D076 Test + Quizzes
Which area of finance deals with sources of funding and the capital structure of corporations
and seeks to increase the value of a firm to its owners?
Financial institutions
Business finance
Investments
Real estate - ANSBusiness finance is the area of finance that deals with uses and sources of
funding to increase the value of the firm.
What are the main services offered by financial institutions? - ANSAccepting a wide variety of
deposits, offering investment products, providing loans, and brokering financial transactions
Which type of financial institution is a mutual fund?
Contractual institution
Federal institution
Depository institution
Investment institution - ANSInvestment institution. Investment institutions provide individuals
and firms access to financial markets.
A mutual fund - ANSA mutual fund is an investment company that continually offers investments
and buys financial securities and instruments (usually stocks or bonds) on behalf of investors.
Mutual fund companies often have their own products or portfolios composed of multiple stocks
and bonds. The performance of the funds determines the company's value. Even though the
funds are a pool of financial securities, investors normally do not have the same rights that
individual stockholders have.
Which financial institution specializes in managing and administering retirement funds?
Pension funds
Private equity
Investment banks - ANSPension funds specialize in retirement funds.
Which type of economic indicator is the consumer price index?
Lagging indicator
Leading indicator
Coincident indicator - ANSCPI usually changes after the economy as a whole changes. (CPI)
measures changes in the inflation rate. It examines the average prices of a basket of consumer
goods and services and the changes associated with the cost of living. When the CPI
decreases, it indicates deflation; when it increases, it indicates inflation.
,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?
Pursuing individual interest over client interests
Conflict between work and personal affairs
Agency problem due to conflicting interests - ANSAgency problem due to conflicting interests!
Accounting manipulation by management in pursuit of higher stock-related compensation is an
example of an agency problem.
Which subspecialty of finance primarily involves deciding which assets will create more wealth
and earn positive returns?
Accounting
Financial institutions
Capital structure
Investments - ANSInvestments. Investments is the area of finance that seeks to create wealth in
the future by deciding where to allocate money.
What is the primary goal of the financial manager of a firm?
To minimize the asset holdings of the firm
To minimize the costs of the firm
To maximize owner wealth
To maximize the manager's utility - ANSTo maximize owner wealth. The financial manager
should make decisions based on the primary goal of maximizing owner wealth.
Utility - ANSUtility is an economic term referring to the total satisfaction received from
consuming goods and services. In other words, utility is the happiness you gain from your
decisions as a consumer.
What should be the main question a firm asks when considering any investment decision? -
ANSDo the benefits of this investment outweigh the costs? For any investment, you should
expect to receive a benefit worth at least as much as the initial cost.
What is the primary aim of personal finance goals? - ANSTo maximize satisfaction from
products purchased and services obtained
Which task does a financial manager perform when choosing to obtain a loan to purchase a
piece of equipment for a new project?
Making credit standard decisions
Making investment decisions
Making inventory control decisions
Making financing decisions - ANSMaking financing decisions. The manager is deciding where to
get the funds to support a new project, which means the manager is making a financing
decision.
,Which financial career focuses on investing capital into firms whose shares are not currently
sold on any public stock exchange?
Private equity
Financial planning
Insurance
Corporate finance - ANSPrivate equity deals with investments in firms that are privately held and
whose ownership is not yet bought or sold on any public stock exchange.
Which task does a financial manager perform when assessing the costs and benefits of
potential projects?
Managing working capital
Making financing decisions
Making investment decisions
Implementing financial policies - ANSMaking investment decisions. Understanding how benefits
weigh up against costs is the first priority before moving forward with financing and managerial
decisions.
Three main tasks that a financial manager of a firm does in order to achieve the goal of the firm,
which is to maximize shareholder wealth. - ANSmaking investment decisions
making financing decisions
managing working capital
How does a financial manager manage working capital - ANSThe manager needs pay the firm's
suppliers and many other day-to-day operations by setting its credit standards for the
customers, discussing inventories with the supply chain manager (inventory control)
What tool can you use to understand your overall personal cash flows?
Setting financial goals
Budgeting
Investing
Saving - ANSBudgeting helps you to understand your income and expenses and to analyze
your cash flows.
What is a reasonable alternative to keeping an emergency stash of cash?
