Financial

FIN 310 Mid-term Quiz

Please select the correct answer.

1) At its most basic level, the function of financial intermediaries is to ________.

A) track and report interest rates

B) move money from lenders to borrowers and back again

C) report all financial transactions to the federal government

D) effect a transfer of wealth in society

2. The set of financial activities that support the OPERATIONS of a business is best described by which main area of finance?

A) Corporate finance

B) Investments

C) Financial institutions and markets

D) International finance

3. ________ is the area of finance concerned with activities like repayment of borrowed funds through dividends or interest payments.

A) Investments

B) Corporate finance

C) Capital budgeting

D) International finance

4. ________ are the forums where buyers and sellers of financial assets and commodities meet.

A) Housing markets

B) Federal Reserve banks

C) Financial markets

D) Automotive shows

5. The purpose of studying financial statements is ________.

A) to mechanically build portfolio analysis

B) to understand those portions of the statements that have relevance for financial decision making

C) to primarily investigate all portions of the statements that have relevance for dividend policy

D) to mechanically learn how to read and understand footnotes

6. Understanding the sources and uses of cash in the recent past will enable a manager to ________ the cash flow for a potential project of the firm.

A) determine with perfect precision

B) forecast with perfect precision

C) predict more accurately

D) know today

7. It is important to remember that the fundamental identity of accounting is the debit and credit recording activity where debits ________ equal credits.

A) never

B) seldom

C) sometimes

D) always

8. The income statement begins with revenue and subtracts various operating expenses until arriving at ________.

A) earning after taxes

B) net income

C) taxable income

D) EBIT

9. Cash flow is ________.

A) the increase but not decrease in cash for the period

B) the decrease but not increase in cash for the period

C) the increase or decrease in cash for the period

D) the net income for the period

10. Your aunt places $13,000 into an account earning an interest rate of 7% per year. After 5 years the account will be valued at $18,233.17. Which of the following statements is correct?

A) The present value is $13,000, the time period is 7 years, the present value is $18,233.17, and the interest rate is 5%.

B) The future value is $13,000, the time period is 5 years, the principal is $18,233.17, and the interest rate is 7%.

C) The principal is $13,000, the time period is 5 years, the future value is $18,233.17, and the interest rate is 7%.

D) The principal is $13,000, the time period is 7 years, the future value is $18,233.17, and the interest rate is 5%.

11. ________ is simply the interest earned in subsequent periods on the interest earned in prior periods.

A) Quoted interest

B) Anticipated interest

C) Simple interest

D) Compound interest

12. If you invest $1,800 today, how much money will you have in 5 years?

A) $1,800

B) This question cannot be answered because it is missing an annual rate of return.

C) $2,287

D) This question cannot be answered because it is missing the type of investment made.

13. Your employer has agreed to place year-end deposits of $1,000, $2,000 and $3,000 into your retirement account. The $1,000 deposit will be one year from today, the $2,000 deposit two years from today, and the $3,000 deposit three years from today. If your account earns 5% per year, how much money will you have in the account at the end of year three when the last deposit is made?

A) $5,357.95

B) $6,000

C) $6,202.50

D) $6,727.88

14. Your company just sold a product with the following payment plan: $50,000 today, $25,000 next year, and $10,000 the following year. If your firm places the payments into an account earning 10% per year, how much money will be in the account after collecting the last payment?

A) $99,000

B) $98,000

C) $88,500

D) $85,000

15. A/An ________ is a series of equal end-of-the-period cash flows.

A) annuity

B) annuity due

C) perpetuity due

D) None of the above

16. What is the future value in year twelve of an ordinary annuity cash flow of $6,000 per year at an interest rate of 4.00% per year?

A) $90,154.83

B) $93,761.02

C) $28,675.97

D) $32,117.08

17. One of the key components to making financial decisions is to ________.

A) understand the timing and amount of dividends

B) understand the timing and amount of cash flow

C) understand the timing of EBIT

D) understand the amount of net income

18. To find operating cash flow for the business for the year, add depreciation expense to EBIT and then ________.

A) subtract the interest expenses

B) add the taxes

C) subtract the taxes

D) add interest expenses

19. Which of the following actions will INCREASE the present value of an investment?

A) Decrease the interest rate.

B) Decrease the future value.

C) Increase the amount of time.

D) All of the above will increase the present value.

20. Which of the following formulas is correct for finding the present value of an investment?

A) FV =

B) PV = FV × (1 + r)n

C) PV = FVn × (1 + r)

D) PV = FV ×

21. What is the future value in year twenty five of an ordinary annuity cash flow of $2,000 per year at an interest rate of 10.0% per year?

A) $66,505.81

B) $55,000.00

C) $196,694.12

D) $216,363.53

22. The furniture store offers you no-money-down on a new set of living room furniture. Further, you may pay for the furniture in three equal annual end-of-the-year payments of $1,000 each with the first payment to be made one year from today. If the discount rate is 6%, what is the present value of the furniture payments?

A) $3,183.60

B) $3,000.00

C) $2,833.39

D) $2,673.01

23. The question "What is the current value of an amount of cash that will be received at a specific time in the future?" is best answered by which form of the TVM equation?

A) PV =

B) PV = PV × (1 + r)n

C) PV = (FV/PV)1/n - 1

D) PV =

24. What is the present value today of an ordinary annuity cash flow of $3,000 per year for forty years at an interest rate of 6.0% per year?

A) $120,000.00

B) $1,327,777.67

C) $45,139.89

D) $32,270.87

25. A series of equal periodic finite cash flows that occur at the beginning of the period are known as a/an ________.

A) ordinary annuity

B) annuity due

C) perpetuity

D) amortization