Finance (FINC) Test 2 Practice

These questions are part of the practice quiz. Start practicing

• Which category of institutions is not a high-volume consumer loan lender?
• Which bankruptcy procedure is allowed under Chapter 7?
• What is the efficient frontier concept?
• If cash is 30, marketable securities 10, receivables 50, and current liabilities 100, what is the quick ratio?
• Which step is part of the typical car-buying process?
• What is the formula for the portfolio expected return?
• Which is allowed under Chapter 7 of the U.S. Bankruptcy Code?
• A contract and business transaction in which the user of an item, such as a car or house, receives the right to use it in exchange for scheduled payments for a fixed period of time is called a
• What is the cash conversion cycle (CCC) formula?
• Which statement would reduce CCC?
• Which card allows purchases by drawing funds directly from the cardholder's bank account at the time of purchase?
• Which loan is often associated with the feature that payments start small and increase over time, but eventually level off?
• This mortgage type has an interest rate and payments that can be adjusted over the life of the loan based on movements in market interest rates.
• Who helps consumers avoid bankruptcy by creating a budget and setting reasonable spending limits?
• On a vehicle, what is the popular name given to the MSRP that is posted on a sticker on the vehicle's window?
• In an auto lease, what is the term for the price at which the lessee can buy the car at lease end?
• Which institution is available only to its owner/members and, as a nonprofit, can offer very favorable interest rates?
• Which financial institution is typically not-for-profit and owned by its members?
• What distinguishes discounted payback from simple payback?
• Which ratio is cited as a reason for credit denial in the material?
• What is systematic risk versus diversifiable risk?
• HELOCs may offer tax advantages.
• Which lease type allows the lessee to return the asset at lease end without additional payments if terms are fulfilled?
• What is the price of an asset being leased as specified in the lease agreement, including the negotiated cost of the vehicle and any applicable fees and taxes?
• Mortgage life insurance is primarily used to pay off what?
• What is the price of a bond with par value 1000, annual coupon 60, maturity 5 years, and yield 5%?
• Overdraft protection is typically linked to which account?
• Open (non‑credit‑card) forms of credit are typically used in emergencies.
• Define the debt-to-equity ratio.
• Usually used to finance temporary or short-term expenditures, such as uninsured cosmetic surgery.
• Which situation occurs when the market value of a property is lower than the loan amount?
• Which is a physical benefit of owning a home?
• What term denotes the maximum percentage of property value that a lender is willing to loan?
• What is the definition of beta in finance?
• Which policy type allows investment risk within separate accounts and offers benefits linked to these accounts?
• What does higher inventory turnover indicate?
• If you expect to pay off your loan before its maturity date, which clause should you ensure is not included in the contract?
• In the context of insurance, risk and uncertainty refer to the possibility of what kind of loss?
• What is a bond's coupon rate?
• In a bond, par value is defined as
• A project requires an initial outlay of $1,000 and yields cash inflows of $400, $500, and $200 at end of years 1–3. If the discount rate is 10%, what is the NPV?
• Which statements about Home Equity Lines of Credit (HELOCs) are true?
• In the FCFF formula, which item is added back to EBIT to reflect non-cash expenses?
• Which option describes that a debtor may keep some assets of minimum value as defined by law?
• Which term denotes the temporary low introductory rate offered to attract new customers?
• What is the formula for the dividend discount model with constant growth (Gordon growth model) for stock price?
• What is the most common personal bankruptcy procedure?
• A professional financial advisor who assists consumers in danger of bankruptcy in formulating a budget and setting spending limits.
• Which institutions are popular with those who have poor credit ratings but offer only high interest rates whose maximums are state-regulated?
• Which statement best describes a consumer loan?
• Variable life insurance provides greater flexibility and allows the policyholder to determine the benefits to be provided by the policy.
• Using CAPM, what is the expected return if Rf = 2%, beta = 1.2, and market return = 9%?
• In life insurance, who will receive the policy's death benefit after the insured dies?
• What is yield to maturity (YTM)?
• Actuarial data is primarily used by underwriters to estimate the risk of loss for policyholders and to determine appropriate premiums.
• Characterized by a fixed, or constant, interest rate and monthly payment over the life of the loan.
