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web.groovymark@gmail.com
- November 28, 2024
Question 21
An activity ratio found by credit sales divided by accounts receivable is known as what?
a) Profit margin
b) Accounts receivable turnover
c) Asset turnover
d) Current ratio
Correct Answer: b) Accounts receivable turnover
Explanation: Accounts receivable turnover measures how efficiently a firm collects revenue from its credit sales.
Question 22
A category of ratios that measure how well a company uses its assets to generate sales or cash, showing the firm’s operational efficiency and profitability is called what?
a) Liquidity ratios
b) Activity ratios
c) Profitability ratios
d) Leverage ratios
Correct Answer: b) Activity ratios
Explanation: Activity ratios measure how efficiently a company uses its assets to generate sales or cash, providing insight into operational performance.
Question 23
Another name for the discretionary financing needed or external financing needed is what?
a) Debt
b) Additional Funds Needed (AFN)
c) Equity financing
d) Cash reserves
Correct Answer: b) Additional Funds Needed (AFN)
Explanation: Additional Funds Needed (AFN) represents the additional financing required for future growth.
Question 24
A bond covenant that describes things the company pledges itself to do in order to protect bondholders is called what?
a) Negative covenants
b) Affirmative covenants
c) Equity covenants
d) Financial covenants
Correct Answer: b) Affirmative covenants
Explanation: Affirmative covenants outline the actions a company must take to protect bondholders, such as maintaining certain financial ratios
Question 25
Costs that are incurred when management does not act in the best interest of shareholders are called what?
a) Administrative costs
b) Agency costs
c) Operational costs
d) Legal costs
Correct Answer: b) Agency costs
Explanation: Agency costs arise when there is a conflict between management's interests and shareholders' interests
Question 26
When the agent (the management) does not act in the best interest of the principal (the owners), this is called what?
a) Principal-agent problem
b) Shareholder conflict
c) Managerial discretion
d) Governance issue
Correct Answer: a) Principal-agent problem
Explanation: The principal-agent problem occurs when the interests of management (the agent) diverge from the interests of shareholders (the principal).
Question 27
Companies or securities with a beta greater than 1 are referred to as what?
a) Defensive assets
b) Neutral assets
c) Aggressive assets
d) Conservative assets
Correct Answer: c) Aggressive assets
Explanation: Aggressive assets have a beta greater than 1, meaning they are more volatile and tend to react more strongly to market movements
Question 28
The annual interest rate that is charged for borrowing money or that is earned through investment is called what?
a) Nominal rate
b) Compound rate
c) Real rate
d) Annual Percentage Rate (APR)
Correct Answer: d) Annual Percentage Rate (APR)
Explanation: The Annual Percentage Rate (APR) is the annual interest rate charged for borrowing or earned through an investment.
Question 29
A stream of cash flows of an equal amount paid every consecutive period is called what?
a) Perpetuity
b) Annuity
c) Balloon payment
d) Sinking fund
Correct Answer: b) Annuity
Explanation: An annuity is a series of equal cash payments made at regular intervals over a specified period.
Question 30
Which term describes a bond that has no maturity date and pays interest indefinitely?
a) Zero-coupon bond
b) Convertible bond
c) Perpetuity bond
d) Callable bond
Correct Answer: c) Perpetuity bond
Explanation: A perpetuity bond pays interest indefinitely and has no set maturity date for the repayment of principal.
Question 31
The financial market where new securities are issued and sold to initial buyers is called what?
a) Primary market
b) Secondary market
c) Money market
d) Futures market
Correct Answer: a) Primary market
Explanation: The primary market is where securities are first issued and sold to investors directly by the issuing entity
Question 32
What type of financial market facilitates the trade of securities after their initial issuance?
a) Primary market
b) Secondary market
c) Money market
d) Derivatives market
Correct Answer: b) Secondary market
Explanation: The secondary market is where investors trade securities after their initial issuance in the primary market.
Question 33
What type of risk is reduced by diversification in a portfolio?
a) Market risk
b) Systematic risk
c) Firm-specific risk
d) Interest rate risk
Correct Answer: c) Firm-specific risk
Explanation: Firm-specific risk, also known as unsystematic risk, can be reduced through diversification, as it relates to risks specific to individual companies.
Question 34
What is the compensation for risk given to investors called?
a) Risk premium
b) Risk-free rate
c) Opportunity cost
d) Interest rate
Correct Answer: a) Risk premium
Explanation: The risk premium is the extra return investors require for taking on higher risk.
Question 35
The rate at which invested money grows for a certain period of time is called what?
a) Real interest rate
b) Nominal interest rate
c) Risk-adjusted return
d) Compound interest
Correct Answer: b) Nominal interest rate
Explanation: The nominal interest rate is the rate at which money grows, not adjusted for inflation or other factors
Question 36
Which term refers to a type of loan with equal payments over time?
a) Balloon loan
b) Sinking fund loan
c) Amortizing loan
d) Bullet loan
Correct Answer: c) Amortizing loan
Explanation: An amortizing loan is repaid in equal payments over time, which include both principal and interest.
Question 37
When inflation increases, what typically happens to the purchasing power of money?
a) It increases
b) It decreases
c) It stays the same
d) It fluctuates randomly
Correct Answer: b) It decreases
Explanation: As inflation rises, the purchasing power of money declines because prices of goods and services increase.
Question 38
The concept that money today is worth more than the same amount in the future is known as what?
a) Time value of money
b) Risk-adjusted return
c) Opportunity cost
d) Future value
Correct Answer: a) Time value of money
Explanation: The time value of money principle holds that a sum of money today is worth more than the same sum in the future due to its potential earning capacity.
Question 39
What is the term used to describe the minimum return required by investors to compensate them for investing in a particular asset?
a) Interest rate
b) Risk-free rate
c) Required rate of return
d) Expected return
Correct Answer: c) Required rate of return
Explanation: The required rate of return is the minimum return investors expect to receive for investing in a particular asset, considering its risk.
Question 40
When a firm uses borrowed funds to finance its operations, this is called what?
a) Equity financing
b) Debt financing
c) Retained earnings
d) Dividend reinvestment
Correct Answer: b) Debt financing
Explanation: Debt financing occurs when a firm raises money by borrowing, typically through loans or issuing bonds
