Quiz: Basic Finance Trivia Questions!

19 Questions | Total Attempts: 1043

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Quiz: Basic Finance Trivia Questions! - Quiz

What do you know about basic finance, and do you think you can pass this quiz? One of the most fundamental concepts of finance is the time value of money. Everything in finances depends upon it. According to the time value of money, the money which we have in hand today is worth more than the same amount any day past today. If you want to learn more about basic finances, look no further than this quiz.


Questions and Answers
  • 1. 
    The date on which the board authorizes the dividend is the  A) declaration date.  B) distribution date.  C) record date.  D) ex-dividend date. 
    • A. 

      A

    • B. 

      B

    • C. 

      C

    • D. 

      D

  • 2. 
    The firm will pay the dividend to all shareholders who are registered owners on a specific date, set by the board, called the  A)declaration date.  B)record date.  C)distribution date.  D) ex-dividend date. 
    • A. 

      A

    • B. 

      B

    • C. 

      C

    • D. 

      D

  • 3. 
    Anyone who purchases the stock on or after the ________ date will not receive the dividend.  A) distribution  B) record  C) ex-dividend  D) declaration  
    • A. 

      A

    • B. 

      B

    • C. 

      C

    • D. 

      D

  • 4. 
    The firm mails dividend checks to the registered shareholders on the  A) ex-dividend date.  B) declaration date.  C) distribution date.  D) record date. 
    • A. 

      A

    • B. 

      B

    • C. 

      C

    • D. 

      D

  • 5. 
    Which of the following statements is false?  A) From an accounting perspective, dividends generally reduce the firm’s current (or accumulated) retained earnings.  B) The way a firm chooses between paying dividends and retaining earnings is referred to as its payout policy.  C) Most companies that pay dividends pay them semi-annually.  D) Occasionally, a firm may pay a one-time, special dividend that is usually much larger than a regular dividend. 
    • A. 

      A

    • B. 

      B

    • C. 

      C

    • D. 

      D

  • 6. 
    A firm can repurchase shares through a(n) ________ in which it offers to buy shares at a prespecified price during a short time period–generally within 20 days.  A) tender offer   B) open market share repurchases  C) targeted repurchase  D) Dutch auction share repurchase 
    • A. 

      A

    • B. 

      B

    • C. 

      C

    • D. 

      D

  • 7. 
    Another to a method to repurchase shares is the ________, in which the firm lists different prices at which it is prepared to buy shares, and shareholders, in turn, indicate how many shares they are willing to sell at each price.  A) tender offer   B) Dutch auction share repurchase  C) targeted repurchase  D) open market share repurchases 
    • A. 

      A

    • B. 

      B

    • C. 

      C

    • D. 

      D

  • 8. 
    A(n) ________ may occur if a major shareholder desires to sell a large number of shares but the market for the shares is not sufficiently liquid to sustain such a large sale without severely affecting the price.  A)open market share repurchases  B)Dutch auction share repurchase  C)tender offer   D)targeted repurchase 
    • A. 

      A

    • B. 

      B

    • C. 

      C

    • D. 

      D

  • 9. 
    A(n) ________ is the most common way that firms repurchase shares.  A) targeted repurchase  B) Dutch auction share repurchase  C) tender offer   D) open market share repurchases 
    • A. 

      A

    • B. 

      B

    • C. 

      C

    • D. 

      D

  • 10. 
    Which of the following statements is false?  A) In perfect capital markets, holding fixed the investment policy of a firm, the firm’s choice of dividend policy is irrelevant and does not affect the initial share price.  B) In a perfect capital market, when a dividend is paid, the share price drops by the amount of the dividend when the stock begins to trade ex-dividend.  C) In perfect capital markets, an open market share repurchase has no effect on the stock price, and the stock price is the same as the ex-dividend price if a dividend were paid instead.  D) In perfect capital markets, investors are indifferent between the firm distributing funds via dividends or share repurchases. By reinvesting dividends or selling shares, they can replicate either payout method on their own. 
    • A. 

      A

    • B. 

      B

    • C. 

      C

    • D. 

      D

  • 11. 
    Which of the following statements is false?  A) Unlike with capital structure, taxes are not an important market imperfection that influence a firm's decision to pay dividends or repurchase shares.  B) If dividends are taxed at a higher rate than capital gains, which has been true until the most recent change to the tax code, shareholders will prefer share repurchases to dividends.  C) Shareholders typically must pay taxes on the dividends they receive. They must also pay capital gains taxes when they sell their shares.  D) But because long-term investors can defer the capital gains tax until they sell, there is still a tax advantage for share repurchases over dividends. 
    • A. 

      A

    • B. 

      B

    • C. 

      C

    • D. 

