Please limit your considerations to the factors offered in the answer choices.
A) Buy now because if Steve invests the $22,000 today it will only increase in value to $23,340, and this is less than the cost of his desired new car in two years.
B) Steve is indifferent because his $22,000 investment will be worth exactly $24,000 after two years.
C) Buy in two years because at $24,000 the car will cost less than the $24,385 Steve will have after investing the money for two years.
D) Buy in two years because $24,000 is a real deal for the car Steve wants.
12) A home improvement firm has quoted a price of $9,800 to fix up John's backyard. Five years ago, John put $7,500 into a home improvement account that has earned an average of 5.25% per year. Does John have enough money in his account to pay for the backyard fix-up?
A) Yes; John now has exactly $9,800 in his home improvement account.
B) No; John has only $9,687 in his home improvement account.
C) Yes; John now has $10,519 in his home improvement account.
D) There is not enough information to answer this question.
13) You have purchased a Treasury bond that will pay $10,000 to your newborn child in 15 years. If this bond is discounted at a rate of 3.875% per year, what is today's price (present value) for this bond?
A) $8,417
B) $8,500
C) $5,654
D) $10,000
14 Your parents plan to spend $20,000 on a car for you upon graduation from college. If you will graduate in three years and your parents can earn 4.125% annually on their investment, how much money must they set aside today for your car?
A) $20,000
B) $17,704
C) $17,716
D) $16,387
15) Four years ago, Robert's annual salary was $52,500. Today, he earns $73,800. What has been the average annual rate of growth of Robert's salary?
A) $5,325 per year
B) 10.38%
C) 41.52%
D) 8.89%
16) In 1930, the highest paid player in major league baseball was Babe Ruth of the New York Yankees, with an annual salary of $80,000. In 2005, the highest paid player in major league baseball player was Alex Rodriguez, also of the New York Yankees, with a salary of $25,000,000. What was the average annual rate of growth in the top baseball salary over this time period?
A) 7.96%
B) 18.70%
C) 3.31%
D) 4.17%
17) Your employer has agreed to place year-end deposits of $1,000, $2,000 and $3,000 into your retirement account. The $1,000 deposit will be one year from today, the $2,000 deposit two years from today, and the $3,000 deposit three years from today. If your account earns 5% per year, how much money will you have in the account at the end of year three when the last deposit is made?
A) $5,357.95
B) $6,000
C) $6,202.50
D) $6,727.88