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Finance Multiple Choice Questions

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1.    Suppose the risk-free nominal interest rate on a one-year Canadian Treasury bill (T-bill) is 6% per year, and the expected rate of inflation is 4% per year. what is the expected real rate of return on the T-bill?
a)    2.91%
b)    -1.92%
c)    1.92%
d)    1.89%
e)    None of the above

2.    If a firm`s total assets turnover ratio is 3.0, its
a.    Total assets are 1/6 times its annual sales.
b.  total assets are 3 times its annual sales.
c. annual sales are 3 times its total assets.
d.  annual sales are 1/2 times its total assets.
e. none of the above.

3.    Using the percent-of-sales method, which of the following variables are assumed to increase proportionately with sales?
    a) accounts payable
    b) accounts receieveable
    c) cash
    d) all of the above
    e) none of the above

4. which of the following is the correct  representation of the cash cycle time?
    a) cash cycle time = inventory period + payable period
    b) cash cycle time = inventory period - recieveable period
    c) cash cycle time = receivable period +payable period
    d) cash cycle time = inventory period + recieveable period - payable period
    e) none of the above

5. what is the effective annual rate on certificate of deposit that has a nominal rate of 11.5% with interest compounded quarterly?
    a) 11.50%
    b) 10.90%
    c) 12.01%
    d) 13.13%
    e) none of the above

6. a major problem encountered when using the internal rate of return is that
    a) there may be multiple cash outflows and multiple cash inflows.
    b) the internal rate of return may not exist.
    c) the internal rate of return may not be unique.
    d) all of the above
    e) none of the above

7. in ten years you wish to own your business. How much will you have in your bank account at the end of the ten years if you deposit $300 each quarter? assume end of the period deposits and assume that the account is paying an interest rate of 12% compounded quarterly.
    a) $230,127.30
    b) $30,000.00
    c) $23,298.91
    d) $22,620.38
    e) none of the above

8. the net present value (NPV) of an invest ment represents the amount by which the investment is expected to ______________________shareholder wealth.
    a) Provide zero change to
    b) decrease
    c) increase
    d) provide zero change to or decrease
    e) none of the above

9. the relationship between NPV and IRR (internal rate of return) is such that
    a) both approaches always provide the same ranking of alternative investment projects.
    b) the IRR of a project is equal to the firm's cost of capital if the NPV of project is $0
    c) if the NPV of a project is negative, the IRR must be greater than the cost of capital.
    d) the NPV of a project and the IRR of a project are unrelated.
    e) none of the above.

10. the ___________________is the proposition that an asset's current price fully reflects all publicly-available information about future economic fundamentals affecting the asset's value.
    a) public markets hypothesis
    b) efficient markets exchange rates
    c) fundamental value proposition
    d)efficient markets hypothesis
    e) none of the above
The answers to the multiple choice questions are highlighted in the solution document. All the answers are verified and are found to be correct.
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