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Finance Quiz

Total questions: 49

Worksheet time: 25mins

Name
Class
Date
1.

Which is a major source of external long-term financing for corporations?

a)

Bank deposits

b)

Bonds and stocks

c)

Short-term loans

d)

Equipment leases

e)

Credit cards

2.

A bondholder's legal claim on the firm's cash flows is:

a)

Equal to that of shareholders

b)

Priority over shareholders

c)

Lower than preferred stockholders

d)

Dependent on the firm's profits

e)

Optional

3.

What is the principal amount to be repaid at maturity called?

a)

Interest

b)

Face value

c)

Dividend

d)

Coupon

e)

Equity

4.

Which payment method is NOT typical for bonds?

a)

Monthly coupon payments

b)

Semiannual coupon payments

c)

Annual coupon payments

d)

Single payment at maturity

e)

Lump-sum principal repayment

5.

Bearer bonds differ from registered bonds because:

a)

Bearer bonds pay no interest

b)

Bearer bonds are not taxed

c)

Bearer bonds don't register the owner's name

d)

Bearer bonds are illegal globally

e)

Bearer bonds are exclusively electronic

6.

The bond indenture primarily contains:

a)

Stock repurchase plans

b)

Debt covenants and terms

c)

Tax evasion guidelines

d)

Marketing strategies

e)

SEC enforcement actions

7.

A bond rated "AAA" indicates:

a)

High default risk

b)

Government guarantee

c)

Least credit risk

d)

Non-taxable bond

e)

High coupon payments

8.

Firms often prefer bonds over equity financing because:

a)

Bonds are more expensive

b)

Bonds do not mature

c)

Bonds dilute ownership

d)

Bonds have tax-deductible interest

e)

Bonds pay higher dividends

9.

What is a callable bond?

a)

A bond that cannot be redeemed

b)

A bond repayable before maturity

c)

A bond traded only internationally

d)

A bond with a floating rate

e)

A bond with perpetual life

10.

Which characteristic applies to preferred stock?

a)

Fixed dividends

b)

Voting rights

c)

Maturity date

d)

Secured debt status

e)

Tax-free returns

11.

If a corporation repurchases its stock, it:

a)

Increases outstanding shares

b)

Reduces outstanding shares

c)

Dilutes ownership

d)

Issues new bonds

e)

Reduces bond interest rates

12.

A security without a maturity date is called:

a)

Convertible bond

b)

Debenture

c)

Perpetuity

d)

Callable bond

e)

Cumulative preferred stock

13.

Which type of bond interest is tax-deductible for corporations?

a)

Coupon payments

b)

Dividends

c)

Equity gains

d)

Retained earnings

e)

Asset sales

14.

The sale of newly created securities is called:

a)

Secondary trading

b)

Flotation

c)

Underwriting

d)

Best efforts agreement

e)

Syndicate agreement

15.

An IPO refers to:

a)

Immediate payout offering

b)

Institutional placement option

c)

Initial public offering

d)

Interest payment obligation

e)

Indirect public order

16.

Investment bankers primarily assist companies by:

a)

Increasing operating profits

b)

Marketing and underwriting securities

c)

Managing pension funds

d)

Providing legal services

e)

Buying back shares

17.

The document detailing financial operations provided to investors is:

a)

Indenture

b)

Covenant

c)

Prospectus

d)

Tombstone ad

e)

Press release

18.

In a firm commitment underwriting, the risk is borne by:

a)

Investors

b)

Issuing company

c)

Investment banker

d)

SEC

e)

Stock exchange

19.

Which announcement type informs investors about upcoming security sales?

a)

Covenant

b)

Underwriting statement

c)

Tombstone

d)

Prospectus summary

e)

Legal notice

20.

A syndicate is:

a)

Group of investors

b)

Group of banks issuing securities

c)

Private shareholders' association

d)

Investment club

e)

Board of directors' subgroup

21.

Best-efforts agreements differ from firm commitments by:

a)

Charging higher fees

b)

Assuming no underwriting risk

c)

Guaranteeing full sale

d)

Being exclusive to bond markets

e)

Requiring SEC approval

22.

Secondary markets primarily exist to:

a)

Create new securities

b)

Trade existing securities

c)

Issue government bonds

d)

Calculate stock prices

e)

Manage monetary policy

23.

A good securities market is characterized by:

a)

High volatility

b)

Wide bid-ask spreads

c)

Liquidity and price efficiency

d)

Limited access

e)

High government intervention

24.

When can the underwriting syndicate support share prices post-IPO?

a)

During market stabilization

b)

After bond issuance

c)

During best-efforts agreements

d)

After tombstone advertisements

e)

During dividends issuance

25.

Over-the-counter (OTC) markets are mainly used for:

a)

Trading IPOs

b)

Selling large public issues

c)

Trading unlisted securities

d)

Regulating investments

e)

Issuing bonds internationally

26.

