Business Finance Assignment Help With Solution
True or False
____1. When individuals withdraw cash from checking accounts, the money supply is unaffected.
____2. The U.S. Treasury creates most of the nation’s money supply.
____3. Large certificates of deposit in units of $500,000 are insured by FDIC.
____ 4. Money market mutual funds invest in short-term securities like U.S. Treasury bills.
____ 5. If a nation exports more goods than it imports, it has a surplus in the current account.
____6. The devaluation (depreciation) of one currency implies the revaluation (appreciation) of other currencies.
____7. If the American dollar is devalued, American goods are cheaper to individuals holding dollars.
____8. The International Monetary Fund has the capacity to make loans to foreign governments.
____9. The market in which securities are initially sold to the general public is the secondary market.
____10. When an individual buys stock through a secondary market (e.g., the NYSE), the firm receives the sales proceeds.
____11. A major function of the New York Stock Exchange is to raise money for firms.
____12. In a best efforts agreement to sell new securities, the firm issuing the securities agrees to make the best effort to sell the securities.
____13. When corporations retire (pay off) loans from commercial banks, excess reserves are increased.
____14. When the Federal Reserve buys securities, the reserves of banks are increased.
____15. During a period of recession, the Fed sells securities.
____16. Open market operations is a more flexible tool of monetary policy than the discount rate.
____17. Short sellers profit when security prices decline.
____18. The larger the margin requirement, the greater the proportion of a stock purchase the investor may borrow.
____19. A purchase of 50 shares is an example of an even lot.
____20. The margin requirement for stocks is set by the Federal Reserve.
____21. M-1 includes coins, currency, and ____.
a. demand deposits
b. savings accounts
c. certificates of deposit
d. time deposits
____22. Money serves as __
a. a substitute for equity
b. a precaution against inflation
c. a medium of exchange
d. a risk-free liability
____ 23. Which of the following is not a financial intermediary?
a. New York Stock Exchange
b. Washington Savings and Loan
c. First National City Bank
d. Merchants Savings Bank
____ 24. The assets of a typical commercial bank include
b. demand deposits
c. common stock
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____25. If a nation exports fewer goods than it imports, it
1. experiences an outflow of currency
2. experiences an inflow of currency
3. has a surplus in its current account
4. has a deficit in its current account
a.1 and 3
b. 1 and 4
c. 2 and 3
d. 2 and 4
____ 26. Which of the following causes a currency inflow?
a. purchase of short-term foreign securities
b. dividends paid to foreign investors
c. a debit balance
d. dividends received from foreign investments
____27. The International Monetary Fund
a. buys foreign securities
b. can lend a country currencies to meet a surplus in its merchandise trade balance
