Financial Management

191. In most firms:

  1. capital assets grow at a constant rate
  2. the rate of growth for fixed and current assets remains constant
  3. there is no relationship between the growth rates for fixed and current assets
  4. capital assets grow slowly, while current assets fluctuate
Correct answer: (D)
capital assets grow slowly, while current assets fluctuate

192. The term structure of interest rates:

  1. shows the interest rate pattern for securities of different risks but equal maturities
  2. shows the interest rate patterns for securities of equal risk with different maturities
  3. is normally based on corporate securities
  4. remains constant over time
Correct answer: (B)
shows the interest rate patterns for securities of equal risk with different maturities

193. A firm with heavy risk exposure due to short term borrowing should:

  1. carry a large amount of fixed assets
  2. carry more highly liquid assets
  3. increase production to avoid inventory
  4. prosper in the event of a credit crunch
Correct answer: (B)
carry more highly liquid assets

194. Internationally, a company may primarily prefer to hold cash balances in one currency over another for which of the following reasons:

  1. higher interest rates and a stronger currency relative to others
  2. the firm is headquartered in a particular country
  3. twenty-four hour a day access may be available
  4. there is no real reason to favor one currency over another
Correct answer: (A)
higher interest rates and a stronger currency relative to others

195. The conditions of the terms of credit will have the greatest impact in which area:

  1. the balance sheet
  2. financing costs
  3. accounts receivable
  4. profit margin
Correct answer: (C)
accounts receivable

196. Prime rate may best be defined as:

  1. the rate the bank charges its most credit-worthy customers
  2. the rate charged by the Bank of Canada to chartered banks
  3. the rate paid by Canadian firms for eurodollar funds
  4. the rate paid by firms on long term debt
Correct answer: (A)
the rate the bank charges its most credit-worthy customers

197. A secured credit arrangement:

  1. is never used with short-term funds
  2. is always used with short-term funds
  3. may help a borrower obtain otherwise unavailable funds
  4. is a primary factor in the lender's decision
Correct answer: (C)
may help a borrower obtain otherwise unavailable funds

198. The value today of a stream of payments received over the five year period is known as:

  1. future value-annuity
  2. present value-annuity
  3. compound sum-single amount
  4. present value-single amount
Correct answer: (B)
present value-annuity

199. All of the following factors influence the investor's required rate of return except:

  1. the real required rate of return
  2. the inflation premium
  3. the risk premium
  4. the risk aversion factor
Correct answer: (D)
the risk aversion factor

200. In the "real world," corporate bonds usually pay interest:

  1. continuously
  2. quarterly
  3. semiannually
  4. annually
Correct answer: (C)
semiannually
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