FIN 419 Final Exam

1. Finance is concerned with the process institutions, markets, and instruments involved in the transfer of money among and between individuals, businesses and government.
True ________ False ________

2. The president or chief executive officer is elected by the firm's stockholders and has ultimate authority to guide corporate affairs and make general policy.
True ________ False ________

3. Finance can be defined as
(a) the system of debits and credits.
(b) the science of the production, distribution, and consumption of wealth.
(c) the art and science of managing money.
(d) the art of merchandising products and services.

4. Under which of the following legal forms of organization, is ownership readily transferable?
(a) Sole proprietorships.
(b) Partnerships.
(c) Limited partnership.
(d) Corporation.

5. _________ is the chance of loss or the variability of returns associated with a given asset.
(a) Return
(b) Value
(c) Risk
(d) Probability

6. Prime‑grade commercial paper will most likely have a higher annual return than
(a) a Treasury bill.
(b) a preferred stock.
(c) a common stock.
(d) an investment‑grade bond.

7. Time‑value of money is based on the belief that a dollar that will be received at some future date is worth more than a dollar today. True ________ False ________

8. In general, with an amortized loan, the payment amount grows over the life of the loan, the principal portion of each payment grows over the life of the loan, and the interest portion declines over the life of the loan.

True ________ False ________

9. An annuity with an infinite life is called a(n)
(a) perpetuity.
(b) primia.
(c) indefinite.
(d) deep discount.

10. The _________ is/are a graphic depiction of the term structure of interest rates.
(a) yield curve
(b) supply and demand functions
(c) risk‑return profile
(d) aggregate demand curve

11. Generally, long-term loans have higher interest rates than short-term loans because of
(a) the general expectation of higher future rates of inflation.
(b) lender preferences for shorter-term, more liquid loans.
(c) greater demand for long-term rather than short-term loans relative to the supply of such loans.
(d) all of the above.

12. Preferred stock is often considered a quasi‑debt since it yields a fixed periodic payment.
True ________ False ________

13. Unlike creditors (lenders), equity holders (both preferred and common stockholders) are owners of the firm.
True ________ False ________

14. The claims of the equity holders on income have priority over
(a) the claims of the preferred stockholders.
(b) the claims of the creditors.
(c) the claims of the unsecured creditors.
(d) no one.

15. The opportunity for management to purchase a certain number of shares of their firm's common stock at a specified price over a certain period of time is a
(a) stock option.
(b) warrant.
(c) pre‑emptive right.
(d) stock right.