Finance test
Finance Mastery Quiz
Test your knowledge of finance concepts and practices in this engaging quiz. Whether you're a student, a finance professional, or simply interested in financial literacy, this quiz covers essential topics like capital budgeting, risk assessment, and valuation methods.
Features:
- Multiple-choice questions to challenge your understanding
- Covering a range of finance topics
- Immediate feedback on your answers
To create economic value, it's only necessary that a firm create positive accounting profits
True
False
One Advantage of the NPV method for capital budgeting rather than the discounted payback period meothod is that the NPV method ________. Choose the best answer from the option below
Considers all cash flows
Considers the time value of money
Does not require a computer or calculator to calculate
Does not require knowing the cost of capital
Is more intuitive
If a firm's return on equity is less than the discount rate, then an increase in retention of earnings will ________ firm value since reinvested capital earns __________ than the cost of capital
Increase, less
Decrease, more
Decrease, less
Increase, more
Consider both Statements: Statement 1. If the IRR of a project is equal to the firm's cost of capital the NPV of the project will be zero. Statement 2. A mix of future positive and negative cash flows may result in multiple NPVs
Only Statement 1 is true
Only Statement 2 is True
Both Statements are True
Both Statements are False
When the inflation rate is increasing, the spread between nominal rates and real rates will increases
True
False
For an investor in US companies which of the following risks can be mitigated through portfolio diversification?
An unexpected entry of a competitor
An unexpected increase in long-term interest rates
Changes in monetary or fiscal policy
An unexpected decline in value of the US dollar
A natural disaster
Compared to Junk Bonds (CCC), Investment Grade Bonds (AAA) typically offer _____ yields because they are _______ risky.
Higher, more
Higher, less
Lower, more
Lower, less
Assuming the Market Risk Premium is constant, if the Federal Reserve increases the Risk-Free Rate, which of the following will be true regarding the Cost of Equity according to CAPM: CAPM = Capital Asset Pricing Model which is the model used to calculate the cost of equity
Cost of equity will decrease for all companies
Cost of Equity will increase for all companies
Cost of Equity will increase for some companies, but decrease for others depending on their Betas
Cost of Equity will not change as a result of monetary policies
A firm with a Beta of 1.2 is
More likely to be impacted by a new competitor to their industry
Less sensitive to economy wide risk factors such as long-term interest rates
Expected to return 1/2 times the overall market return over the next year
More sensitive to economy-wide risk factors such as long-term interest rates
Beta measures
Market risk
Firm Risk
Total risk
Default risk
BOGUS QUESTION: None of these answers are correct
Which firm valuation method uses a discount for liquidity to arrive at a market value for a private firm
NPV Method
EBITDA Mutiples Method
Comparables Method
The CAPM Model
None of the above are correct answers
Which one of these applies to the dividend growth model of stock valuation
The dividend must be for the same time period as the stock price
The growth rate must be less than the discount rate
The rate of growth must be positive
The rate of growth must be positive
Qthe model cannot be applied if the growth rate is zero
The dividend amount must be constant over time
Consider both Statements. Statement 1. Discounting an investment's annual economic value added cash flow stream is equivalent to calculating the investment's NPV. Statement 2. There is a positive correlation between Economic profits (EVA) and stock prices.
Only Statement 1 is True
Only Statement 2 is True
Both Statements are True
Both Statements are false
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