by setting the discount rates on loans to depository institutions

through open market operations

2.5 points

QUESTION 22

The constant dividend growth model assumes:

a constant annual dividend

a constant dividend growth rate for no more than the first 10 years

that the discount rate must be greater than the dividend growth rate

two of above are true assumptions

2.5 points

QUESTION 23

The likelihood that borrowers are ill and would not be able to make interest and principal payments is an example of:

interest rate risk

credit risk

liquidity risk

capital adequacy risk

2.5 points

QUESTION 24

A loan that is repaid in equal payments over a specified time period is called a

discount loan

balloon loan

amortized loan

none of the above

2.5 points

QUESTION 25

An increase in the demand for loanable funds, holding supply constant, will cause interest rates to:

increase

decrease

stay the same

not enough information to tell

2.5 points

QUESTION 26

Which of the following describes the basic function of money?

store of purchasing power

standard of value

medium of exchange

liquidity

2.5 points

QUESTION 27

Financial markets encourage investment by:

providing capital at lower rates than provided by banks

providing electronic execution of transactions which are faster and cheaper than other methods

providing the means for savers to easily and quickly convert financial assets into cash when needed

none of the above

2.5 points

QUESTION 28

The time value concept/calculation used in amortizing a loan is

future value of a dollar

future value of an annuity

present value of a dollar

present value of an annuity

2.5 points

QUESTION 29

The ability of a firm to meet its short-term debt obligations as they come due is indicated by which of the following ratios:

liquidity ratios

asset utilization ratios

financial leverage ratios

profitability ratios

2.5 points

QUESTION 30

Which one of the following types of ratios indicates the ability to meet short-term obligations to creditors as they come due?

liquidity ratios

asset management ratios

capital structure ratios

profitability ratios

2.5 points

QUESTION 31

When compounding more than once a year, the true opportunity costs measure of the interest rate is indicated by the:

annual percentage rate

contract rate

stated rate

effective annual rate

2.5 points

QUESTION 32

During the colonial period in the nations history, banks depended on:

their own issue of paper money

foreign sources for their loanable funds

deposits of foreign currency such as the Spanish dollar

the investment of their own stockholders

2.5 points

QUESTION 33

The First Bank of the United States ceased operations because:

it was superseded by the Second Bank of the United States

of the opposition of state banking interests

its charter had expired and there was no provision for its renewal

the need to provide financing for the Civil War was not supported by Congress

2.5 points

QUESTION 34

Which of the following are included in an annual report?

balance sheet

income statement

statement of cash flows

all of the above

2.5 points

QUESTION 35

An effective financial system must have:

several sets of policy makers who pass laws and make decisions relating to fiscal and monetary policies

an efficient monetary system for creating and transferring money

financial markets that facilitate the transfer of financial assets amongst individuals, institutions, and businesses

all of the above

2.5 points

QUESTION 36

Paper money fully backed by a precious metal and issued by the government is called:

fiat money

representative full-bodied money

full-bodied money

credit money

2.5 points

QUESTION 37

Bond ratings are paid for by:

the issuing firm

the trustee

the investment banker

none of the above

2.5 points

QUESTION 38

Which of the following is considered to be the most risky?

U.S. government bonds

mortgage bonds

corporate bonds

common stocks

2.5 points

QUESTION 39

Which of the following statements is most correct?

The par value of a common stock or preferred stock is not important.

A convertible preferred stock gives the corporation the right to retire the preferred stock at its option.

The U.S. security markets are the only public financial markets in which preferred stock can be sold.

Similar to bonds, the fixed preferred stock dividend is a tax-deductible expense.

2.5 points

QUESTION 40

The interest rate determined by multiplying the interest rate charged per period by the number of periods in a year is called the:

annual percentage rate

compound rate of interest

stated rate of interest

effective annual rate

2.5 points

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