      D

  • 12. 
    Which of the following statements is false?  A) When a firm pays a dividend, shareholders are taxed according to the dividend tax rate. If the firm repurchases shares instead, and shareholders sell shares to create a homemade dividend, the homemade dividend will be taxed according to the capital gains tax rate.  B) When the tax rate on dividends exceeds the tax rate on capital gains, shareholders will pay lower taxes if a firm uses share repurchases for all payouts rather than dividends.  C) Firms that use dividends will have to pay a lower after-tax return to offer their investors the same pre-tax return as firms that use share repurchases.  D) The optimal dividend policy when the dividend tax rate exceeds the capital gain tax rate is to pay no dividends at all. 
    • A. 

      A

    • B. 

      B

    • C. 

      C

    • D. 

      D

  • 13. 
    Which of the following statements is false?  A) Tax rates vary by income, by jurisdiction, and by whether the stock is held in a retirement account. Because of these differences, firms may attract different groups of investors depending on their dividend policy.  B) While many investors have a tax preference for share repurchases rather than dividends, the strength of that preference depends on the difference between the dividend tax rate and the capital gains tax rate that they face.  C) Long-term investors are more heavily taxed on capital gains, so they would prefer dividend payments to share repurchases.  D) One-year investors, pension funds, and other non-taxed investors have no tax preference for share repurchases over dividends, they would prefer a payout policy that most closely matches their cash needs. 
    • A. 

      A

    • B. 

      B

    • C. 

      C

    • D. 

      D

  • 14. 
    Which of the following statements is false?  A) Individuals in the highest tax brackets have a preference for stocks that pay high dividends, whereas tax-free investors and corporations have a preference for stocks with no or low dividends.  B) To compare investor preferences, we must quantify the combined effects of dividend and capital gains taxes to determine an effective dividend tax rate for an investor.  C) The dividend-capture theory states that absent transaction costs, investors can trade shares at the time of the dividend so that non-taxed investors receive the dividend.  D) Differences in tax preferences create clientele effects, in which the dividend policy of a firm is optimized for the tax preference of its investor clientele. 
    • A. 

      A

    • B. 

      B

    • C. 

      C

    • D. 

      D

  • 15. 
    Which of the following statements is false?  A) In perfect capital markets, buying and selling securities is a zero-NPV transaction, so it should not affect firm value.  B) Making positive-NPV investments will create value for the firm’s investors, whereas saving the cash or paying it out will not.  C) In perfect capital markets, if a firm invests excess cash flows in financial securities, the firm’s choice of payout versus retention is irrelevant and does not affect the initial share price.  D) After adjusting for investor taxes, there remains a substantial tax advantage for the firm to retain excess cash. 
    • A. 

      A

    • B. 

      B

    • C. 

      C

    • D. 

      D

  • 16. 
    Which of the following statements is false?  A) A firm must therefore balance the tax costs of holding cash with the potential benefits of having to raise external funds in the future.  B) Paying out excess cash through dividends or share repurchases can boost the stock price by reducing managers’ ability and temptation to waste resources.  C) If there is a reasonable likelihood that future earnings will be insufficient to fund future positive-NPV investment opportunities, a firm may start accumulating cash to make up the difference.  D) According to the managerial entrenchment theory of payout policy, managers pay out cash only when pressured to do so by the firm’s investors. 
    • A. 

      A

    • B. 

      B

    • C. 

      C

    • D. 

      D

  • 17. 
    Which of the following statements is false?  A) If firms smooth dividends, the firm’s dividend choice will contain information regarding management’s expectations of future earnings.  B) Because of the increasing popularity of repurchases, firms cut dividends much more frequently than they increase them.  C) Announcing a share repurchase today does not necessarily represent a long-term commitment to repurchase shares.  D) While cutting the dividend is costly for managers in terms of their reputation and the reaction of investors, it is by no means as costly as failing to make debt payments. 
    • A. 

      A

    • B. 

      B

    • C. 

      C

    • D. 

      D

  • 18. 
    Which of the following statements is false?  A) Managers are much less committed to dividend payments than to share repurchases.  B) Share repurchases are a credible signal that the shares are under-priced, because if they are over-priced a share repurchase is costly for current shareholders.  C) While an increase of a firm’s dividend may signal management’s optimism regarding its future cash flows, it might also signal a lack of investment opportunities.  D) Managers will clearly be more likely to repurchase shares if they believe the stock to be under-valued. 
    • A. 

      A

    • B. 

      B

    • C. 

      C

    • D. 

      D

  • 19. 
    Which of the following statements is false?  A) With a stock dividend, a firm does not pay out any cash to shareholders. As a result, the total market value of the firm’s assets and liabilities, and therefore of its equity, is unchanged.  B) If the price of the stock falls too low, a company can engage in a reverse split and reduce the number of shares outstanding.  C) Stock dividends of 50% or higher are generally referred to as stock splits.  D) Rather than pay a dividend using cash or shares of its own stock, a firm can also distribute shares of a subsidiary in a transaction referred to as a off-shoot. 
    • A. 

      A

    • B. 

      B

    • C. 

      C

    • D. 

      D

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