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Finance
Q:
Which portfolio has had the lowest average annual nominal rate of return during the 1900-2006 periods?
A. Portfolio of U.S. Common stocks
B. Portfolio of U.S. government bonds
C. Portfolio of Treasury bills
D. None of the given answers
Q:
Many financial experts believe that the customers most likely to be damaged by decreased competition include:
A) Large corporations in large cities
B) Households and business in smaller cities and towns
C) Households that earn more than a billion dollars a year
D) Students away at college
E) None of the above
Q:
What has been the average annual rate of return in real terms for a portfolio of U.S. common stocks between 1900 and 2006?
A. Less than 2%
B. Between 2% and 5%
C. Between 5% and 8%
D. Greater than 8%
Q:
When a bank holding company acquires a nonbank business it must be approved by:
A) The FDIC
B) The Comptroller of the Currency
C) The Federal Reserve
D) The President of the U.S.
E) All of the above
Q:
Under the Bank Holding Company Act control of a bank is assumed to exist only if:
A) The bank holding company acquires 100% of the banks stock
B) The bank holding company acquires 50% or more of the banks stock
C) The bank holding company acquires 25% or more the banks stock
D) The bank holding company acquires three banks
E) None of the above
Q:
One dollar invested in a portfolio of U.S. common stocks in 1900 would have grown in nominal value by the end of year 2006 to:
A. $21,536
B. $176
C. $719
D. $6.81
Q:
Which of the following is a reason for the rapid growth in branch banks?
A) Exodus of population from cities to suburban areas
B) Bank convergence
C) Business failures
D) Decreased costs of brick and mortar
E) All of the above
Q:
One dollar invested in a portfolio of U.S. government bonds in 1900 would have grown in nominal value by the end of year 2006 to:
A. $719
B. $66
C. $176
D. $2.80
Q:
What has been the average annual nominal rate of return on a portfolio of U.S. common stocks over the past 107 years (from 1900 to 2006)?
A. Less than 2%
B. Between 2% and 5%
C. Between 5% and 11%
D. Greater than 11%
Q:
and banks tend to be larger and hold more of the publics deposits.
A) National and Member
B) State and Nonmember
C) National and Uninsured
D) State and Insured
E) None of the above
Q:
What has been the average annual nominal rate of interest on Treasury bills over the past 107 years (1900 - 2006)?
A. Less than 1%
B. Between 1% and 2%
C. Between 2% and 3%
D. Greater than 3%
Q:
Member banks are:
A) Members of the FDIC
B) National Banks
C) Unit Banks
D) Members of the Federal Reserve
E) All of the above
Q:
Briefly explain the difference between an equivalent annual cost and an equivalent annual annuity.
Q:
The majority of banks today are:
A) Federally chartered
B) Uninsured
C) State Chartered
D) National Banks
E) All of the above
Q:
Briefly explain how the cost of excess capacity is taken into consideration.
Q:
The typical money center bank has:
A) $250 million in assets and is located in a smaller city in the Midwest
B) $25 billion in assets and is located in a large city in the East
C) $100 million in assets and is located in a large city in the South
D) $10 billion in assets and is located in a small city in the West
E) None of the above
Q:
Briefly explain how the decision to replace an existing machine is made?
Q:
The typical community bank has:
A) $300 million in assets and is located in a smaller city in the Midwest.
B) $25 billion in assets and is located in a large city in the East
C) $100 million in assets and is located in a large city the South
D) $10 billion in assets and is located in a small city in the West
E) None of the above
Q:
The percentage of unit banks in the U.S. today is approximately:
A) 10%
B) 30%
C) 50%
D) 75%
E) 100%
Q:
How do you compare projects with different lives?
Q:
Relative to manufacturing firms, banks tend to have a (the) ___________ number of board members.
A) Same
B) Larger
C) Smaller
D) Unknown
E) None of the above
Q:
Websites known as electronic branches offer all of the following except:
A) Internet banking services
B) ATMs
C) Point of sales terminals
D) Computer and phone services connecting customers
E) Traveler's checks
Q:
Briefly discuss how taxes are taken into consideration in countries like Japan.
Q:
In the last decade, the number of banks has __________ and the number of branches has _________.
A) Declined; Increased
B) Grown; Increased
C) Grown; Decreased
D) Declined; Decreased
E) Stabilized; Stabilized
Q:
Briefly explain the acronym MACRS.
Q:
Which of the following is a type of service a bank holding company is not allowed to own?
A) Merchant banking company
B) Savings and loan association
C) Retail electronics equipment sales company
D) Security brokerage firm
E) Insurance agency
Q:
Briefly explain how inflation is treated consistently while estimation the project NPV.
