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