Business Finance - Pre Test
  • 1. It is a financial intermediary handling individual savings. It receives premium payments placed in loans or investments to accumulate funds to cover future benefits.
A) life insurance company
B) credit union
C) savings bank
D) commercial bank
  • 2. Which of the following is NOT a financial institution?
A) A commercial bank
B) A newspaper publisher
C) An insurance company
D) A pension fund
  • 3. It is a set up so that employees of corporations or governments can receive income after retirement.
A) pension fund
B) savings bank
C) life insurance company
D) credit union
  • 4. It is a type of financial intermediary that pools savings of individuals and makes them available to business and government users. Funds obtained through the sale of shares.
A) Mutual Funds
B) Savings and loans
C) Credit Union
D) Commercial banks
  • 5. Most businesses raise money by selling their securities in a
A) stock exchange
B) public offering
C) private placement
D) direct placement
  • 6. Which of the following is NOT a service provided by financial institutions?
A) Paying savers’ interest on deposit
B) Lending money to customers
C) Buying the businesses of customers
D) Investing customers’ savings in stocks and bonds
  • 7. By definition, the money market involves the buying and selling of
A) short-term funds
B) funds that mature in more than one year.
C) flows of funds.
D) stocks and bonds.
  • 8. It creates financial relationship between suppliers and users of short-term funds.
A) stock market
B) capital market
C) money market
D) financial market
  • 9. Firms that require funds from external sources can obtain them from
A) private placement
B) financial institutions
C) All of the above.
D) financial markets
  • 10. The science and art of managing money
A) Finance
B) Personal Finance
C) Management
D) Financial Management
  • 11. What are the two management functions reinforce each other for the success of an organization?
A) Controlling and Directing
B) Planning and Controlling
C) Staffing and Planning
D) Organizing and Planning
  • 12. Which of the following is NOT part of financial planning process?
A) Set goals/Objectives
B) Identify goal related task
C) Establish strong Management
D) Identify resources
  • 13. A plan expresses in quantitative terms, which emphasizes the resource use and resource allocation of an entity over a specified period of time?
A) Cash Budget
B) Sales Budget
C) Budget
D) Sales
  • 14. Which of the process to closely monitoring of in and out of cash in the business?
A) Income statement
B) Cash flow statement
C) Statement of financial Position
D) Budgeting
  • 15. It is a tool of the company to set an overall goal of what the company’s performance and position will be for and as of the end of the year.
A) Inventory
B) Projected Financial Statement
C) Budgeting
D) Forecasting
  • 16. Components of a firm’s cash conversion cycle include:
A) average age of inventory, average collection period and average payment
B) average age of inventory and average payment period
C) average collection period, average age of inventory
D) average payment, average collection period
  • 17. Which of the following statements is true regarding working capital management?
A) A firm’s working capital is not essential in managing its operations
B) Cash, inventory and long-term receivables are common working capital components
C) There is a risk and profitability tradeoff in working capital management
D) All statements are true
  • 18. Which of the following is NOT a common collection technique for accounts receivables?
A) sending legal notices
B) sending letter of demands
C) writing off customer’s accounts
D) making phone calls
  • 19. It is a technique used in granting credit to customers.
A) Credit standards
B) Credit limit
C) Credit score
D) All of the above
  • 20. It represents assets of the entity that expected to be collected and thus, converted to cash.
A) Cash Management
B) Inventory Management
C) Accounts Receivable Management
D) Marketable Securities Management
  • 21. In a loan amortization schedule, interest payments for each period would most probably
A) Increase overtime
B) Decrease overtime
C) Remain the same
D) There are no interest payments in the schedule
  • 22. The formula (1 + i)n is also called
A) future value factor for lump-sum payment
B) present value factor for lump-sum payment
C) future value factor for ordinary annuity
D) present value factor for ordinary annuity
  • 23. An increase in the present value may be caused by
A) none of the above
B) discount rate does not affect the present value
C) increase in the discount rate
D) decrease in the discount rate
  • 24. Interest payments that are based on the original principal and previous interest recognized is based on
A) present value
B) compound interest rate
C) future value
D) simple interest rate
  • 25. The time value of money suggest that a peso received today is worth
    a peso received in the future.