Q:
What are some of the important points to remember while estimating the cash flows of a project?
Q:
What is a bank holding company?
A) It is a bank that offers all of its services out of one office
B) It is a bank that offers all its services out of several offices
C) It is a corporation formed to hold the stock of one or more banks
D) It is a merchant bank
E) None of the above
Q:
Define the term cash flow for a project.
Q:
Why did so many states and the federal government finally enact interstate banking laws?
A) The need for new capital in order to revive struggling economies
B) The expansion of services by nonbank financial institutions
C) Competition from neighboring states that already liberalized their laws
D) Advances in technology which allowed banks to service customers in broader geographic areas
E) All of the above are reasons for the passage of interstate banking laws
Q:
Equivalent annual cash flows are used whenever the lives of projects are the same.
Q:
A bank which offers its full range of services from only one office is known as a:
A) Unit Bank
B) Branch Bank
C) Correspondent Bank
D) Bank Holding Company
E) None of the above
Q:
The types of nonbank businesses a bank holding company can own include which of the following?
A) Retail Computer Store
B) Security Brokerage Firm
C) Retail Grocery Store
D) Wholesale Electronic Distribution Company
E) All of the above
Q:
When evaluating a projects with positive NPV but variable life spans, the proper technique to employ is the equivalent annual annuity (EAA) approach.
Q:
You should replace a machine when the EAC of continuing to operate it exceeds the EAC of the new machine.
Q:
Which of the following is considered an advantage of branch banking?
A) Increased availability and convenience of services
B) Decreased chance of failure
C) Reduced transaction costs
D) B and C above
E) All of the above
Q:
A company which owns the stock of three different banks is known as a(n):
A) Unit Bank
B) Interstate Bank
C) One Bank Holding Company
D) Multi Bank Holding Company
E) None of the above
Q:
The rule for comparing machines with different lines is to select the machine with the greatest equivalent annual cost (EAC).
Q:
A) Greater ease of access to capital markets
B) Tax advantage
C) Product-line diversification
D) All of the above.
E) None of the above.
Answer: D
Q:
Equivalent annual cash flow approach can be used to determine the year in which the existing machine can be profitably replaced with a new machine.
Q:
All large U.S. corporations keep two separate sets of books, one for the stockholders and one for the Internal Revenue Service.
Q:
The concentration of U.S. bank deposits in the hands of the largest banks has _________ during the most recent period,
A) Declined
B) Increased
C) Remained essentially unchanged
D) Exhibited large fluctuations in both directions
E) None of above.
Q:
One of the few states that has opted out of interstate banking is:
A) New York
B) Ohio
C) Texas
D) Montana
E) None of the above
Q:
In the MACRS system of depreciation most industrial equipment fall into the ten- and fifteen-year classes.
Q:
Working capital is one of the most common sources of mistakes in estimating project cash flows.
Q:
In the United States there are close to __________ commercial banks in operation. Which number shown below is closest to the actual total number of U.S. banks operating in the U.S.?
A) 20,500
B) 13,500
C) 11,500
D) 9,000
E) 7,500
Q:
Depreciation acts as a tax shield in reducing the taxes.
Q:
Before any financial services can be offered to anyone a bank in the United States must have a:
A) Certificate of deposit insurance
B) Charter of incorporation
C) List of established customers
D) New building constructed to be the bank's permanent home
E) None of the above.
Q:
Do not forget to include interest and dividend payments when calculating the project's cash flows.
Q:
The largest banks possess some potential advantages over small and medium-size banks, according to the textbook. What specific advantage of the largest banks over small and medium-sized banks is not mentioned in the text?
A) Greater diversification geographically and by product line
B) Availability of financial capital at lower cost
C) Greater professional expertise to allocate capital to the most promising products and services
D) Better positioned to take advantage of the opportunities afforded by interstate banking.
E) All of the above were mentioned in the text as advantages typically possessed by the largest banks.
Q:
By undertaking the analysis in real terms, the financial manager avoids having to forecast inflation.
Q:
Which one of the following is charged with setting policy and overseeing a bank's performance?
A) Stockholders
B) Board of directors
C) Regulators
D) Depositors
E) None of the above.
Q:
Sunk costs are bygones, they are unaffected by the decision to accept or reject and should be ignored.
Q:
In banking, organizational form follows __________ because banks usually are organized in such a way as to carry out the tasks and supply the services demanded of them. The term that correctly fills in the blank in the sentence above is:
A) Bank size
B) Management's decision
C) Function
D) Regulation
E) Location
Q:
Working capital is needed additional investment in the project and should considered for cash flow estimation.
