D076 WGU - ALL UNIT TESTS QUESTIONS &
ANSWERS
What are the main services offered by financial institutions? - Answer -Accepting a
wide variety of deposits, offering investment products, providing loans, and brokering
financial transactions
What is the main objective of personal financial goals? - Answer -To maximize
individual utility
Which task does the financial manager of a firm perform that involves the issuance of
new stocks and bonds? - Answer -Making financing decisions
Why is understanding the definition of finance important in managing personal
finances? - Answer -It helps individuals compare the costs and benefits of an action to
determine whether to take that action.
In which type of market would a company issue bonds or stocks for the first time? -
Answer -Primary market
Which type of financial institution is a mutual fund? - Answer -Investment institution
Which financial institution specializes in managing and administering retirement funds? -
Answer -Pension funds
Which type of economic indicator is the consumer price index? - Answer -Lagging
indicator
What does the term ethical refer to? - Answer -The accepted standards of conduct that
guide a person's behavior
A company's officers and board of directors are selling their stocks in the firm at higher
prices due to false accounting reports that made the stock seem more valuable than it
truly was. Which ethical issue is occurring in this situation? - Answer -Agency problem
due to conflicting interests
Which area of finance involves deciding which assets to invest in to create wealth in the
future? - Answer -Investments
What is the main goal of a firm? - Answer -To maximize owner wealth
What are financial managers doing if they evaluate whether it is worth spending money
on research and development for a new product? - Answer -Making an investment
decision
,Which type of financial market is where securities such as stocks and bonds are traded
after their initial issuance? - Answer -The secondary financial market
What type of financial institution is an insurance company? - Answer -Contractual
Which financial institution invests funds contributed by a company to provide retirement
funds for the company's employees? - Answer -Pension fund
Personal income is which type of economic indicator? - Answer -Coincident
Which term refers to something that conforms with accepted standards of conduct that
guide a person's behavior? - Answer -Ethical
What is the second step in finding a solution to an ethical dilemma? - Answer -Consider
alternative courses of action
Which type of interest rate includes interest on interest in addition to interest on the
principal? - Answer -Compound interest
How can agency problems be reduced through corporate control? - Answer -Executive
compensation
What is the rate at which the average price level of particular goods and services in an
economy increases over a period of time? - Answer -Inflation rate
You signed an apartment contract today. You are going to pay $1,500 at the beginning
of each month for the next 12 months, starting today. What type of cash flows is this
contract? - Answer -An annuity due
What is the term for the return over the entire period that an investor owns a financial
security? - Answer -Holding period return
What is used to measure total risk? - Answer -Standard deviation
What is the term for the risk that changes in interest rates will impact the value of a
bond? - Answer -Interest rate risk
What is another name for the cost of capital? - Answer -Discount rate
What is the name for the minimum rate of return that an investor or lender will accept for
investments? - Answer -Required rate of return
The nominal interest rate of an investment is 8%, and the inflation rate is 3%. What is
the real interest rate? - Answer -5%
, Which action reduces the future value of cash flows? - Answer -Receive all cash flows
later than expected.
How is risk defined in finance? - Answer -The possibility that the realized or actual
return will differ from what we expect
Which example below is considered a market risk factor? - Answer -An unexpected
change in interest rate occurs.
Why are ratios useful for analyzing and comparing company performance between firms
of different sizes? - Answer -They provide standardization.
You are the financial manager of a firm. The firm is small and is struggling to collect
cash from accounts receivable. Also, due to the nature of industry, inventories are
illiquid. To make sure that the firm has enough cash holdings for short-term obligations,
you decide to create a new ratio of cash to short-term obligations. What is this scenario
an example of? - Answer -Flexibility
Why are activity ratios also called efficiency ratios or asset use efficiency ratios? -
Answer -Because they measure how well a company uses its assets to generate sales
or cash.
What type of ratio is used to consider how a firm is financed and to assess a firm's
ability to pay interest and pay back long-term obligations? - Answer -Financing ratios
What does a net margin of 7% indicate? - Answer -For every dollar of revenue, 7 cents
remain for the equity holders after all other costs are covered.
Firm A has an average collection period of 67 days, and the industry norm is 40 days.
What can the firm do in order to be competitive with accounts receivable management
in the industry? - Answer -Tighten the credit standards for its customers.
What is the difference between the current ratio and the quick ratio? - Answer -
Inventory is excluded in the calculation of the quick ratio.
Which term is used to describe the stock of a firm with market-to-book ratio of less than
1? - Answer -Value stock
What does inventory turnover assess? - Answer -The inventory management of a firm
You are comparing the return on equity of Firm 1 and Firm 2. Both firms have an
identical profit margin and asset turnover, but Firm 1 has an overall higher return on
equity. What must be true? - Answer -Firm 1 is using a higher proportion of debt to
finance its operations.
