Overview Of Finance: Trivia Questions Quiz

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  • 1/23 Questions

    For a publicly owned firm like GE, management's primary goal should be to maximize the wealth of its stockholders, which means maximizing the long-run value of the stock.

    • True
    • False
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About This Quiz


Overview of finance: trivia questions quiz. Finance is a pretty wide field to study as it surrounds assessing different projects and their viability, finding sources for investment funds and ensuring you follow every transaction is documented to ensure the firms growth. By taking this quiz you will get to test out just how much you know about some basic finance facts. Do give it a shot and see how well you do!

Overview Of Finance: Trivia Questions Quiz - Quiz

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  • 2. 

    A key task of a firm's board of directors is to make sure that managers work for stockholders, not for themselves.

    • True

    • False

    Correct Answer
    A. True
    Explanation
    The board of directors plays a crucial role in ensuring that managers prioritize the interests of stockholders over their own. They are responsible for overseeing the management team and making strategic decisions that align with the company's goals and maximize shareholder value. By providing guidance, monitoring performance, and holding managers accountable, the board ensures that the company's resources are used in the best interest of the stockholders.

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  • 3. 

    The board of directors is at the top of a corporation's organization chart, and it is headed by the chairman of the board. The firm's managers report to the board.

    • True

    • False

    Correct Answer
    A. True
    Explanation
    The statement is true because the board of directors is indeed at the top of a corporation's organization chart. They are responsible for making important decisions and setting the overall direction of the company. The chairman of the board is the highest-ranking member of the board and typically leads board meetings. The firm's managers, who are responsible for day-to-day operations, report to the board and are accountable to them.

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  • 4. 

    The decision function of financial management can be broken down into the  _____ decisions.

    • Financing and investment

    • Investment, financing, and asset management

    • Financing and dividend

    • Capital budgeting, cash management, and credit management

    Correct Answer
    A. Investment, financing, and asset management
    Explanation
    The decision function of financial management involves making decisions related to investment, financing, and asset management. Investment decisions involve determining where to allocate funds and how to generate returns. Financing decisions involve determining how to obtain the necessary funds to support investments and operations. Asset management decisions involve managing and optimizing the use of assets to generate maximum value. These three decisions are crucial for effective financial management and play a significant role in the overall success of a company.

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  • 5. 

    Managerial compensation plans often provide executives with options to buy the firm's stock at a set price. The plan can either allow executives to exercise all of their options on one specific date or else have a fraction of them be exercisable in each of saying the next 5 years. Staggering the exercise dates will have a tendency to increase unethical behavior. 

    • True

    • False

    Correct Answer
    A. True
    Explanation
    Staggering the exercise dates of executive stock options can increase unethical behavior. This is because when executives have the option to exercise their options over a period of time, they may be tempted to engage in unethical practices to manipulate the stock price in their favor. By spreading out the exercise dates, executives have more opportunities to potentially manipulate the stock price to their advantage, which can lead to unethical behavior.

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  • 6. 

    If a company practices "good business ethics," then it will treat its customers, employees, and stockholders "fairly," and this will cause it to have a good reputation. Such behavior may increase costs and thus hurt profits in the short run, but this is often offset by long-run benefits in the form of customer loyalty, more dedicated employees, and stockholders who will support management in the event of a downturn in the business. 

    • True

    • False

    Correct Answer
    A. True
    Explanation
    The explanation for the given correct answer is that practicing good business ethics, which includes treating customers, employees, and stockholders fairly, can lead to a good reputation for the company. This good reputation can result in long-term benefits such as customer loyalty, dedicated employees, and stockholders who will support management during tough times. Although there may be short-term costs associated with this behavior, the long-term benefits usually outweigh them. Therefore, it can be concluded that the statement is true.

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  • 7. 

    All large, publicly-owned corporations are "C Corporations," and they must pay corporate income taxes. Their after-tax income is taxed again when it is passed on to investors in the form of dividends, and this is called "double taxation." However, double taxation can be avoided provided a firm is small enough and has 75 or fewer stockholders, as it can then qualify as an S Corporation. As a result, most small corporations are S rather than C Corporations. True or false?

    • True

    • False

    Correct Answer
    A. True
    Explanation
    Large, publicly-owned corporations are classified as "C Corporations" and are subject to corporate income taxes. This means that their after-tax income is taxed again when it is distributed to investors as dividends, resulting in double taxation. However, if a corporation is small enough and has 75 or fewer stockholders, it can qualify as an "S Corporation" and avoid double taxation. As a result, most small corporations choose to be S Corporations. Therefore, the statement that most small corporations are S rather than C Corporations is true.

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  • 8. 

    Although managers are supposed to try to maximize the prices of their firms' over the long run, some managers are apparently more interested in maximizing the stock price on the date when their options can be exercised. Stockholders, working through firms' boards of directors, should design compensation plans that minimize such behavior. 

    • True

    • False

    Correct Answer
    A. True
    Explanation
    Some managers prioritize maximizing the stock price on the date when their options can be exercised, rather than maximizing the long-term prices of their firms. Stockholders should design compensation plans that discourage this behavior.