• In universal life, what is the arrangement called where part of the premium goes into a cash value that earns interest and can affect the death benefit?
• What is a pro forma financial statement?
• What is the purpose of hedging a currency exposure with a forward contract?
• Which mortgage is commonly used with a down payment of about 20% and does not require government-backed insurance?
• Your friend paid off a loan early after winning lottery money. What's the most likely reason?
• Universal life premium allocation is typically described as a split between which two components?
• Allows a borrower to convert from an adjustable-rate loan to a fixed-rate loan during a prespecified time period, such as the second to fifth year of the loan.
• What term describes the condition included in a contract that allows the buyer to back out if financing or another specified condition is not fulfilled?
• Which variation of the average daily balance method will be least expensive if you expect to actively use your card?
• What form of direct ownership allows individual units with shared ownership of common areas in a multiunit project?
• Used to indicate a borrower's credit risk; based on past credit use, payment history, length of credit history, and types of credit used.
• What is the price of a zero-growth stock that pays a $3 annual dividend with a required return of 7%?
• Closing costs are typically paid at closing. They are described as payments made to whom in typical transactions?
• Which statement best describes systematic risk in relation to diversification?
• What does break-even point represent in managerial finance terms?
• Which type of loan consolidates multiple payments into a single monthly payment?
• Given the same cash flows as above, what is the IRR approximately?
• Loans from these institutions are in high demand but given only to those who are good credit risks.
• Which loan type is typically provided to students through government-supported programs?
• What is the marginal cost of capital?
• Which statement correctly describes the effect of financial leverage on ROE and ROA?
• What is the present value of $1,000 to be received in five years at an 8 percent annual discount rate?
• May be available for those who don't qualify for Stafford or Perkins loans.
• A credit card that is secured with collateral, such as a certificate of deposit.
• Which formula represents the present value of a perpetuity paying C per year with discount rate r?
• A Home Equity Line of Credit (HELOC) is secured by which asset?
• Which mortgage program is insured by the federal government for high loan-to-value ratios and commonly used for borrowers with smaller down payments?
• What is convexity?
• Which of the following is listed as a major factor lenders use to evaluate creditworthiness?
• What is the inverse relationship between bond price and yield?
• Mortgage points are fees charged by lenders and paid by borrowers when obtaining a loan. What is this generally called?
• In capital budgeting, which decision rule uses the profitability index?
• Requires 26 payments equal to one-half of a regular monthly payment, paid every two weeks rather than once a month.
• Which formula computes the future value of an ordinary annuity with payment Pmt, rate i, and n periods?
• Which term describes a credit card secured by a deposit such as a certificate of deposit?
• Open (non‑credit-card) credit forms are typically used in emergencies. (Alternative wording for testing understanding.)
• Which statement correctly describes the death benefit in a term life policy?
• Which description best distinguishes whole life insurance from term life insurance?
• Which loan is used to finance the purchase of a car, truck, minivan, or SUV?
• Which mortgage provides for two interest rates: one during the initial five to seven years and a higher rate for the remaining term?
• Which financial institution typically carries variable interest rates and does not have to be repaid?
• What insurance protects the lender from borrower default and is typically required when down payment is less than 20%?
• What are the general name for the expenses paid by a borrower at mortgage closing, often paid to the seller and accompanied by title transfer?
• What is the definition of FCFF (free cash flow to the firm)?
• Under which condition does financial leverage increase ROE?
• What is the term for continuous premium whole life, where premiums are paid until death or cancellation? (Fill-in clue: the common name for this type)
• What is the debt tax shield implication under taxes (M&M with taxes)?
• A plastic card that allows purchases as if using cash, with funds transferred immediately from the cardholder's bank account.
• Which tool is recommended to identify and compare the total costs of leasing versus purchasing?
• What term refers to the estimated value of a leased asset at the end of the lease period?
• Which type of lending is associated with financing purchases of automobiles and appliances and may be owned by manufacturers?
• A higher Macaulay duration indicates what about a bond?
• Overdraft protection helps avoid what problem?
• Which term describes the act of buying a vehicle with the intent to own it?
• Which term describes the contract that outlines the sale of an asset to a buyer?
