B. MULTIPLE CHOICE QUESTIONS

For each question, enter the letter of the best response on the blank preceding the question.

17. Per the information in Chapter One, _________________ is(are) important skill(s) to develop

for a career in the finance area.

A. critical thinking.

B. communication.

C. collaboration.

D. financial computing skills.

E. A and B and C.

F. A and B and C and D.

18. The overall goal of a corporation can be summarized as

A. maximizing shareholder wealth.

B. maximizing the firms Net Income.

C. maximizing the firms Earnings Per Share (EPS).

D. maximizing the number of common stock shares outstanding.

19. The stakeholders of a toy manufacturing corporation headquartered in Boston and doing business

domestically within the U.S. may include the following EXCEPT

A. the firms shareholders.

B. vendors of the firms packaging materials.

C.members of the Board of Directors of the Bank of England.

D. residents of Boston, the community in which the firms corporate headquarters is located.

20. The system of rules, processes, and laws that is used to direct and control a corporation is

known as

A. the agency issue.

B. corporate governance.

C. the Board of Directors.

D. the prospectus.

21. Corporate ethics programs seek to

A. reduce litigation and judgment costs.

B. maintain a positive corporate image.

C. build shareholder confidence.

D. gain the loyalty and respect of stakeholders.

E. A and B and C and D.

F. A and B and D.

22. Each of the following is a strength or benefit of the sole proprietorship form of business organization

EXCEPT

A. the unlimited liability that applies to the businesss owner.

B. the owner receives all profits that the business generates.

C. ease of dissolution when the business ends.

D. the owner has independence in decision-making for the firm.

______ 23. A corporations Balance Sheet presents a summary of the firms financial position as of a specific

date and includes each of the following sections EXCEPT

A. Assets.

B. Liabilities.

C. Equity.

D. Operating Expenses.

24. Trend or time-series analysis is used to evaluate the performance

A. of one firm.

B. over a period of two or more years.

C. of the firm vs. the top three firms in the industry.

D. A and B.

E. A and B and C.

25. Common-size Income Statements

A. are a tool for analyzing profitability in relation to the firms Sales.

B. consist of each item on the statement expressed as a % of Sales.

C. are especially useful in comparing the firms performance across years.

D. cannot be calculated using Excel.

E. A and B and C and D.

F. A and B and C.

26. An efficient portfolio

A. provides the maximum level of return for a given level of risk.

B. provides the minimum level of return for a given level of risk.

C. generally is not diversified across industries.

D. only rarely contains common stock shares issued by firms in the oil industry.

27. Risk(s) of diversifying an investment portfolio internationally may include each of the

following EXCEPT

A. possible fluctuations in the currency exchange rates.

B. political risk associated with actions the governments in other countries may take.

C. an increase in the number and variety of holdings within the investors portfolio.

D. the possibility that a foreign government may be overthrown.

28. Each of the following is a systematic risk factor that cannot be eliminated by

diversifying a portfolio EXCEPT

A. the level of interest rates in the economy.

B. a labor strike at the General Motors production facilities.

C. the unemployment level.

D. the annual inflation rate.

29. With regard to beta in the Security Market Line (SML) equation,

A. the beta coefficient for the entire market equals 1.0.

B. beta values higher than 1.0 are more risky than the market average.

C. beta values less than 1.0 are less risky than the market average.

D. A and B and C.

E. B and C.

30. In the Security Market Line (SML) equation, the return on the ________________

can be used as an approximation of the risk-free rate of return (R_F).

A. U.S. Treasury Bill (T-Bill).

B. Dow Jones Industrial Average.

C. Standard & Poors 500 Index.

D. Moodys Bond Index.

31. Assume that inflation is expected to increase by 2% during the coming year. This will

A. cause the entire Security Market Line (SML) equation, when graphed, to shift downward by 2%.

B. cause the entire Security Market Line (SML) equation, when graphed, to shift upward by 2%.

C. have no impact on the graph of the Security Market Line (SML) equation.

32. Assume that investor risk aversion decreases due to the very favorable economy. This will

A. have no impact on the graph of the Security Market Line (SML) equation.

B. cause the Y-axis intercept of the Security Market Line (SML) equation to remain constant when graphed but increase the slope of the SML.

C. cause the Y-axis intercept of the SML equation to remain constant, when graphed, but decrease the slope of the SML.

D. cause the entire SML, when graphed, to shift downward, parallel to the original SML graph.