Investing in a savings account
Investing the money in a nicer car
Investing in high-risk growth stocks
Investing in long-term bonds - ANSInvesting in a savings account. Investing in a readily
withdrawable account that still earns some interest is a value-preserving alternative.
You want to buy a house, so you obtain a mortgage for which you can afford the monthly
payments. What process have you engaged in as part of your financial decision-making?
Analyzing data
Financing
, Assessing
Investing - ANSFinancing. Part of the personal finance process is figuring out how to finance
your goals in a way that is within your means.
What area of finance involves deciding which assets to invest in to create wealth in the future?
Investments
Organizational finance
Financial institutions
Investment banking - ANSInvestments are an area of finance that involves deciding which
assets to invest in to create wealth in the future.
Hannah is the financial manager of a firm. A project that she has recommended has been
approved and will cost $5 million. Since the company does not have enough cash on reserve,
Hannah must figure out how to raise enough money to start the project. She can choose
whether to issue new bonds, new stocks, a mortgage loan, or some combination of those
options. What task is Hannah performing in this scenario?
Making an investment decision
Managing financial investments
Managing working capital
Making a financing decision - ANSMaking a financing decision. Since the project has already
been approved, Hannah is trying to find a way to finance the investment and considering its
capital structure.
Maria and Mateo are setting financial goals. They decide that they need to save $200 each
month to reach their goal of taking their children to visit their grandparents in Spain next
summer. What is the objective of setting such a goal?
To minimize personal expenses
To set priorities in personal finances
To maximize individual utility
To make personal finances predictable - ANSTo maximize individual utility. While everyone has
different personal financial goals, the objectives of such goals is to maximize individual utility.
Which professional works with individuals to help them achieve their financial goals?
Commercial banker
Corporate financial analyst
Private equity manager
Financial planner - ANSFinancial planner. Professional financial planners work with individuals
to help them achieve their financial goals.
Omar is about to purchase a new car for $30,000. He knows he wants to buy the car, but he is
still trying to decide how to pay for it. He has barely over $30,000 in his bank account. He can
either take out an auto loan from a bank or use a mix of cash and an auto loan.
In this scenario, what is Omar doing?
Budgeting
Which area of finance deals with sources of funding and the capital structure of corporations
and seeks to increase the value of a firm to its owners?
Financial institutions
Business finance
Investments
Real estate - ANSBusiness finance is the area of finance that deals with uses and sources of
funding to increase the value of the firm.
What are the main services offered by financial institutions? - ANSAccepting a wide variety of
deposits, offering investment products, providing loans, and brokering financial transactions
Which type of financial institution is a mutual fund?
Contractual institution
Federal institution
Depository institution
Investment institution - ANSInvestment institution. Investment institutions provide individuals
and firms access to financial markets.
A mutual fund - ANSA mutual fund is an investment company that continually offers investments
and buys financial securities and instruments (usually stocks or bonds) on behalf of investors.
Mutual fund companies often have their own products or portfolios composed of multiple stocks
and bonds. The performance of the funds determines the company's value. Even though the
funds are a pool of financial securities, investors normally do not have the same rights that
individual stockholders have.
Which financial institution specializes in managing and administering retirement funds?
Pension funds
Private equity
Investment banks - ANSPension funds specialize in retirement funds.
Which type of economic indicator is the consumer price index?
Lagging indicator
Leading indicator
Coincident indicator - ANSCPI usually changes after the economy as a whole changes. (CPI)
measures changes in the inflation rate. It examines the average prices of a basket of consumer
goods and services and the changes associated with the cost of living. When the CPI
decreases, it indicates deflation; when it increases, it indicates inflation.
,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?
Pursuing individual interest over client interests
Conflict between work and personal affairs
Agency problem due to conflicting interests - ANSAgency problem due to conflicting interests!
Accounting manipulation by management in pursuit of higher stock-related compensation is an
example of an agency problem.
Which subspecialty of finance primarily involves deciding which assets will create more wealth
and earn positive returns?
Accounting
Financial institutions
Capital structure
Investments - ANSInvestments. Investments is the area of finance that seeks to create wealth in
the future by deciding where to allocate money.
What is the primary goal of the financial manager of a firm?