• Which statement describes a common advantage of leasing a vehicle?
• Which statement describes the typical relationship between the lease term length and the warranty length?
• In auto leasing, which term refers to the option to purchase the asset at the end of the lease for a predetermined price?
• A firm finances with 40% debt at after-tax cost 4% and 60% equity at 8%. What is the WACC?
• What is bond duration?
• Why is EBIT used in calculating FCFF?
• In bond terminology, par value is defined as
• In insurance, risk is best defined as which of the following?
• Before using a new credit card, what information must the issuer disclose by law?
• The right to withdraw the cash value of a plan prior to the policyholder's death is called what?
• If a homebuyer makes a down payment below 20%, typically which insurance is required?
• In a typical mortgage transaction, who pays the closing costs?
• Which piece of federal legislation enacted in 2009 provides additional protections to credit card holders?
• Which mortgage can change from an adjustable-rate to a fixed-rate during a prespecified period such as the second to fifth year?
• Which option is used to obtain a cash advance from a credit card issuer?
• Which factor drives the magnitude of a debt tax shield?
• Which score is used to indicate a borrower's credit risk and is based on the borrower's credit history elements?
• Limited payment whole life provides lifelong coverage, but the premium payments are structured such that the policyholder stops paying after a certain age, at which point the policy is paid up.
• What term refers to special low introductory interest rates offered to new credit card customers?
• What is the formula for portfolio variance with two assets including covariance?
• Which characteristic distinguishes forwards from futures?
• Which statement correctly describes whole life insurance?
• If the price of a bond is held to maturity with duration of 5 years, a parallel rise in yields of 1% would approximate the price change as which of the following?
• A debt-to-equity ratio of 0.5 indicates what about the relative levels of debt and equity?
• In a condominium, who owns the common areas such as lobbies and recreational facilities?
• A loan used to finance expensive goods using the purchased items as collateral is called
• What does the inventory turnover ratio indicate?
• These institutions are not high volume consumer loan lenders.
• Which loan type is guaranteed by the Department of Veterans Affairs to eligible veterans?
• Credit life insurance is best described as which of the following?
• Which program is guaranteed by the U.S. Department of Veterans Affairs to lenders who make qualified loans to eligible veterans of the U.S. Armed Forces and their unmarried surviving spouses?
• This mortgage type typically requires a down payment of 20%.
• What describes the sale of real estate for a price less than the outstanding loan balance?
• What term refers to money pledged by a potential homebuyer to show good faith when making an offer?
• A level ordinary annuity pays $200 at year-end for 6 years. If the discount rate is 5%, what is the future value at year 6?
• If a friend was recently denied credit, which reason is most likely?
• In the simple interest formula, the term of the loan is in ______.
• A loan designed to be used by parents to support a child’s education is called a:
• What is the process called when a lender takes possession of a property due to the owner's failure to make mortgage payments?
• Which mortgage allows smaller payments initially that gradually increase and then stabilize at a higher level?
• Available to students through government programs.
• Single premium whole life insurance is purchased with a single payment and provides instant cash value.
• If current assets are 200 and current liabilities are 120, what is the current ratio?
• This is the process of evaluating the credit worthiness of a credit applicant via the assessment of an applicant's credit report and the calculation of a credit score.
• According to the Gordon growth model, if a stock’s growth rate g increases while D1 and required return r stay the same, what happens to the stock price P0?
• Under Modigliani–Miller with taxes, how does debt affect firm value?
• What is the current ratio and how is it interpreted?
• Which statement best describes universal life in terms of death benefit and cash value?
• Which loan type is most commonly used for financing a vehicle?
• Which formula defines FCFE (free cash flow to equity)?
• Which term refers to a new debt payment plan designed to align payments with a debtor's regular income?
• What is the quick ratio (acid-test ratio)?
• Condense multiple periodic payments to creditors into single periodic payments that are usually less than the sum of the individual payments.
• What is the relationship between risk and return in the CAPM framework?
• Jensen's alpha measures portfolio performance relative to what?
• Term life insurance is best described as which type of coverage?
• If a stock has beta 1.5, what can be said about its expected return relative to the market according to CAPM?
• A perpetuity pays $50 per year with a discount rate of 6%. What is the present value?