Which of the following involves direct securities trading between brokers?

a)

Underwriting

b)

Flotation

c)

Over-the-counter market

d)

Firm commitment sale

e)

Prospectus preparation

27.

A financial asset's arithmetic average return is calculated by:

a)

Subtracting standard deviation from return

b)

Summing returns and dividing by periods

c)

Taking median of returns

d)

Dividing returns by variance

e)

Squaring the returns

28.

Variance measures:

a)

Total wealth

b)

Degree of return volatility

c)

Capital appreciation

d)

Price-to-earnings ratios

e)

Tax risk

29.

Standard deviation of returns is:

a)

The square of variance

b)

Sum of all returns

c)

The square root of variance

d)

Return multiplied by variance

e)

The difference between highest and lowest returns

30.

Which is a major source of systematic risk?

a)

Labor strike at one firm

b)

Interest rate fluctuations

c)

CEO resignation

d)

Product recall

e)

Fire at a manufacturing plant

31.

The capital asset pricing model (CAPM) primarily relates return to:

a)

Alpha

b)

Beta

c)

Dividend yield

d)

Growth rate

e)

Inflation rate

32.

A portfolio's overall risk is reduced primarily by:

a)

Investing heavily in one sector

b)

Increasing cash holdings

c)

Diversification

d)

Buying more bonds

e)

Holding cash equivalents

33.

A market is efficient if:

a)

Stocks always increase in price

b)

All information is reflected in prices

c)

No dividends are paid

d)

Returns are guaranteed

e)

Arbitrage opportunities abound

34.

Which is an example of unsystematic risk?

a)

Oil price shock

b)

Global recession

c)

CEO resignation at a company

d)

Interest rate hike

e)

War outbreak

35.

The coefficient of variation measures:

a)

Average return

b)

Risk per unit of return

c)

Portfolio beta

d)

Spread between highest and lowest return

e)

Risk-free rate

36.

Beta measures:

a)

Total market volatility

b)

Stock's volatility relative to market

c)

Risk-free asset return

d)

Asset's average return

e)

Difference between risk and return

37.

According to CAPM, the only risk rewarded is:

a)

Unsystematic risk

b)

Specific risk

c)

Systematic risk

d)

Business risk

e)

Reinvestment risk

38.

Scenario analysis helps in:

a)

Reducing investment risk

b)

Identifying financial fraud

c)

Estimating expected returns under various situations

d)

Guaranteeing returns

e)

Predicting inflation rates

39.

Historical returns are used to:

a)

Predict future returns with certainty

b)

Calculate tax obligations

c)

Estimate risk and expected return

d)

Determine risk-free rates

e)

Minimize variance

40.

When two securities have negative correlation, combining them will:

a)

Increase overall risk

b)

Have no impact on risk

c)

Decrease portfolio risk

d)

Eliminate all risk

e)

Lower returns permanently

41.

Calculation-Based Questions A bond has a par value of $1,000 and a coupon rate of 6%, paid annually. What is the annual coupon payment?

a)

$30

b)

$60

c)

$600

d)

$6

e)

$1,060

42.

If a stock's beginning price was $50, ending price was $55, and a dividend of $2 was paid, what was the percentage return?

a)

10%

b)

12%

c)

14%

d)

5%

e)

4%

43.

A bond pays $40 every six months and has a face value of $1,000. What is the bond's annual coupon rate?

a)

4%

b)

6%

c)

8%

d)

10%

e)

12%

44.

Suppose an investment has the following returns over 3 years: 5%, 7%, and -2%. What is the arithmetic average return?

a)

3.33%

b)

5.00%

c)

6.66%

d)

10.00%

e)

7.50%

45.

A bond sells for $950 but its par value is $1,000. The coupon is $70 annually. What is its current yield?

a)

6.5%

b)

7.0%

c)

7.37%

d)

8.0%

e)

8.5%

46.

An investor purchases a bond with a 5% coupon rate for $920. What is the annual interest income received?

a)

$46

b)

$50

c)

$55

d)

$920

e)

$1,000

47.

A portfolio has two assets: Asset A with 60% weight and 10% expected return; Asset B with 40% weight and 5% expected return. What is the portfolio's expected return?

a)

8%

b)

9%

c)

7%

d)

10%

e)

6%

48.

A stock had monthly returns of 2%, 4%, and -1% over three months. What is the standard deviation approximately? (Use simple average method.)

a)

2.5%

b)

1.87%

c)

3.2%

d)

2.0%

e)

5.0%

49.

If a stock's beta is 1.2, the risk-free rate is 3%, and the market return is 10%, what is the expected return using CAPM?

a)

11%

b)

10.4%

c)

11.4%

d)

12%

e)

13%

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