? Verified correct answers and rationales for efficient study Page 1
Test Bank for
Finance Applications and Theory 6e Cornett
Chapter 1-20 Answers are at the end of Each chapter
Chapter 1
Student name:__________
1) Which statements(s) is/are true for successful application of financial theories?
A) The economy will be more productive.
B) Individual’s wealth will grow.
C) The economy will be more productive and individual's wealth will grow.
D) None of these choices are correct.
2) Not all cash a company generates will be returned to the investors. Which of the following
will NOT reduce the amount of capital returned to the investors?
A) retained earnings
B) taxes
C) dividends
3) This subarea of finance involves methods and techniques to make appropriate decisions
about what kinds of securities to own, which firms' securities to buy, and how to be paid back
in the form that the investor wishes.
A) real markets
B) investments
C) financial management
4) This subarea of finance looks at firm decisions in acquiring and utilizing cash received from
investors or from retained earnings.
A) investments
B) financial management
C) financial institutions and markets
Page 1 of 848
,? Verified correct answers and rationales for efficient study Page 2
5) Financial management involves decisions about which of the following?
A) Which projects to fund
B) How to minimize taxation
C) What type of capital should be raised
D) All of these choices are correct.
6) This subarea of finance helps facilitate the capital flows between investors and companies.
A) investments
B) financial management
C) treasury management
D) financial institutions and markets
7) This subarea of finance is important for adapting to the global economy.
A) investments
B) financial management
C) international finance
D) financial institutions and markets
8) A potential future negative impact to value and/or cash flows is often discussed in terms of
probability of loss and the expected magnitude of the loss. This is called
A) options.
B) standard deviation.
C) coefficient of variation.
D) risk.
9) This is a term to describe non-physical assets like stocks and bonds that get their value from
future cash flows.
A) investment
B) financial asset
C) real asset
D) financial markets
Page 2 of 848
,? Verified correct answers and rationales for efficient study Page 3
10) Which of the following is defined as a group of securities that exhibit similar characteristics,
behave similarly in the marketplace, and are subject to the same laws and regulations?
A) investments
B) asset classes
C) market instruments
D) financial markets
11) The most commonly accepted groups of asset classes include all of the following except
A) stocks.
B) bonds.
C) machinery and equipment.
D) real estate.
12) The _________ is the interest rate at which banks and other depository institutions lend
reserve balances to one another overnight; this rate heavily influences other short-term rates.
A) average tax rate
B) exchange rate
C) federal funds rate
D) none of these choices are correct.
13) Which of the following statements regarding quantitative easing (QE) are true?
A) QE is a monetary policy designed to increase the money supply in the economy
through buying securities in the market and lowering short-term interest rates.
B) The first round of QE involved the Fed to purchase potentially toxic mortgage-backed
securities from banks.
C) During early 2020 due to the COVID-19 pandemic, the Fed dropped the federal funds
rate to 1.25% and then again 0.25 a few months later.
D) All of these choices are correct.
14) Which of the following is the firm's highest-level financial manager?
A) chief executive officer
B) chief financial officer
C) board of directors
D) corporate governance
Page 3 of 848
, ? Verified correct answers and rationales for efficient study Page 4
15) Which of the following managers would NOT use finance primarily?
A) operational managers
B) marketing managers
C) human resource managers
D) all of these choices are correct.
16) Which of the following personal decisions is impacted by finance?
A) borrowing money to purchase cars or homes
B) making credit card payments
C) making retirement decisions
D) all of these choices are correct.
17) When determining a form of business organization, all of the following are considered
EXCEPT
A) who owns the firm.
B) the owners' risks.
C) the tax ramifications.
D) the physical location of the business.
18) This type of business organization is relatively easy to start, and it is subject to much lighter
regulatory and paperwork burden than other business forms.
A) sole proprietorship
B) partnership
C) corporation
D) hybrid organization
19) This type of business organization is entirely legally independent from its owners.
