Financial Management Quiz

Financial Management Quiz

• The quiz has 15 multiple-choice questions.
• The quiz is 60 minutes long.
• Students are to avoid all forms of academic dishonesty.
• Penalties for academic dishonesty include expulsion, suspension, failing grade, etc.

Section A

• There are 10 multiple-choice questions in this section.
• Each question is worth 1 mark.
• The questions are presented in a multiple-choice format.

Question 1

• A partnership can have lower tax rates than a corporation because personal tax rates are lower than corporate tax rates.
• Incorporating a business can be more advantageous than setting up a partnership when the business generates high profits.
• Unlimited life and unlimited liabilities are not advantages of a partnership.
• A limited liability company is a hybrid of a partnership and a corporation.
• Maximizing stock price is a financial goal of management, but it does not justify cutting off Research and Development expenses.

Question 2

• The balance sheet provides information about a company’s assets, liabilities, and equity.
• Stockholders’ equity in the balance sheet reflects both initial capital and retained earnings.
• Interest expenses are generally deductible for corporations.
• Dividend payments to shareholders in a financial year can reduce the company's corporate tax payments.
• Double taxation applies to corporations as a company's profits are taxed at the corporate level, and then dividends paid to shareholders are taxed again at the individual level.

Question 3

• The account that pays 12% nominal interest with daily compounding provides the highest effective annual return.
• The more frequent the compounding, the higher the effective annual return.

Question 4

• An IPO involves a company offering shares to the general public, which may or may not involve listing those shares on a stock exchange.
• Oversubscribed is the term used for an IPO where exceeding demand is higher than the company's supply.
• An IPO can involve a company raising new capital or not.
• The company can choose to list its shares in the Capital Market, or in the Money Market, in an IPO.
• A company must meet specific criteria to qualify for an IPO on a stock exchange.
• A company does not have discretion on whether to list shares on a stock exchange, as listing requirements must be met to qualify.

Factors Affecting Bond Value

• Increased credit rating: A higher credit rating indicates a lower risk of default for SIA, making its bonds more attractive to investors, leading to a higher value.
• Larger bond issuance secured by fixed assets: While a large issuance could dilute the value of existing bonds, securing it with SIA's fixed assets increases its collateral, making the bond more secure and valuable.
• Parallel upward shift in the Singapore government yield curve: This means that interest rates on government bonds are rising, making them more attractive than SIA bonds. As a result, the value of SIA bonds would likely decrease.

Statement Correctness about Financial Investments

• Risk-averse investors: While it's true that risk-averse investors prefer lower-risk investments, a financial advisor should help clients understand the potential benefits and risks of various asset classes and develop a portfolio aligned with their risk tolerance.
• Diversification benefits: Diversification reduces risk by not putting all eggs in one basket. Stocks with positive correlation to an existing portfolio (even if less than perfect) can still diversify risk by reducing the overall portfolio's volatility.
• Expected return of a portfolio: When stocks in a portfolio have less than perfect correlation, the expected return of the portfolio is not simply a weighted average of individual stock returns. The portfolio's overall risk and return will be affected by interactions between the investments.
• Beta of a risk-free asset and market portfolio: The beta of a risk-free asset is indeed zero, reflecting its lack of market risk. The market portfolio's beta is 1, representing the average market risk.
• Market risk premium: The market risk premium, which reflects the additional return investors expect for taking on market risk, is always positive. A negative market risk premium would suggest investors are willing to accept lower returns for taking on market risk, which is illogical.

This quiz covers essential concepts in financial management, including partnerships, corporations, and financial goals of management. Each section tests your understanding of the key principles that govern financial decision-making within businesses. Prepare yourself for 15 multiple-choice questions that will challenge your knowledge and analytical skills.