Question

9. A firm's debt: a. Makes no legal promises of repayment. b. Makes the lender an owner of the firm. c. Is a legal obligation between a lender and the firm. d. Is represented by the shares of stock given to the lender.

10. Debt investors: a. Are promised a specific rate of return. b. Do not receive interest payments unless profits increase. c. Are given shares of stock in return for the money they invest. d. Share in the success of the firm.

11. The accuracy of a percentage of sales forecast depends upon: a. The accuracy of the sales forecast. b. The stability of the relationships between sales and the firm’s other accounts. c. Accurate identification of spontaneous and discretionary accounts. d. All of the above.

12. Pro-forma financial statements are: a. Financial statements that have been audited. b. Financial statements that do not balance. c. Projected financial statements. d. Competitive financial statements.

13. The Bretton Woods system fixed the rate of exchange of every currency to: a. The U.S. dollar. b. The British pound. c. The Japanese yen. d. Each other.

14. In any any given period of time, a nation’s “balance of payments” is: a. Its imports minus its exports. b. The amount of foreign investment coming into the country. c. The amount of gold it gains or loses. d. The difference between its money inflows and outflows. any given period of time, a nation’s “balance of payments” is:

15. A foreign exchange rate is: a. The price of a dollar in the U.S. b. The price of a unit of currency. c. The price of a unit of currency in terms of another currency. d. The price of trading with foreign nations.

16. The risk that a borrower will be unable to make payments on a loan is: a. Default risk. b. Interest-rate risk. c. Reinvestment risk. d. Call risk.

17. The risk that rising interest rates will reduce security values is: a. Default risk. b. Interest-rate risk. c. Reinvestment risk. d. Marketability risk.

18. The risk that low interest rates will provide poor investment opportunities when previous investments mature is: a. Default risk. b. Interest-rate risk. c. Reinvestment risk. d. Call risk.

19. The risk premium compensates investors for: a. Foreign exchange. b. Changing interest rates. c. Exposure to inflation. d. Assuming the risks of the investment.

Answer 1

The answers are as follows:

Answer to question 12 is :

Pro forma financial statements are:

c. Projected Financial Statements

as pro forma is a method by which firms calculate financial results using some estmates and projections.