Accredited Test Bank Solution –
Intermediate Financial Management
Study Guide 2026 Latest Version Exam
prep
Identify the self-assessment test that each statements describes. - ANSWER-529 plan
Jeff wants to open a basic savings account. - ANSWER-a commercial bank, a credit
union
Match the financial institutions with the features. - ANSWER-...
Match each feature with the savings account type - ANSWER-allows money transfers,
allows ATM withdraws
offers a higher interest rate, has a maturity date
Which would be the best retirement savings option - ANSWER-401K
The FDIC ruled that a company - ANSWER-a fine
What are high-risk loans? - ANSWER-loans that are given to consumers with bad credit
What is a minimum balance when it comes to account requirement? - ANSWER-
minimum dollar amount that can be in an account
Which is the best investment option for a person who wants to make a long-term, tax
free investment? - ANSWER-Roth IRA
The 8 basic facts about financial structure - ANSWER-1. Stocks are only small sources
of external financing
2. Issuing marketable debt and securities is not the main way corporations get financing
3. Indirect finance is more important than direct
4. Financial intermediaries, especially banks, are most important for external funds
5. Financial system is heavily regulated
6. Only large established corporations have access to securities markets
7. Collateral is prevalent in debt contracts
8. Debt contracts are complicated and have restrictions on borrower behavior
,Which of the following is not one of the eight basic facts about financial structure? -
ANSWER-New security issues are the most important source of external funds to
finance businesses.
Which of the following is not one of the eight basic facts about financial structure? -
ANSWER-Issuing marketable securities is the primary way businesses finance their
operations.
Banks providing depositors with checking accounts that enable them to pay their bills
easily is known as - ANSWER-liquidity services.
Financial intermediaries - ANSWER-Are involved in the process of indirect finance
exist because there are substantial information and transaction costs in the economy
improve the lot of the small saver
The presence of transaction costs in financial markets explains, in part, why -
ANSWER-financial intermediaries and indirect finance play such an important role in
financial markets.
Financial intermediaries can substantially reduce transaction costs per dollar of
transactions because their large size allows them to take advantage of - ANSWER-
economies of scale
The presence of ________ in financial markets leads to adverse selection and moral
hazard problems that interfere with the efficient functioning of financial markets. -
ANSWER-asymmetric information
When the potential borrowers who are the most likely to default are the ones most
actively seeking a loan, ________ is said to exist. - ANSWER-adverse selection
When the borrower engages in activities that make it less likely that the loan will be
repaid, ________ is said to exist. - ANSWER-moral hazard
Successful financial intermediaries have higher earnings on their investments because
they are better equipped than individuals to screen out good from bad risks, thereby
reducing losses due to - ANSWER-adverse selection.
In financial markets, lenders typically have inferior information about potential returns
and risks associated with any investment project. This difference in information is called
- ANSWER-asymmetric information
A financial intermediary's risk-sharing activities are also referred to as asset
transformation. - ANSWER-true
The process of financial intermediation is also known as direct finance. - ANSWER-false
,A financial institution can achieve cost savings in its credit card operations if it increases
the number of cardholders. This is an example of economies of - ANSWER-scale
If borrowers take on big risks after obtaining a loan, then lenders face the problem of -
ANSWER-moral hazard
The problem created by asymmetric information before the transaction occurs is called
________, while the problem created after the transaction occurs is called ________. -
ANSWER-adverse selection; moral hazard
The problem of adverse selection helps to explain - ANSWER-why firms are more likely
to obtain funds from banks and other financial intermediaries, rather than from securities
markets And
why borrowers are willing to offer collateral to secure their promises to repay loans.
why banks have a comparative advantage in raising funds for American businesses.
why banks prefer to make loans secured by collateral.
Moral hazard in equity contracts is known as the ________ problem because the
manager of the firm has fewer incentives to maximize profits than the stockholders
might ideally prefer. - ANSWER-principal-agent
The principal-agent problem - ANSWER-would not arise if the owners of the firm had
complete information about the activities of the managers.
The problem of adverse selection helps to explain why direct finance is more important
than indirect finance as a source of business finance. - ANSWER-false
A mutual fund is not a depository institution. - ANSWER-true
Property and casualty insurance companies are what type of intermediary? - ANSWER-
Contractual savings institution
Which of the following financial intermediaries are depository institutions? - ANSWER-
Credit union, commercial bank, savings and loan association
Which of the following is a contractual savings institution? - ANSWER-A life insurance
company
The largest depository institution (in terms of asset value) is - ANSWER-commercial
banks.
