D076 Finance Skills for Managers - Set 3 - 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: What type of interest rate is used to describe the rate at which invested money grows for a specific period?

Nominal interest rate

Real interest rate

Risk-free rate

Compound interest rate

Question 2: What is the risk premium in finance?

The compensation investors receive for taking on higher risk

The interest rate set by the central bank

The return expected on a government bond

The cost of borrowing funds

Question 3: What is a callable bond?

A bond that can be converted into equity

A bond that pays no interest until maturity

A bond that the issuer can redeem before maturity

A bond issued at a discount

Question 4: Which of the following is an example of a leading economic indicator?

Unemployment rate

Yield curve

Gross domestic product (GDP)

Consumer spending

Question 5: What is the role of the Federal Reserve in the U.S. economy?

To set prices for goods and services

To regulate inflation and unemployment through monetary policy

To manage the federal budget

To establish fiscal policy for the government

Question 6: Which financial market deals with short-term borrowing and lending of liquid assets?

Money market

Capital market

Derivatives market

Equity market

Question 7: What is the term for a series of equal payments made at the end of consecutive periods over a fixed length of time?

Perpetuity

Annuity

Balloon payment

Amortization

Question 8: Which of the following describes a perpetuity?

A bond that pays interest only at maturity

A series of equal payments that continue indefinitely

A loan with variable interest payments

A financial asset with a fixed term

Question 9: What does the quick ratio measure?

A company's ability to pay off long-term debt

A company’s liquidity without considering inventory

The ratio of total assets to total liabilities

The efficiency of a company in using its assets to generate revenue

Question 10: What does the DuPont framework break down?

Profit margin, return on equity, and earnings per share

Return on assets, return on equity, and profit margin

Profit margin, asset turnover, and financial leverage

Dividend payout, profit margin, and cost of capital

Question 11: Which account is considered a spontaneous account that varies with sales growth?

Long-term debt

Accounts payable

Retained earnings

Fixed assets

Question 12: What is the primary goal of capital budgeting?

To increase shareholder value by selecting the most profitable projects

To minimize tax liabilities

To ensure compliance with regulations

To maximize a company's market share

Question 13: What is the profitability index (PI) used for in capital budgeting?

To compare the size of different projects

To evaluate the relative profitability of a project

To determine the internal rate of return of a project

To calculate the payback period of a project

Question 14: What is the internal rate of return (IRR) in project valuation?

The rate at which the NPV of a project is zero

The return on equity generated by a project

The interest rate paid on a loan

The expected return from investing in government bonds

Question 15: A firm is considering a project with a PI of 0.85. What does this indicate about the project?

The project is highly profitable

The project should be accepted

The project will generate cash flows 15% short of the initial investment

The project will return more than its initial investment

Question 16: What is a sustainable growth rate (SGR)?

The rate of return required by investors

The growth rate that allows a firm to maintain its current financial ratios

The maximum rate a company can grow without external financing

The rate of inflation adjusted for economic conditions

Question 17: How can a firm reduce its discretionary financing needed (DFN)?

By increasing dividend payouts

By decreasing the profit margin

By increasing net margin

By issuing new equity

Question 18: What is the formula for return on assets (ROA)?

Net income / Total equity

Net income / Total assets

Operating income / Sales

Operating income / Total liabilities

Question 19: What is the purpose of financial forecasting?

To manage day-to-day operations

To predict future cash flows and financing needs

To create budgets for marketing expenses

To measure past financial performance

Question 20: What is the purpose of budgeting in financial management?

To forecast future earnings

To allocate resources efficiently

To determine how a firm will repay its loans

To compare past and present financial performance

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