Financial Management 7th Set

Diversification protects against

• a. Systematic risk

• b. Market risk

• c. Idiosyncratic risk

• d. Inflation risk          

Which is the best diversification for stock investment?

• a. Auto company and grocery chain

• b. Walmart and Costco

• c. Home builder and auto company

• d. Boeing and Lockheed

If you are assessing a firm's ability to meet short term obligations, you would use which ratio?

• a. Debt ratio

• b. Quick ratio

• c. Gross margin

• d. Financial leverage 

To assess firm efficiency, which ratio would you use?

• a. Asset turnover

• b. Operating margin

• c. Debt ratio

• d. None of the above 

Which would have the highest value?

• a. Gross margin

• b. Operating margin

• c. Net margin

• d. All are equal          

Which is the most important profit ratio?

• a. Gross Margin

• b. Net Margin

• c. Return on Equity

• d. Return on Assets   

If the debt ratio increases, what effect does that have on ROE?

• a. ROE increases

• b. ROE decreases

• c. ROE is unchanged

• d. Cannot be determined       

What is one way a firm maximizes shareholder value?

• A. By switching inventory methods

• B. By reducing the firm's labor force

• C. By outsourcing the production of the firm's core product

• D. By avoiding investments that cost more money than they bring in         

What is one of the two basic types of financial instruments?

• A. Money Markets

• B. Mutual Funds

• C. Stocks

• D. Options     

Why is it a challenge for a fund manager to review financial statements from other countries?

• A. Because the U.S. Financial Accounting Standards Board is in the beginning stages of working with the International Accounting Standards Board on converging reporting standards.

• B. Because the U.S. Generally Accepted Accounting Principles and the International Financial Reporting Standards vary.

• C. Because the U.S. Financial Accounting Standards and the International Accounting Standards Board abandoned the project to converge financial reporting rules.

• D. Because the U.S. Financial Accounting Standards Board does not work with the International Accounting Standards Board on mitigating differences in reporting standards.