Finance Skills for Managers Exam Questions with Verified Answers Rated A+ (Graded A+)
Investments - Answers Which area of finance involves deciding which assets to invest in to create wealth
in the future?
To maximize owner wealth - Answers What is the main goal of a firm?
Making an investment decision - Answers What are the financial managers doing if they evaluate
whether it is worth spending money on research and development for a new product?
Secondary Financial Market - Answers Which type of financial market is where securities such as stocks
and bonds are traded after their initial issuance?
Contractual - Answers What type of financial institution is an insurance company?
Pension Fund - Answers Which financial institutions invest funds contributed by a company to provide
retirement funds for the company's employees?
Coincident - Answers Personal income is which type of economic indicator?
Ethical - Answers Which term refers to something that conforms with accepted standards of conduct
that guide a person's behavior?
Consider alternative courses of action - Answers What is the second step in finding a solution to an
ethical dilemma?
Executive compensation - Answers How can agency problems be reduced through corporate control?
Accepting a wide variety of deposits, offering investment products, providing loans, and brokering
financial transactions. - Answers What are the main services offered by financial institutions?
To maximize individual utility. - Answers What is the main objective of personal financial goals?
Making financing decisions - Answers Which task does the financial manager of a firm perform that
involves the issuance of new stocks and bonds?
It helps individuals compare the costs and benefits of an action to determine whether to take that
action. - Answers Why is understanding the definition of finance important in managing personal
finances?
Primary Market - Answers In which type of market would a company issue bonds or stocks for the first
time?
Investment institution - Answers Which type of financial institution is a mutual fund?
Pension funds - Answers Which financial institution specializes in managing and administering
retirement funds?
, Lagging indicator - Answers Which type of economic indicator is the consumer price index?
The accepted standards of conduct that guide a person's behavior - Answers What does the term ethical
refer to?
Agency problems due to conflicting interests - Answers A company 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?
Annual percentage rate - Answers What is the name for the interest rate expressed on an annual basis?
It is the minimum rate that a firm must surpass to accept a project - Answers Why is the required rate of
return also known as the "hurdle rate"?
The rate at which the average price level of a basket of goods and services in an economy increases -
Answers What is the inflation rate?
Inflation and Opportunity Cost - Answers What does the risk-free rate indicate?
Based on the inflation rate, she should expect this stock to provide a return higher than this for the
associated risk. - Answers Suppose Sophia is considering a new stock investment for her retirement
account. This stock has significant risk, but is quite popular in the market. Inflation for the next few years
is expected to be 2-3% per year, and the current U.S. Treasury rates are about 2%. How should she use
this information to decide what type of return she can expect from the stock?
Annuity - Answers Twenty years ago, Mateo started an investment account with $2,000. He then
invested $100 into the account every month at the end of each month. Today, he has $46,528 in the
same account. What is the term for the $100 monthly cash flows?
Present value - Answers Lolo invested $30,000 today in an account that gives 3% interest. Starting one
year from today, she will be able to pull out little over $3,500 a year. What does the $30,000 represent?
The expected return is based on expectational data and the probability of different scenarios - Answers
What makes the expected return subjective and different from other types of returns?
Idiosyncratic risk - Answers A company that produces soap, shampoo, lotion, and other personal care
products has recently taken a hit due to a competitor's new product line. The company decides to
reduce wages for its labor force to save money while the company focuses on building up its reputation
again, but the company's labor force goes on strike to protest the pay cuts. What type of risk does the
strike represent?
Operating risk - depends on the effect of the firm's operating decisions on its operating costs - Answers
Which description below correctly identifies one type of price risk?
Diversification - Answers What is the name for the process of "spreading" money over many different
assets?
Investments - Answers Which area of finance involves deciding which assets to invest in to create wealth
in the future?
To maximize owner wealth - Answers What is the main goal of a firm?
Making an investment decision - Answers What are the financial managers doing if they evaluate
whether it is worth spending money on research and development for a new product?
Secondary Financial Market - Answers Which type of financial market is where securities such as stocks
and bonds are traded after their initial issuance?
Contractual - Answers What type of financial institution is an insurance company?
Pension Fund - Answers Which financial institutions invest funds contributed by a company to provide
retirement funds for the company's employees?
Coincident - Answers Personal income is which type of economic indicator?
Ethical - Answers Which term refers to something that conforms with accepted standards of conduct
that guide a person's behavior?
Consider alternative courses of action - Answers What is the second step in finding a solution to an
ethical dilemma?
Executive compensation - Answers How can agency problems be reduced through corporate control?
Accepting a wide variety of deposits, offering investment products, providing loans, and brokering
financial transactions. - Answers What are the main services offered by financial institutions?
To maximize individual utility. - Answers What is the main objective of personal financial goals?
Making financing decisions - Answers Which task does the financial manager of a firm perform that
involves the issuance of new stocks and bonds?
It helps individuals compare the costs and benefits of an action to determine whether to take that
action. - Answers Why is understanding the definition of finance important in managing personal
finances?
Primary Market - Answers In which type of market would a company issue bonds or stocks for the first
time?
Investment institution - Answers Which type of financial institution is a mutual fund?
Pension funds - Answers Which financial institution specializes in managing and administering
retirement funds?
, Lagging indicator - Answers Which type of economic indicator is the consumer price index?
The accepted standards of conduct that guide a person's behavior - Answers What does the term ethical
refer to?
Agency problems due to conflicting interests - Answers A company 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?
Annual percentage rate - Answers What is the name for the interest rate expressed on an annual basis?
It is the minimum rate that a firm must surpass to accept a project - Answers Why is the required rate of
return also known as the "hurdle rate"?
The rate at which the average price level of a basket of goods and services in an economy increases -
Answers What is the inflation rate?
Inflation and Opportunity Cost - Answers What does the risk-free rate indicate?
Based on the inflation rate, she should expect this stock to provide a return higher than this for the
associated risk. - Answers Suppose Sophia is considering a new stock investment for her retirement
account. This stock has significant risk, but is quite popular in the market. Inflation for the next few years
is expected to be 2-3% per year, and the current U.S. Treasury rates are about 2%. How should she use
this information to decide what type of return she can expect from the stock?
Annuity - Answers Twenty years ago, Mateo started an investment account with $2,000. He then
invested $100 into the account every month at the end of each month. Today, he has $46,528 in the
same account. What is the term for the $100 monthly cash flows?
Present value - Answers Lolo invested $30,000 today in an account that gives 3% interest. Starting one
year from today, she will be able to pull out little over $3,500 a year. What does the $30,000 represent?
The expected return is based on expectational data and the probability of different scenarios - Answers
What makes the expected return subjective and different from other types of returns?
Idiosyncratic risk - Answers A company that produces soap, shampoo, lotion, and other personal care
products has recently taken a hit due to a competitor's new product line. The company decides to
reduce wages for its labor force to save money while the company focuses on building up its reputation
again, but the company's labor force goes on strike to protest the pay cuts. What type of risk does the
strike represent?
Operating risk - depends on the effect of the firm's operating decisions on its operating costs - Answers
Which description below correctly identifies one type of price risk?
Diversification - Answers What is the name for the process of "spreading" money over many different
assets?