Q:
T F 45. The question of whether financial firms operate as efficiently as possible requires researchers to look into the issue of x-efficiency. The concept requires an assessment of the financial firms operating costs in relation to its cost-efficient frontier.
Q:
Opportunity costs should not be included as they are missed opportunities.
Q:
is the idea that there will be lower cost of producing multiple services using the same organization and resources.
Q:
When calculating cash flows, it is important to consider all incidental effects.
Q:
is the idea that there will be a lower cost of production per unit as the firm gets larger.
Q:
When calculating cash flows, it is important to consider them on an incremental basis.
Q:
Many experts believe that , the relationships that exist between managers, the board of directors and stockholders, is more complicated in financial institutions. Answer: Because of government regulations.
Q:
Using the technique of equivalent annual cash flows and a discount rate of 7%, what is the value of the following project? A. 3.06
B. 3.61
C. 10.25
D. 12.23
Q:
is a view of how modern corporations operate which analyzes the relationship between a firms owners and its managers.
Q:
RainMan Inc. is in the business of producing rain upon request. They must decide between two investment projects; a new airplane for seeding rain clouds or a new weather control machine built by Dr. Nutzbaum. The discount rate for the new airplane is 9%, while the discount rate for the weather machine is 39% (it happens to be higher risk). Which investment should the company select and why? A. Airplane because is has a higher NPV
B. Weather machine because is has a higher NPV
C. Airplane because is has a higher annuity
D. Weather machine because is has a higher annuity
Q:
A bank that is not associated with a bank holding company is called a(n) bank.
Q:
You are considering the purchase of one of two machines required in your production process. Machine A has a life of two years. Machine A costs $50 initially and then $70 per year in maintenance. Machine B has an initial cost of $90. It requires $40 in maintenance for each year of its 3 year life. Either machine must be replaced at the end of its life. Which is the better machine for the firm? The discount rate is 15% and the tax rate is zero.
A. Machine A as EAC for Machine A is $100.76
B. Machine B as EAC for Machine B is $79.42
C. Machine A as PV of costs for Machine A is $163.80
D. Machine B as PV of costs for Machine B is $181.33
Q:
The Gramm-Leach-Bliley Act moved the U.S. banking industry closer to banking in which banks may provide securities, insurance, and other financial products.
Q:
OM Construction Company must choose between two types of cranes. Crane A costs $600,000, will last for 5 years, and will require $60,000 in maintenance each year. Crane B costs $750,000 and will last for seven years and will require $30,000 in maintenance each year. Maintenance costs for cranes A and B are incurred at the end of each year. The appropriate discount rate is 12% per year. Which machine should OM Construction purchase?
A. Crane A as EAC is $226,444
B. Crane B as EAC is $194,336
C. Crane A as the PV is $816,286
D. Cannot be calculated as the revenues for the project are not given
Q:
The key problem in a large money center bank is . Managers may be knowledgeable about banking practices but may be less informed about products and services of subsidiary companies.
Q:
One new 21st century bank organizational structures is _____________________ . This is a special type of holding company that may offer the broadest range of financial services.
Q:
Two mutually exclusive projects have the following NPVs and project lives. If the cost of capital is 15%, which project would you accept?
A. A
B. B
C. Both A and B
D. Reject both A and B
Q:
Two machines, A and B, which perform the same functions, have the following costs and lives. Which machine would you choose? The two machines are mutually exclusive and the cost of capital is 15%.
A. Machine A as the EAC is $1789.89
B. Machine B as the EAC is $1922.88
C. Don't buy either machine
D. Accept both A and B
Q:
A bank which operates exclusively over the internet is known as a ___________ bank.
Q:
A(n) __________________________ can invest in corporate stock as sell as loan money to help finance the start of new ventures or support the expansion of existing businesses.
Q:
Germany allows firms to choose the following depreciation methods:
I) Straight-line method, and II) Declining-balance method
A. I only
B. II only
C. I and II only
D. Germany allows a totally different system
Q:
Which of the following countries allow firms to keep two separate sets of books, one for the stockholders and one for the tax authorities like the Internal Revenue Service?
I) U.S.A., II) Japan, and III) France
A. I only
B. I and II only
C. I, II, and III only
D. None of the above
Q:
Managers who value fringe benefits, plush offices and ample travel budgets over the pursuit of maximum returns for stockholders are exhibiting signs of __________________________.
Q:
A project requires an investment of $900 today. It has sales of $1,100 per year forever. Costs will be $600 the first year and increase by 20% per year. Ignoring taxes calculate the NPV of the project at 12% discount rate.
A. $65.00
B. $57.51
C. $100.00
D. Cannot be calculated as g > r