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US CMA Part 2 Financial Management and Securities Markets — practice questions — page 2

Explore 75 free Financial Management and Securities Markets questions in US CMA Part 2 Financial Management. Open each question or exercise to read its content, reference answers and available explanation.

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Financial Management and Securities Markets questions and exercises with answers

Showing questions 31–60 of 75.

What happens to a firm's accounts receivable in factoring?Read the answer and worked solution →A basic principle of finance matches the term of the financing to what?Read the answer and worked solution →What is the major advantage of debt financing?Read the answer and worked solution →What is the financial risk that debt financing brings?Read the answer and worked solution →What are the three important forms of long-term debt?Read the answer and worked solution →What maturities do term loans generally carry?Read the answer and worked solution →A bond issuer owes the buyer which two payments?Read the answer and worked solution →What is a mortgage loan?Read the answer and worked solution →What does common stock represent?Read the answer and worked solution →What is an initial public offering?Read the answer and worked solution →Which is a genuine drawback of going public?Read the answer and worked solution →Which three sources supply a firm with equity financing?Read the answer and worked solution →What usually happens to the value of each share after a stock dividend is paid?Read the answer and worked solution →What advantage do retained earnings hold over other sources of equity capital?Read the answer and worked solution →How does a preferred stock dividend differ from a common stock dividend?Read the answer and worked solution →Why is preferred stock more expensive for the issuing firm than debt financing?Read the answer and worked solution →What do venture capitalists take in return for backing a new business?Read the answer and worked solution →What share of the companies that apply do most venture capitalists actually finance?Read the answer and worked solution →What do securities represent to the person holding them?Read the answer and worked solution →Institutional investors account for about what share of the dollar volume of equities traded?Read the answer and worked solution →In which market does the issuer of a security receive the proceeds of the sale?Read the answer and worked solution →What is traded in the secondary market?Read the answer and worked solution →What is underwriting, the main activity of the investment banker?Read the answer and worked solution →What name is given to an unsecured corporate bond?Read the answer and worked solution →How much more than high-quality corporate bonds do junk bonds generally earn?Read the answer and worked solution →How is the interest earned on U.S. government securities taxed?Read the answer and worked solution →Which two agencies are named as the largest and best known assigners of bond ratings?Read the answer and worked solution →Which rating marks the lowest grade still considered investment quality?Read the answer and worked solution →What does a mutual fund do with the money its investors put in?Read the answer and worked solution →For an investor with only $1,000, what is the main appeal of a mutual fund?Read the answer and worked solution →

Worked practice questions

What happens to a firm's accounts receivable in factoring?

  1. They are sold outright at a discount
  2. They are pledged while the firm keeps them
  3. They are bought back from its own customers
  4. They are converted into shares of common stock
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Correct answer: A. They are sold outright at a discount

1. In factoring, a firm sells its accounts receivable outright to a factor. 2. The factor is a financial institution, often a commercial bank or commercial finance company, that buys receivables at a discount. 3. Because the sale is outright, ownership passes to the factor rather than the receivables merely being pledged. 4. Factoring is more expensive than a bank loan, precisely because the factor buys the receivables below their actual value. 5. It is widely used in the clothing, furniture and appliance industries. 6. Pledging receivables while keeping them describes the other route, a secured loan backed by receivables as collateral. _Source: OpenStax Introduction to Business (CC BY 4.0), Ch 16 "Understanding Financial Management and Securities Markets", section 16.3 Obtaining Short-Term Financing_

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A basic principle of finance matches the term of the financing to what?

  1. The credit rating held by the borrowing firm
  2. The period over which benefits are received
  3. The dividend the firm expects to pay owners
  4. The tax rate that applies to the firm's profit
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Correct answer: B. The period over which benefits are received

1. The principle is to match the term of the financing to the period over which benefits are expected from the associated outlay. 2. Short-term items should be financed with short-term funds. 3. Long-term items should be financed with long-term funds. 4. That is why a factory bought for decades of use is not funded by 90-day commercial paper, however cheap the rate looks. _Source: OpenStax Introduction to Business (CC BY 4.0), Ch 16 "Understanding Financial Management and Securities Markets", section 16.4 Raising Long-Term Financing_

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What is the major advantage of debt financing?

  1. Dividends on it are deductible from income
  2. Interest on it is deductible for tax purposes
  3. Lenders gain a vote in how the firm is run
  4. It never has to be repaid to the lender
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Correct answer: B. Interest on it is deductible for tax purposes

1. The major advantage of debt financing is that interest expense is deductible for income tax purposes, which lowers its overall cost. 2. There is also no loss of ownership, since creditors typically have no say in management unless the borrower defaults. 3. Dividends are not deductible, so the first option attaches a debt benefit to equity. 4. Debt has a stated maturity and requires repayment of principal by a specified date, so it certainly must be repaid. _Source: OpenStax Introduction to Business (CC BY 4.0), Ch 16 "Understanding Financial Management and Securities Markets", section 16.4 Raising Long-Term Financing_

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