Exam (elaborations)
D076 TEST QUESTIONS AND ANSWERS
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D076 TEST QUESTIONS AND ANSWERS
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D076 TESTQUESTIONS
AND ANSWERS
In which way is accounting different from finance?
Accounting is backward looking, while finance is focused on the future.
Accounting is focused on allocating capital, while finance is focused on bringing in
capital.
Accounting is about budgeting, saving, and borrowing, while finance is about investing,
forecasting, and lending. - answer- Accounting is backward looking, while finance is
focused on the future.
What is the main question that both individuals and companies must consider when
making financial decisions to reach a goal?
Will the benefits of the action outweigh the costs?
Will this decision require debt or equity financing?
Will utility be maximized through this decision? - answer- Will the benefits of the action
outweigh the costs?
A financial manager at a company is trying to determine whether to issue new stocks or
new bonds to cover the costs of a project the company is doing the next year.
Which main task in business finance is this situation an example of?
Making financing decisions
Making investment decisions
Managing interdepartmental loans - answer- Making financing decisions
How can investing help a person reach personal financial goals?
It provides access to potential revenue or increases in value to help meet goals faster.
It ensures money is placed in a safe, risk-free, and easily accessible financial asset.
, It helps a person understand how money was spent previously in order to reliably
predict future expenses. - answer- It provides access to potential revenue or increases
in value to help meet goals faster.
A sign company is planning to have an initial public offering (IPO). In which type of
market will its stock first be sold to the public?
Efficient market
Secondary market
Money market
Primary market - answer- Primary market
Which type of economic indicator changes after the economy changes and helps
identify trends in the long term?
Yield curve indicator
Leading indicator
Coincident indicator
Lagging indicator - answer- Lagging indicator
How does an investment institution, such as a mutual fund, facilitate the circulation of
money in the economy?
By insuring deposits in investment accounts up to $250,000 to promote public
confidence
By raising capital on a contractual basis, such as an insurance contract
By providing individuals and firms access to financial markets to buy or sell financial
securities - answer- By providing individuals and firms access to financial markets to
buy or sell financial securities
Which type of economic indicator is used by governments and policymakers to
implement or alter policies in an effort to avoid or minimize the effects of an economic
downturn?
Correlated indicator
Coincident indicator
Lagging indicator
Leading indicator - answer- Leading indicator
What should a potential bondholder (lender) do to prevent a company (borrower) from
taking on risky projects?
Set strict covenants that the company cannot uphold if it chooses a risky project
Encourage manipulation of accounting procedures to optimize the company's profit
Separate owners from management so their interests do not conflict - answer- Set strict
covenants that the company cannot uphold if it chooses a risky project
Which factor contributes to the inflation of the prices of goods and services over time?
Increase in demand for goods and services
Decrease in costs of production
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