D076 Finance Skills for Managers - Set 1 - Part 1

Test your knowledge of technical writing concepts with these practice questions. Each question includes detailed explanations to help you understand the correct answers.

Question 1: Why would bondholders set bond contracts that are very strict to deter the company from taking on risky projects?

They want to earn higher returns

They want to ensure the company grows rapidly

Bondholders are primarily interested in ensuring repayment of their loan

They want to increase the company's debt

Question 2: Which kind of projects are bondholders interested in?

Risky projects that could yield high returns

Safe projects with a higher chance of providing compensation

Projects that involve taking on more debt

Short-term speculative projects

Question 3: What is the term for the percentage of the principal that a lender charges a borrower for the use of assets?

Interest rate

Dividend yield

Risk premium

Profit margin

Question 4: How is the interest rate expressed?

As a fraction

As a percentage

As a ratio

As a multiple

Question 5: What is the main purpose of charging interest?

It allows lenders to earn a profit

It helps borrowers reduce debt

It allows borrowers to use the assets of another entity to achieve their goals

It reduces inflation

Question 6: What is a component of the required rate of return?

Inflation

Risk

Opportunity cost

All of the above

Question 7: Why would a long-term investment require a higher rate of return?

There is greater risk involved and a higher opportunity cost

The project is risk-free

It involves less liquidity risk

It is more easily managed

Question 8: Why does an increased demand for goods and services cause inflation?

The supply increases

An increase in demand often causes an insufficient supply, leading to price increases

Workers request lower wages

Supply and demand are balanced

Question 9: What happens to prices in a market in which there is inflation?

Prices decrease

Prices stay the same

Prices rise

Prices fluctuate randomly

Question 10: What is the compensation for risk given to investors called?

Interest rate

Yield

Risk premium

Opportunity cost

Question 11: Which component of an interest rate indicates inflation and opportunity cost?

Nominal rate

Real rate

Risk-free rate

Dividend yield

Question 12: What does the CFO do?

Manages day-to-day operations

Oversees production decisions

Is responsible for all the financial decisions made by the firm

Handles legal matters for the firm

Question 13: Which task does a financial manager perform when assessing the costs and benefits of potential projects?

Making financing decisions

Managing working capital

Making investment decisions

Preparing financial statements

Question 14: Which financial career focuses on investing capital into firms whose shares are not currently sold on any public stock exchange?

Corporate finance

Investment banking

Private equity

Accounting

Question 15: Which task does a financial manager perform when choosing to obtain a loan to purchase a piece of equipment for a new project?

Making investment decisions

Managing working capital

Preparing financial statements

Making financing decisions

Question 16: What are the three most important types of securities?

Corporate bonds, Treasury bonds, and stocks

Bank loans, Treasury bonds, and mutual funds

Real estate, private equity, and corporate bonds

Corporate bonds, Treasury bonds, and derivatives

Question 17: Why does the SEC oversee financial markets?

To prevent companies from issuing too many shares

To manage the economy

To protect investors and ensure fair practices

To provide tax benefits

Question 18: What are the purposes of financial markets?

To create new types of currencies

To provide liquidity and determine prices

To regulate monetary policy

To issue loans to the public

Question 19: In which financial market are securities such as stocks and bonds traded after their initial issuance?

Primary market

Money market

Secondary market

Derivatives market

Question 20: What kind of market primarily allows institutions to borrow and lend in the short term?

Primary market

Money market

Stock market

Derivatives market

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