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  • 9. 

    The primary focus of all executives is their stockholders' well-being, which means trying to maximize the long-run price of the stock. Therefore, top managers never try to get compensation packages that are "too high," and they never seek unnecessary perks such as the use of private jets or vacation homes for personal business. Therefore, stockholders don't need to be concerned about the levels of executives' pay and other benefits. 

    • True

    • False

    Correct Answer
    A. True
    Explanation
    Executives' primary focus is the well-being of stockholders, which involves maximizing the long-run price of the stock. This implies that executives do not seek excessive compensation or unnecessary perks, such as the use of private jets or vacation homes for personal business. Therefore, stockholders do not need to worry about executives' pay and benefits.

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  • 10. 

    No one can be sure what's going to happen to any firm in the future. Therefore, all publicly-owned companies have about the same degree of risk. 

    • True

    • False

    Correct Answer
    A. True
    Explanation
    The explanation for the given correct answer is that since no one can accurately predict the future of any firm, all publicly-owned companies are subject to the same level of risk. This is because external factors such as market conditions, competition, and economic changes can impact any company regardless of its size or industry. Therefore, it is true that all publicly-owned companies have about the same degree of risk.

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  • 11. 

    A(n) would be an example of a principle a(n) __________ would be example of an agent.

    • Shareholder; manager

    • Manager; owner

    • Accountant; bondholder

    • Shareholder; bondholder

    Correct Answer
    A. Shareholder; manager
    Explanation
    In this question, the correct answer is "shareholder; manager". A shareholder is an example of a principle, as they own a portion of a company's stock. On the other hand, a manager is an example of an agent, as they are responsible for making decisions and carrying out tasks on behalf of the company and its shareholders.

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  • 12. 

    The decision function of financial management can be broken down into the _____ decisions.

    • Financing and investment

    • Investment, financing, and asset management

    • Financing and dividend

    • Capital budgeting, cash management, and credit management

    Correct Answer
    A. Investment, financing, and asset management
    Explanation
    The decision function of financial management involves making decisions related to investment, financing, and asset management. Investment decisions involve determining how to allocate funds to different investment opportunities. Financing decisions involve determining the best way to raise funds for the business, such as through debt or equity financing. Asset management decisions involve managing the company's assets, such as inventory, accounts receivable, and fixed assets, to optimize their value and ensure efficient use.

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  • 13. 

    ___________ refers to meeting the needs of the present without compromising the ability of future generations to meet their own needs.

    • Corporate Social Responsibility (CSR)

    • Sustainability

    • Convergence

    • Green Economics

    Correct Answer
    A. Sustainability
    Explanation
    Sustainability refers to meeting the needs of the present without compromising the ability of future generations to meet their own needs. It involves finding a balance between economic development, social progress, and environmental protection. By adopting sustainable practices, businesses and individuals can ensure that resources are used efficiently, waste is minimized, and the environment is protected for future generations. Sustainability is a long-term approach that focuses on creating a better future for all.

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  • 14. 

    The focal point of financial management in a firm is:

    • The number and types of products or services provided by the firm

    • The minimization of the amount of taxes paid by the firm.

    • The creation of value for shareholders.

    • The dollars profits earned by the firm

    Correct Answer
    A. The creation of value for shareholders.
    Explanation
    The focal point of financial management in a firm is the creation of value for shareholders. Financial management involves making decisions and taking actions that aim to maximize the wealth of shareholders. This includes strategies such as optimizing the firm's capital structure, managing cash flows, and making investment decisions that generate positive returns. By focusing on creating value for shareholders, the firm aims to increase its stock price and provide a return on investment to its owners. This is a fundamental objective of financial management.

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  • 15. 

    Shareholder wealth" in a firm is represented by

    • The number of people employed in the firm

    • The book value of the firm's assets less the book value of its liabilities.

    • The amount of salary paid to its employees.

    • The market price per share of the firm's common stock.

    Correct Answer
    A. The book value of the firm's assets less the book value of its liabilities.
    Explanation
    Shareholder wealth in a firm is represented by the book value of the firm's assets less the book value of its liabilities. This is because the book value of a firm's assets represents the total value of its resources, while the book value of its liabilities represents the total amount of its debts. The difference between these two values indicates the net worth of the firm, which directly affects the wealth of its shareholders. The number of people employed in the firm and the amount of salary paid to its employees are not directly related to shareholder wealth. The market price per share of the firm's common stock can fluctuate and may not accurately reflect the true value of the firm.

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  • 16. 

    Most large businesses go through "life cycles," beginning as corporations, then converting to partnerships, and finally ending up as sole proprietorships, where one individual owns the entire firm. 

    • True

    • False

    Correct Answer
    A. False
    Explanation
    Large businesses do not typically go through a cycle of converting from corporations to partnerships and then ending up as sole proprietorships. In fact, it is more common for businesses to start as sole proprietorships or partnerships and then, as they grow, convert to corporations to take advantage of the benefits and protections that come with that legal structure. Therefore, the statement is false.

