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