To minimize the asset holdings of the firm
To minimize the costs of the firm
To maximize owner wealth
To maximize the manager's utility - ANSTo maximize owner wealth. The financial manager
should make decisions based on the primary goal of maximizing owner wealth.
Utility - ANSUtility is an economic term referring to the total satisfaction received from
consuming goods and services. In other words, utility is the happiness you gain from your
decisions as a consumer.
What should be the main question a firm asks when considering any investment decision? -
ANSDo the benefits of this investment outweigh the costs? For any investment, you should
expect to receive a benefit worth at least as much as the initial cost.
What is the primary aim of personal finance goals? - ANSTo maximize satisfaction from
products purchased and services obtained
Which task does a financial manager perform when choosing to obtain a loan to purchase a
piece of equipment for a new project?
Making credit standard decisions
Making investment decisions
Making inventory control decisions
Making financing decisions - ANSMaking financing decisions. The manager is deciding where to
get the funds to support a new project, which means the manager is making a financing
decision.
,Which financial career focuses on investing capital into firms whose shares are not currently
sold on any public stock exchange?
Private equity
Financial planning
Insurance
Corporate finance - ANSPrivate equity deals with investments in firms that are privately held and
whose ownership is not yet bought or sold on any public stock exchange.
Which task does a financial manager perform when assessing the costs and benefits of
potential projects?
Managing working capital
Making financing decisions
Making investment decisions
Implementing financial policies - ANSMaking investment decisions. Understanding how benefits
weigh up against costs is the first priority before moving forward with financing and managerial
decisions.
Three main tasks that a financial manager of a firm does in order to achieve the goal of the firm,
which is to maximize shareholder wealth. - ANSmaking investment decisions
making financing decisions
managing working capital
How does a financial manager manage working capital - ANSThe manager needs pay the firm's
suppliers and many other day-to-day operations by setting its credit standards for the
customers, discussing inventories with the supply chain manager (inventory control)
What tool can you use to understand your overall personal cash flows?
Setting financial goals
Budgeting
Investing
Saving - ANSBudgeting helps you to understand your income and expenses and to analyze
your cash flows.
What is a reasonable alternative to keeping an emergency stash of cash?
Investing in a savings account
Investing the money in a nicer car
Investing in high-risk growth stocks
Investing in long-term bonds - ANSInvesting in a savings account. Investing in a readily
withdrawable account that still earns some interest is a value-preserving alternative.
You want to buy a house, so you obtain a mortgage for which you can afford the monthly
payments. What process have you engaged in as part of your financial decision-making?
Analyzing data
Financing
, Assessing
Investing - ANSFinancing. Part of the personal finance process is figuring out how to finance
your goals in a way that is within your means.
What area of finance involves deciding which assets to invest in to create wealth in the future?
Investments
Organizational finance
Financial institutions
Investment banking - ANSInvestments are an area of finance that involves deciding which
assets to invest in to create wealth in the future.
Hannah is the financial manager of a firm. A project that she has recommended has been
approved and will cost $5 million. Since the company does not have enough cash on reserve,
Hannah must figure out how to raise enough money to start the project. She can choose
whether to issue new bonds, new stocks, a mortgage loan, or some combination of those
options. What task is Hannah performing in this scenario?
Making an investment decision
Managing financial investments
Managing working capital
Making a financing decision - ANSMaking a financing decision. Since the project has already
been approved, Hannah is trying to find a way to finance the investment and considering its
capital structure.
Maria and Mateo are setting financial goals. They decide that they need to save $200 each
month to reach their goal of taking their children to visit their grandparents in Spain next
summer. What is the objective of setting such a goal?
To minimize personal expenses
To set priorities in personal finances
To maximize individual utility
To make personal finances predictable - ANSTo maximize individual utility. While everyone has
different personal financial goals, the objectives of such goals is to maximize individual utility.
Which professional works with individuals to help them achieve their financial goals?
Commercial banker
Corporate financial analyst
Private equity manager
Financial planner - ANSFinancial planner. Professional financial planners work with individuals
to help them achieve their financial goals.
Omar is about to purchase a new car for $30,000. He knows he wants to buy the car, but he is
still trying to decide how to pay for it. He has barely over $30,000 in his bank account. He can
either take out an auto loan from a bank or use a mix of cash and an auto loan.
In this scenario, what is Omar doing?
Budgeting