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  • 17. 

    The controller's responsibilities are primarily_____ in nature, while the treasurer's responsibilities are primarily related to

    • Operational; financial management

    • Financial management; accounting

    • Accounting; financial management

    • Financial management; operations

    Correct Answer
    A. Accounting; financial management
    Explanation
    The controller's responsibilities are primarily related to accounting, which involves tasks such as preparing financial statements, analyzing financial data, and ensuring compliance with financial regulations. On the other hand, the treasurer's responsibilities are primarily related to financial management, which includes tasks such as managing the company's cash flow, making investment decisions, and developing financial strategies.

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  • 18. 

    Stocks have market prices, and they also have intrinsic values. If the market price is below the intrinsic value as estimated by marginal investors, and if the intrinsic value remains stable in the future, then there will be a tendency for the stock's price to fall over time. 

    • True

    • False

    Correct Answer
    A. False
    Explanation
    If the market price is below the intrinsic value as estimated by marginal investors, and if the intrinsic value remains stable in the future, then there will be a tendency for the stock's price to fall over time. This statement is false because if the market price is below the intrinsic value, there will be a tendency for the stock's price to rise over time as investors recognize the undervaluation and buy the stock, driving up its price.

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  • 19. 

    The long-run objective of financial management is to:

    • Maximize earnings per share.

    • Maximize the value of the firm's common stock.

    • Maximize return on investment.

    • Maximize market share.

    Correct Answer
    A. Maximize the value of the firm's common stock.
    Explanation
    The long-run objective of financial management is to maximize the value of the firm's common stock. This means that the ultimate goal of financial management is to increase the overall value and wealth of the shareholders. By focusing on maximizing the value of the firm's common stock, financial managers aim to make strategic decisions that will increase the profitability and growth potential of the company, ultimately benefiting the shareholders. This objective takes into consideration the long-term sustainability and success of the firm, rather than short-term profitability or market share.

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  • 20. 

    The market price of a share of common stock is determined by:

    • The board of directors of the firm.

    • The stock exchange on which the stock is listed.

    • The president of the company

    • Individuals buying and selling the stock

    Correct Answer
    A. Individuals buying and selling the stock
    Explanation
    The market price of a share of common stock is determined by individuals buying and selling the stock. The price is influenced by supply and demand dynamics in the market, as buyers and sellers negotiate and agree on a price for the shares. Factors such as investor sentiment, company performance, economic conditions, and market trends all play a role in shaping the buying and selling decisions of individuals, which ultimately determine the stock's market price. The board of directors, stock exchange, and president of the company may have some influence on the stock's value indirectly, but they do not directly determine the market price.

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  • 21. 

    What are the earnings per share (EPS) for a company that earned $100,000 last year in after-tax profits, has 200,000 common shares outstanding, and $1.2 million in retained earnings at the year-end?

    • $100,000

    • $6.00

    • $0.50

    • $6.50

    Correct Answer
    A. $0.50
    Explanation
    The earnings per share (EPS) is calculated by dividing the after-tax profits by the number of common shares outstanding. In this case, the company earned $100,000 in after-tax profits and has 200,000 common shares outstanding. Therefore, the EPS would be $100,000 divided by 200,000, which equals $0.50.

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  • 22. 

    In recent years there has been a decreased emphasis on corporate ethics and governmental oversight. This is because, after the Enron and WorldCom debacles, stockholders are sure that the managers of publicly-owned companies will always be scrupulously honest in their dealings with their stockholders.

    • True

    • False

    Correct Answer
    A. False
    Explanation
    The explanation for the given correct answer (False) is that the statement contradicts itself. It claims that there has been a decreased emphasis on corporate ethics and governmental oversight, but then states that stockholders are sure that managers will always be honest. This implies that there is still an emphasis on ethics and oversight, which contradicts the initial claim. Therefore, the answer is false.

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  • 23. 

    In the US,______ has been given the power to adopt auditing, quality control, ethics, and disclosure standards for public companies and their auditors as well as investigate and discipline those involved.

    • American Institute of Certified Public Accountants (AICPA)

    • Financial Accounting Standards Board (FASB)

    • Public Company Accounting Oversight Board (PCAOB)

    • Securities and Exchange Commission (SEC)

    Correct Answer
    A. Public Company Accounting Oversight Board (PCAOB)
    Explanation
    The Public Company Accounting Oversight Board (PCAOB) has been given the power to adopt auditing, quality control, ethics, and disclosure standards for public companies and their auditors as well as investigate and discipline those involved. The PCAOB was established by the Sarbanes-Oxley Act of 2002 in response to accounting scandals such as Enron and WorldCom. Its main purpose is to protect investors and ensure the integrity of financial reporting by public companies. The AICPA is a professional organization for certified public accountants, the FASB is responsible for setting accounting standards, and the SEC is a government agency that oversees the securities industry.

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  • Current Version
  • Mar 21, 2023
    Quiz Edited by
    ProProfs Editorial Team
  • Jan 16, 2013
    Quiz Created by
    Newtonies
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