The principle of risk-return trade-off means that A) higher risk investments must earn higher returns. B) an investor who takes more risk will earn a higher return. C) an investor who bought stock in a small corporation five years ago has more money than an investor who bought U.S. Treasury bonds five years ago. D) […]
A rational investor would prefer to receive $1,200 today rather than $100 per month for 12 months. Indicate whether the statement is true or false ANSWER TRUE
In an ideal world, which of the following would be used to evaluate firm performance? A) accounting assets and profits B) book value of assets C) market value of assets D) corporate retained earnings from the day of incorporation ANSWER C
General Motors raises money by selling a new issue of common stock. This transaction occurs in A) the futures market. B) the capital market. C) the money market. D) the secondary market. ANSWER B
An investment earning simple interest is preferred over an investment earning compound interest because the simplicity adds value. Indicate whether the statement is true or false ANSWER FALSE
Common-sized balance sheets A) show each balance sheet account as a percentage of total assets. B) show each balance sheet account as a percentage of total sales. C) show data for companies in the same industry. D) show data for companies with approximately the same amount of assets. ANSWER A
Gross profit is equal to A) sales – cost of goods sold. B) earnings before taxes minus taxes payable. C) profits plus depreciation. D) revenues – expenses. ANSWER A
The increase in owners’ equity for a given period is equal to A) net income minus dividends. B) sales minus dividends. C) positive net cash flow minus dividends. D) gross profit minus distributions to shareholders. ANSWER A
All of the following are benefits of organized stock exchanges EXCEPT A) increased stock price volatility. B) fair security prices. C) easier access to new capital for business expansion. D) continuous markets. ANSWER A
The expected return on a riskless asset is greater than zero due to A) an expected return for taxes. B) an expected return for opportunity costs. C) an expected return for delaying consumption. D) irrational investors who believe risk is always present. ANSWER C