An important financial institution that assists in the initial sale of securities in the primary
market is the - ANSWER-investment bank.
Which of the following is not an investment intermediary? - ANSWER-pension funds
, Which of the following are reported as liabilities on a bank's balance sheet? - ANSWER-
checkable deposits
When you deposit $50 in the First National Bank, - ANSWER-its assets increase by
$50, its liabilities increase by $50, and its reserves increase by$50
Cash in the process of collection is - ANSWER-checks that the bank is owed but has
not yet collected.
Interest-bearing retail accounts with limited checking features designed to compete with
money market mutual fund investments are called - ANSWER-MMDAs
The AU ratio measures the bank's ability to ________ and the PM ratio measures the
bank's ability to ________. - ANSWER-generate income from assets; control expenses
The lower the interest expense ratio, the provision for loan loss ratio, the noninterest
expense ratio, and the tax ratio the ________ the ________. - ANSWER-higher; PM
The largest source of income at a typical bank is - ANSWER-interest income on loans
and leases.
Which of the following is not an off-balance sheet activity? - ANSWER-consumer loans
Which of the following assets are used to increase a bank's liquidity position? -
ANSWER-Treasury securities
Loans - ANSWER-Earn the highest return of all bank assets, provide most of the bank's
revenues, are the largest category of bank assets
A(n) ________ is a contra-asset account. - ANSWER-allowance for loan and lease
losses
Return on Assets (ROA) - ANSWER-Net Income/Total Assets
Return on Equity (ROE) - ANSWER-Net Income/Total Equity
Net Income - ANSWER-[Interest Income-interest expense-P + Net investment income-
Net investment expense] x (1-t)
Total op income-interest expense-provision for loan losses- noninterest expense-
income taxes
Profit Margin Ratio - ANSWER-net income/ interest + noninterest income
Income before taxes and extraordinary items (EBTEI) - ANSWER-net interest income-
provision for loan losses+ noninterest income - noninterest expense
Intermediate Financial Management
Study Guide 2026 Latest Version Exam
prep
Identify the self-assessment test that each statements describes. - ANSWER-529 plan
Jeff wants to open a basic savings account. - ANSWER-a commercial bank, a credit
union
Match the financial institutions with the features. - ANSWER-...
Match each feature with the savings account type - ANSWER-allows money transfers,
allows ATM withdraws
offers a higher interest rate, has a maturity date
Which would be the best retirement savings option - ANSWER-401K
The FDIC ruled that a company - ANSWER-a fine
What are high-risk loans? - ANSWER-loans that are given to consumers with bad credit
What is a minimum balance when it comes to account requirement? - ANSWER-
minimum dollar amount that can be in an account
Which is the best investment option for a person who wants to make a long-term, tax
free investment? - ANSWER-Roth IRA
The 8 basic facts about financial structure - ANSWER-1. Stocks are only small sources
of external financing
2. Issuing marketable debt and securities is not the main way corporations get financing
3. Indirect finance is more important than direct
4. Financial intermediaries, especially banks, are most important for external funds
5. Financial system is heavily regulated
6. Only large established corporations have access to securities markets
7. Collateral is prevalent in debt contracts
8. Debt contracts are complicated and have restrictions on borrower behavior
,Which of the following is not one of the eight basic facts about financial structure? -
ANSWER-New security issues are the most important source of external funds to
finance businesses.
Which of the following is not one of the eight basic facts about financial structure? -
ANSWER-Issuing marketable securities is the primary way businesses finance their
operations.
Banks providing depositors with checking accounts that enable them to pay their bills
easily is known as - ANSWER-liquidity services.
Financial intermediaries - ANSWER-Are involved in the process of indirect finance
exist because there are substantial information and transaction costs in the economy
improve the lot of the small saver
The presence of transaction costs in financial markets explains, in part, why -
ANSWER-financial intermediaries and indirect finance play such an important role in
financial markets.