A) sole proprietorship
B) partnership
C) public corporations
D) hybrid organizations
Page 4 of 848
Test Bank for
Finance Applications and Theory 6e Cornett
Chapter 1-20 Answers are at the end of Each chapter
Chapter 1
Student name:__________
1) Which statements(s) is/are true for successful application of financial theories?
A) The economy will be more productive.
B) Individual’s wealth will grow.
C) The economy will be more productive and individual's wealth will grow.
D) None of these choices are correct.
2) Not all cash a company generates will be returned to the investors. Which of the following
will NOT reduce the amount of capital returned to the investors?
A) retained earnings
B) taxes
C) dividends
3) This subarea of finance involves methods and techniques to make appropriate decisions
about what kinds of securities to own, which firms' securities to buy, and how to be paid back
in the form that the investor wishes.
A) real markets
B) investments
C) financial management
4) This subarea of finance looks at firm decisions in acquiring and utilizing cash received from
investors or from retained earnings.
A) investments
B) financial management
C) financial institutions and markets
Page 1 of 848
,? Verified correct answers and rationales for efficient study Page 2
5) Financial management involves decisions about which of the following?
A) Which projects to fund
B) How to minimize taxation
C) What type of capital should be raised
D) All of these choices are correct.
6) This subarea of finance helps facilitate the capital flows between investors and companies.
A) investments
B) financial management
C) treasury management
D) financial institutions and markets
7) This subarea of finance is important for adapting to the global economy.
A) investments
B) financial management
C) international finance
D) financial institutions and markets
8) A potential future negative impact to value and/or cash flows is often discussed in terms of
probability of loss and the expected magnitude of the loss. This is called
A) options.
B) standard deviation.
C) coefficient of variation.
D) risk.
9) This is a term to describe non-physical assets like stocks and bonds that get their value from
future cash flows.
A) investment
B) financial asset
C) real asset
D) financial markets
Page 2 of 848
,? Verified correct answers and rationales for efficient study Page 3
10) Which of the following is defined as a group of securities that exhibit similar characteristics,
behave similarly in the marketplace, and are subject to the same laws and regulations?
A) investments
B) asset classes
C) market instruments
D) financial markets
11) The most commonly accepted groups of asset classes include all of the following except
A) stocks.
B) bonds.
C) machinery and equipment.
D) real estate.
12) The _________ is the interest rate at which banks and other depository institutions lend
reserve balances to one another overnight; this rate heavily influences other short-term rates.
A) average tax rate
B) exchange rate
C) federal funds rate
D) none of these choices are correct.
13) Which of the following statements regarding quantitative easing (QE) are true?
A) QE is a monetary policy designed to increase the money supply in the economy
through buying securities in the market and lowering short-term interest rates.
B) The first round of QE involved the Fed to purchase potentially toxic mortgage-backed
securities from banks.
C) During early 2020 due to the COVID-19 pandemic, the Fed dropped the federal funds
rate to 1.25% and then again 0.25 a few months later.
D) All of these choices are correct.
14) Which of the following is the firm's highest-level financial manager?
A) chief executive officer
B) chief financial officer
C) board of directors
D) corporate governance
Page 3 of 848
, ? Verified correct answers and rationales for efficient study Page 4
15) Which of the following managers would NOT use finance primarily?
A) operational managers
B) marketing managers
C) human resource managers
D) all of these choices are correct.
16) Which of the following personal decisions is impacted by finance?
A) borrowing money to purchase cars or homes
B) making credit card payments
C) making retirement decisions
D) all of these choices are correct.
17) When determining a form of business organization, all of the following are considered
EXCEPT
A) who owns the firm.
B) the owners' risks.
C) the tax ramifications.
D) the physical location of the business.
18) This type of business organization is relatively easy to start, and it is subject to much lighter
regulatory and paperwork burden than other business forms.
A) sole proprietorship
B) partnership
C) corporation
D) hybrid organization
19) This type of business organization is entirely legally independent from its owners.
A) sole proprietorship
B) partnership
C) public corporations
D) hybrid organizations
Page 4 of 848