c. holds a pool of currencies
d. developed to help the Federal Reserve control U.S. investments abroad
____28. If a nation has a surplus in its current account,
1. it exports fewer goods than it imports
2. it exports more goods than it imports
3. the value of its currency should fall
4. the value of its currency should rise
____29. If a stock is initially offered to the public for $20 in an underwriting but the price immediately falls to $15,
1. the firm received $20 a share
2. the initial investors sustain a loss
3. demand exceeded supply
4. supply exceeded demand
____30. Which of the following is not part of the underwriting process?
a. the prospectus
b. the Federal Reserve
c. the Securities and Exchange Commission
d. the syndicate
____31. Which of the following is part of the underwriting process?
a. the Federal Reserve
b. the Securities Investor Protection Corporation
d. the originating house
____32. The Securities Investor Protection Corporation protects individuals from
a. fraud by corporations
b. making poor investment decisions
c. other investors who fail to make delivery
d. brokerage firm failures
____33. Withdrawing cash from a checking account does not decrease
a. the money supply
b. demand deposits
c. total reserves
d. excess reserves
____34. The tools of monetary policy include
a. open market operations
b. the purchase of corporate stock
c. the federal government deficit
____35. If the federal government runs a deficit,
a. taxes exceed expenditures
b. expenditures exceed taxes
c. receipts exceed taxes
d. taxes exceed revenues
____36. Anticipation of inflation encourages
c. retiring debt
____37. The regulation of security markets
a. protects investors from poor investments
b. is enforced by the Federal Reserve
c. is enforced by the SEC
d. applies only to government securities
_____38. The individual (or firm) who makes a market
1. guarantees to buy at specified (bid) prices
2. guarantees to buy at specified (ask) prices
3. guarantees to sell at specified (bid) prices
4. guarantees to sell at specified (ask) prices
____ 39. If an investor sells short, the individual
1. sells borrowed securities
2. sells securities from his or her portfolio
3. anticipates a price increase
4. anticipates a price decrease
____40. Entering a sell order at $18.50 when the bid is 18-19
a. is a market order
b. illustrates a short sale
c. requires a margin payment
d. is a limit order
_____ 41. The time value of money suggests:
a) that the present is less attractive than the future
b) individuals prefer a dollar in the present to a dollar in the future
c)the present value of an annuity is negative
d)annuities are worthless than lump sums
_____ 42. For investors, an annuity due
a) is preferred to an ordinary annuity
b)is worth less than an equal lump sum received at the end of the period
c)receives payments at the end of the time period
d)produces unequal payments
_____ 43. The present value of a dollar
a) increases with lower interest rates
b)increases with higher interest rates
c)increases with longer periods of time
d)decreases with longer periods of time
_____ 44. A diversified portfolio
a)increase systematic risk
b)reduces systematic risk
c)increases unsystematic risk
d)reduces unsystematic risk
_____45. A beta coefficient for a risky stock is
a) less than 1.0
b)equal to 1.0
c)greater than 1.0
_____ 46, An investor may reduce risk by selecting
a)high beta stocks
b)stocks with poorly correlated returns
c)a cross-section of firms in the same industry
d)stocks traded on organized exchanges
____ 47. Which of the following is a cash inflow?
a) an increase in accounts receivable
b)a decrease in inventory
c)distributing cash dividends
d)a decrease in a long-term debt
_____ 48. Which of the following is a cash outflow?
a)a new issue of bonds
b)a decrease in accounts receivable
c)an increase in plant
d)an increase in accounts payable
_____49. The DuPont system of financial analysis combines
a)profitability and turnover
b)liquidity and turnover
c)profitability and liquidity
d)turnover and coverage
____ 50. Profitability ratios measure
____ 51. The more rapidly receivable turn over
a)the more rapidly the firm is receiving cash
b)the larger are the firm’s sales
c)the smaller is the firm’s inventory
d)the larger are the firm’s accounts payable
____ 52. The larger the debt ratio
a)the more equity the firm is using
b)the riskier the firm becomes
c)the larger are the firm’s total assets
d)the smaller is the firm’s use of financial leverage
____53. A company may pay
a) a regular quarterly cash dividend
____ 54. The paying of cash dividends causes the firm’s
a)assets and equity to increase
b)assets to decrease and equity to increase
c)assets and liabilities to increase
d)assets and equity to decrease
____ 55. Dividends are paid on the
b)ex dividend date
c)date of record
____ 56. A Stock dividend
a) reduces the firm’s cash
b)increases the firm’s total equity
c)decreases the firm’s retained earnings
d)increases the firm’s assets
_____57. If a stock’s price is $ 90 and the stock split three for one, the price becomes
a) $ 90b) $ 60c) $ 270d) $ 30
_____58. Stock repurchases
a)increase per share earnings
b)decrease per share earnings
____ 59. A P/E(Price Earnings) ratio considers
a) profits relative to earnings
b)price of the stock relative to earnings
c) price of a preferred stock relative to earnings
d)profits relative to equity
____ 60. An increase in investors’ required return should cause the value of a common stock to
d)remain stable or rise slightly
1.If the reserve requirement for demand deposits is 10 percent, what is the maximum change in the money supply that the banking system can create if
a.the Federal Reserve puts $1,000,000 of new reserves in the banking system
b.$1,000,000 in cash is deposited in checking accounts
c. IBM borrows $1,000,000 from an insurance company?
2. What is the effect on (1) demand deposits, (2) required reserves, and (3) excess reserves of banks given the following transactions? ie Lower, Higher or No effect
a. The general public builds up its holdings of cash by withdrawing funds in checking accounts.
b. After Christmas the general public deposits cash in checking accounts in commercial banks. (How may seasonal changes in the public’s need for cash alter banks’ ability to lend?)
c. Corporations borrow from commercial banks.
3.If you open an individual retirement account (IRA) at a commercial bank and deposit $1,000 in the account per year, how much will be in the account after 20 years if the funds earn 7% annually?
4.If you invest $ 10,000 today at 6.25% interest compounded annually, how much is your investment worth in 35 years?
5. You borrow $100,000 to buy a house; if the annual interest rate is 6% and the term of the loan is 20 years.
a) What is the annual payment required to retire the mortgage loan?
b) What is the monthly payment assuming interest is computing using monthly compounding?
c) How much less interest will you pay by making monthly payments over annual
6. The Big-Sox currently have 30,000 spectators per game and anticipate annual growth in attendance of 9%. If the Big Stadium holds 65,000 people, how long will it take for the team reach capacity?
7. You bought a Picasso for $50,000 and sold it after 5 years for $88,000. What was the annual return on the investment?
8. What is the expected return on a stock if the firm will earn 24% during a period of economic boom, 14% during normal economic periods, and 2% during a period of recession if the probabilities of these economic environments are 20%, 65%, and 15%, respectively?
9.What is the required return using the capital asset pricing model if a stock’s beta is 1.2 and the individual, who expects the market to rise by 11.2%, can earn 4.4% invested in a risk-free Treasury bill?
10. Your broker recommends that you purchase Good Mills at $30. The stock pays a $2.20 annual dividend, which (like its per share earnings) is expected to grow annually at 8 percent. If you want to earn 15 percent on your funds, is this stock a good buy?
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