Financial intermediaries can substantially reduce transaction costs per dollar of
transactions because their large size allows them to take advantage of - ANSWER-
economies of scale
The presence of ________ in financial markets leads to adverse selection and moral
hazard problems that interfere with the efficient functioning of financial markets. -
ANSWER-asymmetric information
When the potential borrowers who are the most likely to default are the ones most
actively seeking a loan, ________ is said to exist. - ANSWER-adverse selection
When the borrower engages in activities that make it less likely that the loan will be
repaid, ________ is said to exist. - ANSWER-moral hazard
Successful financial intermediaries have higher earnings on their investments because
they are better equipped than individuals to screen out good from bad risks, thereby
reducing losses due to - ANSWER-adverse selection.
In financial markets, lenders typically have inferior information about potential returns
and risks associated with any investment project. This difference in information is called
- ANSWER-asymmetric information
A financial intermediary's risk-sharing activities are also referred to as asset
transformation. - ANSWER-true
The process of financial intermediation is also known as direct finance. - ANSWER-false
,A financial institution can achieve cost savings in its credit card operations if it increases
the number of cardholders. This is an example of economies of - ANSWER-scale
If borrowers take on big risks after obtaining a loan, then lenders face the problem of -
ANSWER-moral hazard
The problem created by asymmetric information before the transaction occurs is called
________, while the problem created after the transaction occurs is called ________. -
ANSWER-adverse selection; moral hazard
The problem of adverse selection helps to explain - ANSWER-why firms are more likely
to obtain funds from banks and other financial intermediaries, rather than from securities
markets And
why borrowers are willing to offer collateral to secure their promises to repay loans.
why banks have a comparative advantage in raising funds for American businesses.
why banks prefer to make loans secured by collateral.
Moral hazard in equity contracts is known as the ________ problem because the
manager of the firm has fewer incentives to maximize profits than the stockholders
might ideally prefer. - ANSWER-principal-agent
The principal-agent problem - ANSWER-would not arise if the owners of the firm had
complete information about the activities of the managers.
The problem of adverse selection helps to explain why direct finance is more important
than indirect finance as a source of business finance. - ANSWER-false
A mutual fund is not a depository institution. - ANSWER-true
Property and casualty insurance companies are what type of intermediary? - ANSWER-
Contractual savings institution
Which of the following financial intermediaries are depository institutions? - ANSWER-
Credit union, commercial bank, savings and loan association
Which of the following is a contractual savings institution? - ANSWER-A life insurance
company
The largest depository institution (in terms of asset value) is - ANSWER-commercial
banks.
An important financial institution that assists in the initial sale of securities in the primary
market is the - ANSWER-investment bank.
Which of the following is not an investment intermediary? - ANSWER-pension funds
, Which of the following are reported as liabilities on a bank's balance sheet? - ANSWER-
checkable deposits
When you deposit $50 in the First National Bank, - ANSWER-its assets increase by
$50, its liabilities increase by $50, and its reserves increase by$50
Cash in the process of collection is - ANSWER-checks that the bank is owed but has
not yet collected.
Interest-bearing retail accounts with limited checking features designed to compete with
money market mutual fund investments are called - ANSWER-MMDAs
The AU ratio measures the bank's ability to ________ and the PM ratio measures the
bank's ability to ________. - ANSWER-generate income from assets; control expenses
The lower the interest expense ratio, the provision for loan loss ratio, the noninterest
expense ratio, and the tax ratio the ________ the ________. - ANSWER-higher; PM
The largest source of income at a typical bank is - ANSWER-interest income on loans
and leases.
Which of the following is not an off-balance sheet activity? - ANSWER-consumer loans
Which of the following assets are used to increase a bank's liquidity position? -
ANSWER-Treasury securities
Loans - ANSWER-Earn the highest return of all bank assets, provide most of the bank's
revenues, are the largest category of bank assets
A(n) ________ is a contra-asset account. - ANSWER-allowance for loan and lease
losses
Return on Assets (ROA) - ANSWER-Net Income/Total Assets
Return on Equity (ROE) - ANSWER-Net Income/Total Equity
Net Income - ANSWER-[Interest Income-interest expense-P + Net investment income-
Net investment expense] x (1-t)
Total op income-interest expense-provision for loan losses- noninterest expense-
income taxes
Profit Margin Ratio - ANSWER-net income/ interest + noninterest income
Income before taxes and extraordinary items (EBTEI) - ANSWER-net interest income-
provision for loan losses+ noninterest income - noninterest expense
