D775 Business Finance - PA Test #1
Questions Solved Correctly Graded A+
2025-2026 Updated.
Which principle guides business finance to optimize resource use? - Answer Risk-return
trade-off
Which activity describes capital raising in business finance? - Answer Securing funding for
business operations and projects
Which finance activity involves the creation, circulation, and management of money? - Answer
Setting monetary policy
What is common stock? - Answer A share of ownership in a firm with voting rights
What is a characteristic of preferred stock? - Answer Fixed dividends
What is the purpose of bonds from the perspective of issuers? - Answer To raise capital
without diluting ownership
Which type of bonds are considered junk bonds? - Answer Speculative bonds
Which type of investment vehicle is uniquely used for retirement savings? - Answer 401k
plans
What is true about options in financial derivatives? - Answer They give the buyer the right,
but not the obligation, to buy or sell an asset.
How do funds benefit from economies of scale? - Answer By making large-scale investments
that reduce transaction costs
What is an initial public offering (IPO)? - Answer The first sale of a company's stock to the
public
What is an example of a secondary market activity? - Answer The trading of stocks on the
New York Stock Exchange
, What are the two main types of financial markets based on their functions? - Answer
Primary markets and secondary markets
What is a role of financial regulators? - Answer Ensuring fair and transparent markets
What are depository institutions? - Answer Institutions that accept deposits and provide
loans
What is the primary source of revenue for depository institutions? - Answer Interest income
from loans
How does rising Consumer Price Index (CPI) affect businesses? - Answer It indicates
increased costs for raw materials and labor.
How can companies demonstrate a commitment to corporate social responsibility (CSR)? -
Answer Supporting education and healthcare initiatives
What is the impact of integrating environmental, social, and governance (ESG) criteria into
investment decisions? - Answer Promoting sustainable and ethical practices
Which role do ethical considerations play in addressing agency problems? - Answer Aligning
managers' goals with shareholders' interests
What is the purpose of using financial ratios for investors? - Answer To evaluate the
company's potential for return on investment
How do financial ratios help in comparing companies? - Answer By providing a standardized
basis for performance evaluation
How do financial ratios aid in performance benchmarking? - Answer They allow comparison
with industry standards and competitors.
What do profitability ratios indicate? - Answer Earnings relative to revenue
What does the current ratio evaluate? - Answer Short-term liquidity
What does a high average collection period indicate? - Answer A slow conversion of
receivables to cash
Questions Solved Correctly Graded A+
2025-2026 Updated.
Which principle guides business finance to optimize resource use? - Answer Risk-return
trade-off
Which activity describes capital raising in business finance? - Answer Securing funding for
business operations and projects
Which finance activity involves the creation, circulation, and management of money? - Answer
Setting monetary policy
What is common stock? - Answer A share of ownership in a firm with voting rights
What is a characteristic of preferred stock? - Answer Fixed dividends
What is the purpose of bonds from the perspective of issuers? - Answer To raise capital
without diluting ownership
Which type of bonds are considered junk bonds? - Answer Speculative bonds
Which type of investment vehicle is uniquely used for retirement savings? - Answer 401k
plans
What is true about options in financial derivatives? - Answer They give the buyer the right,
but not the obligation, to buy or sell an asset.
How do funds benefit from economies of scale? - Answer By making large-scale investments
that reduce transaction costs
What is an initial public offering (IPO)? - Answer The first sale of a company's stock to the
public
What is an example of a secondary market activity? - Answer The trading of stocks on the
New York Stock Exchange
, What are the two main types of financial markets based on their functions? - Answer
Primary markets and secondary markets
What is a role of financial regulators? - Answer Ensuring fair and transparent markets
What are depository institutions? - Answer Institutions that accept deposits and provide
loans
What is the primary source of revenue for depository institutions? - Answer Interest income
from loans
How does rising Consumer Price Index (CPI) affect businesses? - Answer It indicates
increased costs for raw materials and labor.
How can companies demonstrate a commitment to corporate social responsibility (CSR)? -
Answer Supporting education and healthcare initiatives
What is the impact of integrating environmental, social, and governance (ESG) criteria into
investment decisions? - Answer Promoting sustainable and ethical practices
Which role do ethical considerations play in addressing agency problems? - Answer Aligning
managers' goals with shareholders' interests
What is the purpose of using financial ratios for investors? - Answer To evaluate the
company's potential for return on investment
How do financial ratios help in comparing companies? - Answer By providing a standardized
basis for performance evaluation
How do financial ratios aid in performance benchmarking? - Answer They allow comparison
with industry standards and competitors.
What do profitability ratios indicate? - Answer Earnings relative to revenue
What does the current ratio evaluate? - Answer Short-term liquidity
What does a high average collection period indicate? - Answer A slow conversion of
receivables to cash
