ADMS 3530 Study Guide - Quiz Guide: Futures Contract, Call Option, Nasdaq

The financial pages of the local newspaper helped Mary in identifying that she can buy a bond ($1,000 par) for $800. If the coupon rate is 10 percent, the annual interest payments equal $80

a true

b false

Assuming everything else equal, one of the concepts to consider to make sound financial decisions is that _____.

a the riskier assets always have lower market value

b the riskier assets are more valuable than (preferred to) less risky assets

c the sooner cash is received, the more valuable it is

d investors always achieve higher returns from less risky assets

Dwayne invests $4,700 in a savings account at the beginning of each of the next twelve years. If his opportunity cost rate is 7 percent compounded annually, how much will his investment be worth after the last annuity payment is made?

a $89,817.00

b $95,157.85

c $91,250.52

d $87,542.29

When the payment for an annuity is made at the end of each period, such an annuity is referred to as a(n) _____.

a ordinary annuity

b deferred annuity

c discounted annuity

d annuity due

The balance sheet is a financial statement measuring the flow of funds into and out of various accounts over time while the income statement measures the progress of the firm at a point in time.

true

false

Which of the following mathematical expressions computes earnings per share?

a Earnings per share = Net Income ÷ Number of outstanding shares of common stock

b Earnings per share = (Net Income + Dividend Paid) ÷ Number of outstanding shares of common stock

c Earnings per share = Net Income × Number of outstanding shares of common stock

Primary markets are markets _____.

a where loans are traded

b where financial assets that have previously been issued by various organizations are traded among investors

c in which various organizations raise funds by issuing new securities

d where the instruments traded have original maturities equal to one year or less

Many businesses find it generally more efficient to enlist the services of a financial institution when it comes time to raise capital: IE. Investment Banks: An organization that underwrites and distributes new investment securities and helps business obtain financing. Commercial Banks: The traditional department store type of financing serving a variety of savers and borrowers. Financial Service Corporations: A firm that offers a wide range of financial services, including investment banking, brokerage operations, insurance, and commercial banking. Credit Unions: Cooperative association whose members have a common bond such as employees of the same firm. Pension Funds: Retirement plans funded by corporations or government agencies. Life Insurance Companies: Take annual premium payments and invest these funds in stocks, bonds, or real estate and make payments to beneficiaries of the insured parties. Mutual Funds: Corporations that accept money from savers and then use these funds to buy stocks, long-term bonds, or short-term debt issued by business or government. They typically pool funds to reduce risk by diversification. Exchange Traded Funds (ETFs): Buy a portfolio of stocks of a certain type of business sector. IE. media companies, oil companies, Chinese companies, etc. and then sell their own shares to the public. Hedge Funds: Not regulated by the Securities and Exchange Commission (SEC). Typically have large minimum investments of over $1 million and marketed to individuals an institutions with high net worth. Private Equity Companies: Target, buy, and then manage entire firms. Most of the money used to buy these companies is borrowed. Why are the various financial instruments considered claims against a company's future cash flows ?

Answer the following questions: (Do not attempt if you cannot answer all)

1) Which of the following is true?

Select one:

A. Financial intermediaries transform claims in the process of channeling funds.

B. Securities firms transfer, but do not transform, claims in the process of channeling funds.

C. Both of the above.

D. None of the above.

2) A large domestic bank with headquarters in New York City that provides international lending and payment services to large, multinational business firms is most likely to be a:

Select one:

A. Money Center Bank

B. Regional Bank

C. Mid-Market Bank

D. Community Bank

3) Which of the following is true regarding bank charters?

Select one:

A. All U.S. commercial banks must be chartered in order to operate.

B. All U.S. banks must be federally chartered.

C. National banks are chartered by the Federal Reserve.

D. All of the above.

4) Which of the following is characteristic of fractional reserve banking?

Select one:

A. Restricting the access of depositors to money in their passbook savings accounts.

B. Maintaining sufficient bank reserves to cover all outstanding loans.

C. Making only long-term loans to both consumers and businesses.

D. None of the above.

5) When an investment bank underwrites a new security offering it

Select one:

A. makes a loan to the issuing firm.

B. sells securities to a company in need of capital.

C. transforms the claims of the issuing firm.

D. purchases the new securities and resells them to investors.

6) Which of the following is true of securities dealers?

Select one:

a. They are active in the secondary market, buying and selling previously issued securities.

b. They may own securities, which they inventory prior to selling to investors.

c. They may be involved in the distribution process for a new securities issue.

d. All of the above.

7) Which of the following statements is true regarding credit unions?

I. Credit unions specialize in making home mortgage and auto loans
II. Credit unions are tax-exempt institutions
III. Credit unions do not offer any insurance protection against the loss of member deposits

Select one:

a. I only

b. I and II only

c. I and III only

d. II and III only

8) The two broadest groups of financial institutions in the U.S. can be classified as

Select one:

a. financial intermediaries and securities firms.

b. depository and non-depository intermediaries.

c. commercial banks and thrift institutions.

d. money market firms and capital market firms.