A) less than
B) none of the above
C) more than
D) the same as
  • 26. What is a bond?
A) It is a security that represents the equity of a government or a business that promises to pay a fixed interest.
B) It is a security that represents the debt of a government or a business that promises to pay a fixed amount.
C) None of the above.
D) It is a security that represents partial ownership in a business.
  • 27. A business owned by two or more people and operated for profit.
A) Cooperative
B) Sole Proprietorship
C) Partnership
D) Corporation
  • 28. An entity created by law owned by shareholders. Overall objective of a shareholder should be wealth maximization
A) Cooperative
B) Partnersip
C) Sole Proprietorship
D) Corporation
  • 29. Rational investors will seek efficient portfolios because these portfolios are optimal based on:
A) Transaction cost
B) Risk
C) Expected return
D) Expected return and risk
  • 30. Most investors are assumed ________.
A) Risk neutral
B) Risk moderators
C) Risk averse
D) Risk seekers
  • 31. Who will decide on the declaration of dividends in a corporation?
A) The president of the company
B) The stock exchange on which the stock is listed
C) The board of directors of the firm
D) The shareholders of the corporation
  • 32. What is the difference between shares and bonds?
A) Shares and bonds both represent liabilities
B) Bonds represent ownership whereas shares do not.
C) Shares and bonds both represent equity
D) Shares represent ownership whereas bonds do not.
  • 33. How should one think of stocks?
A) One should think of stocks as pieces of businesses.
B) One should not think of stocks as being synonymous with a good business.
C) Both A and B
D) One should think of stocks as chips in the casino.
  • 34. Why do different investors estimate inputs differently? Because _____
A) there is an inherent uncertainty in security analysis
B) every investor has access to different information about securities
C) there is a random selection process used by individual investors
D) every investor has his/her own risk/return preferences
  • 35. Of the following four investments, which is considered the safest?
A) Commercial papers
B) Treasury bonds
C) Treasury bills
D) corporate bonds
  • 36. Shares and bonds are floated in _________
A) Capital market
B) Equity market
C) Commercial bank
D) Money market
  • 37. If you want to deposit money in a bank, which will be a wise choice?
A) Compounding semi-annually
B) Compounding annually
C) Compounding daily
D) Compounding monthly
  • 38. Which of the following help determine risk tolerance?
A) Net worth and risk capital
B) Assets and liabilities
C) Expected return and risk
D) Net worth and net earnings
  • 39. Which of the following assets are considered medium risk investments?
A) Money market
B) Bank deposits
C) High income bonds
D) Government bonds
  • 40. Which are NOT considered as key participants in the investment process?
A) Business
B) Government
C) Charitable institutions
D) Individuals
  • 41. Saving money means giving up the opportunity cost to
A) apply for credit cards
B) have money in the future
C) save money
D) spend in the present
  • 42. What is term for the money you earn?
A) Income
B) Expense
C) Interest
D) Savings
  • 43. In order to effectively manage money, you need a:
A) Budget
B) High paying job
C) Computer
D) Online checking account
  • 44. Which of the following money management principles describe frugality?
A) Large amounts matter more.
B) Small amounts matter.
C) The perfect is the enemy of good.
D) You are the boss of you.
  • 45. Practice thrift, but always be looking for Big Wins, best illustrates what principle of saving?
A) Large amounts matter more.
B) Small amounts matter.
C) You are the boss of you.
D) The perfect is the enemy of good.
  • 46. To make the most of your income and savings it is important to become:
A) All of these
B) Proactive
C) Smart
D) Financial Literate
  • 47. The expenses listed below all reduce the amount of cash an individual has available for saving and investing EXCEPT
A) Entertainment
B) Travel
C) Stocks
D) Food
  • 48. This relates to the purchase of assets that are expected to generate a rate of return, with the hope that over time the individual will receive back more money than they originally invested.
A) Income
B) Protection
C) Saving
D) Investing
  • 49. These sources of income all generate cash that an individual can use to either spend, save, or invest EXCEPT
A) Mutual funds
B) Hourly wages
C) Taxes
D) Bonuses
  • 50. This refers to a source of cash inflow that an individual receives and then uses to support themselves and their family.
A) Spending
B) Saving
C) Income
D) Investing
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