ANSWERS
What are the main services offered by financial institutions? - Answer -Accepting a
wide variety of deposits, offering investment products, providing loans, and brokering
financial transactions
What is the main objective of personal financial goals? - Answer -To maximize
individual utility
Which task does the financial manager of a firm perform that involves the issuance of
new stocks and bonds? - Answer -Making financing decisions
Why is understanding the definition of finance important in managing personal
finances? - Answer -It helps individuals compare the costs and benefits of an action to
determine whether to take that action.
In which type of market would a company issue bonds or stocks for the first time? -
Answer -Primary market
Which type of financial institution is a mutual fund? - Answer -Investment institution
Which financial institution specializes in managing and administering retirement funds? -
Answer -Pension funds
Which type of economic indicator is the consumer price index? - Answer -Lagging
indicator
What does the term ethical refer to? - Answer -The accepted standards of conduct that
guide a person's behavior
A company's officers and board of directors are selling their stocks in the firm at higher
prices due to false accounting reports that made the stock seem more valuable than it
truly was. Which ethical issue is occurring in this situation? - Answer -Agency problem
due to conflicting interests
Which area of finance involves deciding which assets to invest in to create wealth in the
future? - Answer -Investments
What is the main goal of a firm? - Answer -To maximize owner wealth
What are financial managers doing if they evaluate whether it is worth spending money
on research and development for a new product? - Answer -Making an investment
decision
,Which type of financial market is where securities such as stocks and bonds are traded
after their initial issuance? - Answer -The secondary financial market
What type of financial institution is an insurance company? - Answer -Contractual
Which financial institution invests funds contributed by a company to provide retirement
funds for the company's employees? - Answer -Pension fund
Personal income is which type of economic indicator? - Answer -Coincident
Which term refers to something that conforms with accepted standards of conduct that
guide a person's behavior? - Answer -Ethical
What is the second step in finding a solution to an ethical dilemma? - Answer -Consider
alternative courses of action
Which type of interest rate includes interest on interest in addition to interest on the
principal? - Answer -Compound interest
How can agency problems be reduced through corporate control? - Answer -Executive
compensation
What is the rate at which the average price level of particular goods and services in an
economy increases over a period of time? - Answer -Inflation rate
You signed an apartment contract today. You are going to pay $1,500 at the beginning
of each month for the next 12 months, starting today. What type of cash flows is this
contract? - Answer -An annuity due
What is the term for the return over the entire period that an investor owns a financial
security? - Answer -Holding period return
What is used to measure total risk? - Answer -Standard deviation
What is the term for the risk that changes in interest rates will impact the value of a
bond? - Answer -Interest rate risk
What is another name for the cost of capital? - Answer -Discount rate
What is the name for the minimum rate of return that an investor or lender will accept for
investments? - Answer -Required rate of return
The nominal interest rate of an investment is 8%, and the inflation rate is 3%. What is
the real interest rate? - Answer -5%
, Which action reduces the future value of cash flows? - Answer -Receive all cash flows
later than expected.
How is risk defined in finance? - Answer -The possibility that the realized or actual
return will differ from what we expect
Which example below is considered a market risk factor? - Answer -An unexpected
change in interest rate occurs.
Why are ratios useful for analyzing and comparing company performance between firms
of different sizes? - Answer -They provide standardization.
You are the financial manager of a firm. The firm is small and is struggling to collect
cash from accounts receivable. Also, due to the nature of industry, inventories are
illiquid. To make sure that the firm has enough cash holdings for short-term obligations,
you decide to create a new ratio of cash to short-term obligations. What is this scenario
an example of? - Answer -Flexibility
Why are activity ratios also called efficiency ratios or asset use efficiency ratios? -
Answer -Because they measure how well a company uses its assets to generate sales
or cash.
What type of ratio is used to consider how a firm is financed and to assess a firm's
ability to pay interest and pay back long-term obligations? - Answer -Financing ratios
What does a net margin of 7% indicate? - Answer -For every dollar of revenue, 7 cents
remain for the equity holders after all other costs are covered.
Firm A has an average collection period of 67 days, and the industry norm is 40 days.
What can the firm do in order to be competitive with accounts receivable management
in the industry? - Answer -Tighten the credit standards for its customers.
What is the difference between the current ratio and the quick ratio? - Answer -
Inventory is excluded in the calculation of the quick ratio.
Which term is used to describe the stock of a firm with market-to-book ratio of less than
1? - Answer -Value stock
What does inventory turnover assess? - Answer -The inventory management of a firm
You are comparing the return on equity of Firm 1 and Firm 2. Both firms have an
identical profit margin and asset turnover, but Firm 1 has an overall higher return on
equity. What must be true? - Answer -Firm 1 is using a higher proportion of debt to
finance its operations.
