Principles of Finance – Exam 1, 2026 – Study Material and
Practice Questions
The success of financial institutions depends on _______________
a. the understanding of the factors that cause interest rates and other returns in the financial
markets to rise and fall
b. the environmentally responsible behavior of the shareholders of corporations
c. the expectations of long-term investors in the company
d. the awareness of the shareholders regarding the regulations that affect public corporations
e. the prior knowledge of the decisions that public corporations make concerning their cash
flows - ANS✔✔ a. the understanding of the factors that cause interest rates and other returns in
the financial markets to rise and fall
Which of the following is true of the investment function of finance?
a. the investment function focuses on socially responsible actions taken by corporations
b. the investment function focuses on the values, risks, and returns associated with financial
assets such as stocks and bonds
c. The investment function focuses on the optimal mix of securities based on the environment-
friendly behavior of the corporations
d. the investment function focuses on regulations applicable to a public corporation
e. the investment function focuses on additional information about the procedures used to
construct and report financial statements - ANS✔✔ b. the investment function focuses on the
values, risks, and returns associated with financial assets such as stocks and bonds
Financial services refer to functions provided by organizations that _____________
a. deal with the most efficient management of the human resources
b. ensure the regulations of the Sarbanes-Oxley Act are followed by public corporations
c. recommend the most environment friendly method of operations to a corporation
, d. recommend the types of securities to be issued to finance plant expansions
e. deal with the management of money - ANS✔✔ e. deal with the management of money
The transfer of a company is a key subordinate of the ____________
a. controller
b. financial vice president
c. chief executive officer
d. credit manager
e. director of capital budgeting - ANS✔✔ b. financial vice president
Which of the following statements is correct?
a. A hostile takeover is the primary method of transferring ownership interest in a corporation
b. the corporation is a legal entity created by the state and is a direct extension of the legal
status of its owners and managers, that is, the owners and managers are the corporation
c. Unlimited liability and limited life are 2 key advantages of the corporate form over other
forms of business organization
d. In part due to limited liability and ease of ownership transfer, corporations have less trouble
raising money in financial markets than other organizational forms
e. although stockholders of the corporation are insulated by limited legal liability, the legal
status of the corporation does not protect the firm's managers in the same way - ANS✔✔ d. In
part due to limited liability and ease of ownership transfer, corporations have less trouble
raising money in financial markets than other organizational forms
Which of the following statements is correct?
a. in a partnership, liability for other partners' misdeeds includes but is limited to the amount a
particular partner has invested in the business
b. Partnerships must be formed according to specific rules, which include filing of a formal
written agreement with state authorities where the partnership does business
Practice Questions
The success of financial institutions depends on _______________
a. the understanding of the factors that cause interest rates and other returns in the financial
markets to rise and fall
b. the environmentally responsible behavior of the shareholders of corporations
c. the expectations of long-term investors in the company
d. the awareness of the shareholders regarding the regulations that affect public corporations
e. the prior knowledge of the decisions that public corporations make concerning their cash
flows - ANS✔✔ a. the understanding of the factors that cause interest rates and other returns in
the financial markets to rise and fall
Which of the following is true of the investment function of finance?
a. the investment function focuses on socially responsible actions taken by corporations
b. the investment function focuses on the values, risks, and returns associated with financial
assets such as stocks and bonds
c. The investment function focuses on the optimal mix of securities based on the environment-
friendly behavior of the corporations
d. the investment function focuses on regulations applicable to a public corporation
e. the investment function focuses on additional information about the procedures used to
construct and report financial statements - ANS✔✔ b. the investment function focuses on the
values, risks, and returns associated with financial assets such as stocks and bonds
Financial services refer to functions provided by organizations that _____________
a. deal with the most efficient management of the human resources
b. ensure the regulations of the Sarbanes-Oxley Act are followed by public corporations
c. recommend the most environment friendly method of operations to a corporation
, d. recommend the types of securities to be issued to finance plant expansions
e. deal with the management of money - ANS✔✔ e. deal with the management of money
The transfer of a company is a key subordinate of the ____________
a. controller
b. financial vice president
c. chief executive officer
d. credit manager
e. director of capital budgeting - ANS✔✔ b. financial vice president
Which of the following statements is correct?
a. A hostile takeover is the primary method of transferring ownership interest in a corporation
b. the corporation is a legal entity created by the state and is a direct extension of the legal
status of its owners and managers, that is, the owners and managers are the corporation
c. Unlimited liability and limited life are 2 key advantages of the corporate form over other
forms of business organization
d. In part due to limited liability and ease of ownership transfer, corporations have less trouble
raising money in financial markets than other organizational forms
e. although stockholders of the corporation are insulated by limited legal liability, the legal
status of the corporation does not protect the firm's managers in the same way - ANS✔✔ d. In
part due to limited liability and ease of ownership transfer, corporations have less trouble
raising money in financial markets than other organizational forms
Which of the following statements is correct?
a. in a partnership, liability for other partners' misdeeds includes but is limited to the amount a
particular partner has invested in the business
b. Partnerships must be formed according to specific rules, which include filing of a formal
written agreement with state authorities where the partnership does business
