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web.groovymark@gmail.com
- November 27, 2024
Question 41
What happens when an agent (management) does not act in the best interest of the principal (owners)?
a) Principal-agent problem
b) Managerial decision issue
c) Shareholder conflict
d) Corporate governance issue
Correct Answer: a) Principal-agent problem
Explanation: The principal-agent problem arises when the interests of the managers (agents) diverge from those of the owners (principals), leading to potential conflicts in decision-making.
Question 42
What is the term used for the percentage of the principal that a lender charges a borrower for the use of assets?
a) Loan rate
b) Interest rate
c) Mortgage rate
d) Equity rate
Correct Answer: b) Interest rate
Explanation: The interest rate is the percentage charged by lenders to borrowers for the use of assets, such as money, over a specified period of time.
Question 43
What characterizes aggressive assets?
a) Assets with high liquidity
b) Assets with low risk
c) Assets or securities with beta greater than 1
d) Assets with high dividend payouts
Correct Answer: c) Assets or securities with beta greater than 1
Explanation: Aggressive assets or securities have a beta greater than 1, meaning they are more volatile and offer higher returns, but with greater risk compared to the market
Question 44
What is the annual interest rate charged for borrowing money or earned through investment called?
a) Discount rate
b) Annual Percentage Rate (APR)
c) Yield
d) Maturity rate
Correct Answer: b) Annual Percentage Rate (APR)
Explanation: The APR represents the annual rate charged for borrowing or earned through an investment, including fees or additional costs.
Question 45
What is an annuity?
a) A one-time lump-sum payment
b) A stream of cash flows of equal amount paid every consecutive period
c) A savings account with a fixed interest rate
d) A bond with no fixed maturity date
Correct Answer: b) A stream of cash flows of equal amount paid every consecutive period
Explanation: An annuity is a series of equal payments made at regular intervals over a fixed period of time, such as monthly or annually
Question 46
What type of account changes with sales growth?
a) Fixed account
b) Spontaneous account
c) Contingent account
d) Reserve account
Correct Answer: b) Spontaneous account
Explanation: Spontaneous accounts are those that naturally change in proportion to sales growth, such as accounts receivable or accounts payable.
Question 47
What does the yield curve represent?
a) The difference between short-term and long-term bond prices
b) The difference between the interest rate on different maturity bonds
c) The risk associated with investing in high-yield bonds
d) The spread between government and corporate bonds
Correct Answer: b) The difference between the interest rate on different maturity bonds
Explanation: The yield curve plots interest rates of bonds with the same credit quality but different maturities, often used to predict economic trends.
Question 48
How does the Federal Reserve regulate the economy?
a) By issuing government bonds
b) By controlling the amount of money circulating and adjusting interest rates
c) By managing stock exchanges
d) By providing loans to private companies
Correct Answer: b) By controlling the amount of money circulating and adjusting interest rates
Explanation: The Federal Reserve uses tools such as interest rate adjustments and open market operations to control inflation and stabilise the economy.
Question 49
Which financial institution helps companies raise capital by issuing stocks or bonds?
a) Commercial bank
b) Credit union
c) Investment bank
d) Savings and loan association
Correct Answer: c) Investment bank
Explanation: Investment banks assist companies in raising capital by underwriting and issuing stocks or bonds, facilitating mergers and acquisitions, and providing financial advisory services
Question 50
What would indicate that a bond is issued at a discount?
a) It is sold for more than its par value
b) It is sold for less than its par value
c) It pays interest at a fixed rate
d) It is sold at the same value as its par value
Correct Answer: b) It is sold for less than its par value
Explanation: A bond is issued at a discount when its selling price is lower than its par value, often reflecting a higher yield than the coupon rate