• What is the difference between a forward contract and a futures contract?
• Which statement best describes the sum-of-the-digits method?
• Owning a home offers physical and psychological benefits. Which is a psychological benefit?
• What describes Macaulay duration?
• In the simple interest method, Fs represents which of the following?
• In the simple interest formula, the interest rate refers to which time period?
• Which term is defined as the plan under Chapter 13 of the U.S. Bankruptcy Code?
• Which settlement option is the most commonly selected for paying a death benefit?
• If a project has an internal rate of return (IRR) of 12% and the required return is 10%, what is the appropriate decision?
• The nonforfeiture provision in a whole life policy allows the policyholder to do which of the following if the policy is canceled?
• Which statement describes unsecured personal lines of credit?
• Which component is included in FCFE calculation?
• How is the break-even point in units calculated?
• These institutions are sometimes owned by companies that manufacture and sell expensive items, such as automobiles and appliances.
• Term policies provide a death benefit with no savings component.
• What can a buyer often take advantage of to reduce the purchase price, besides the negotiated price?
• If a bond has a par value of 500 and an annual coupon payment of 25, its coupon rate is
• True or False: Computing interest using the sum-of-the-digits method allocates more interest at the beginning of a loan than at the end.
• Which type of life insurance typically provides a large amount of coverage for a relatively low near-term premium, but has no cash value?
• Which option helps minimize both total cash outlay and opportunity costs when deciding between leasing and purchasing?
• A mortgage that allows a borrower to pay only the accrued interest on the mortgage loan for a specified period of time.
• Which type of life insurance is traditionally used as a savings vehicle due to its cash value growth and lifelong coverage?
• Which statement best distinguishes incremental cash flows from accounting profits?
• Which factors are required to compute the present value of an ordinary annuity?
• Which is the least common personal bankruptcy procedure?
• Which term is used to describe a repayment plan that aligns debt payments with a debtor's income?
• If a stock pays a $2 dividend next year, dividends grow at 5% forever, and the required return is 9%, what is the price using Gordon model?
• What is the effect of a higher receivables collection period on CCC?
• What is the loss in the value of an asset that occurs during the period of its ownership, calculated as the difference between purchase price and subsequent sale price?
• What term describes the legal agreement detailing the sale of an asset to a purchaser?
• What is a potential benefit of using a debit card?
• Which form of whole life provides the greatest death protection per premium dollar but the least savings?
• What is the purpose of a working capital policy?
• Which type of whole life policy is paid up after a set period but provides lifelong coverage?
• What is Jensen's alpha (portfolio alpha)?
• What is the defining payment pattern of continuous premium whole life?
• Which term describes a bank credit card that includes incentives such as rebates or airline tickets?
• Which debt repayment arrangement is defined in Chapter 13 of the U.S. Bankruptcy Code?
• Compared to the purchase rate, cash advances are generally what?
• Fs = Amount of Loan x Interest Rate x Term of Loan. In the simple interest method, what does Fs stand for?
• Universal life insurance is best described as a blend of which two types of life insurance?
• Which statement best describes a level payment loan?
• Which term best describes the overall process in which a user leases a vehicle, including the agreement and payment schedule?
• When evaluating mutually exclusive projects, which rule best guides decision-making?
• Credit can be great to have, but only as long as you __________.
• Which settlement option requires the insurance company to distribute the death benefit in a single payment to named beneficiaries?
• Which government-backed program provides mortgage insurance to lenders for loan-to-value ratios greater than 80%?
• A life insurance policy illustration is best described as which of the following?
• What is the debt tax shield and its effect on firm value?
• What is a real option in corporate finance?
• This form of open credit is secured by the borrower's home equity.
• You borrow $100,000 at 6% annual interest for 30 years with monthly payments. What is the monthly payment? (Assume monthly compounding; i = 0.06/12, n = 360)
• What is the term for an inducement to purchase that takes the form of a partial refund of a car's purchase price?
• Using a debit card without getting into trouble with it requires what?
• A project with initial outlay of $500,000 yields annual net cash inflows of $120,000 for 6 years. If the required return is 8%, what is the NPV?
• During the car-buying process, what should you verify at the dealership before signing the contract?