BUSINESS FINANCE (ABM 12)

Summative Test 1
ANSWER KEY

I. MULTIPLE CHOICE (10 pts)

Direction: Encircle the correct answer.
1. The charging interest rate r based on a principal P over T number of years is called
.
a. Finance b. Simple Interest c. Business
2. Refers to the target (amount and/or quantity) set by management.
a. Sales b. Budget c. Sales Budget
3. Responsible for making the decisions for the company that would lead towards
shareholders’ wealth maximization.
a. Manager b. CEO c. President
4.  Considered to be the expensive goal of the firm.
a. Maximization of Shareholders’ Wealth
b. Valuation Approach
c. Social responsibility
5. The amount of working capital a business needs to invest in inventory assets.
a. Sales Budget b. Production Budget c. Inventory Budget
6. The interest in the first compounding period is added on the principal, which will then be
the basis for the interest to be computed for the next period.
a. Compound Interest b. Compounding Frequency c. Simple Interest
7.  Refers to the amount of cash that is to be reported in the projected balance sheet.
a. Cash Budget b. Purchases Budget c. Sales Budget
8. The highest policy making body in a corporation.
a. Shareholders b. CEO c. Board of Directors
9. Refers to any medium of exchange that a bank will accept for deposit at face value.
a. Coins b. Cash c. Cheque
10. Include all of a firm’s inflows of cash in a given financial period.
a. Cash budgeting b. Cash receipts c. Cash disbursement
II. IDENTIFICATION (15 pts)
Direction: Choose the correct answer inside the box below and write it on the
space provided.
1. A placement of capital in expectation of deriving income or profit from its use
 or appreciation.
Investment
2.  Refers to any medium of exchange that a bank will accept for deposit at face value.
Cash
3. The amount you have to invest today if you want to have a certain amount of cash flow in
the future.
Present value
4. A stream of equal periodic cash flows over a specified period.
Annuity
5. Defined as the science and art of managing money.
Finance
6. One of his/her role is performing all areas of management: planning, organizing, staffing,
directing and controlling.
President (Chief Executive Officer)
7. A loan with scheduled periodic payments that consists of both principal and interest.
Amortized loan
 8.  The lending of money to another party in exchange for repayment.
Loan
9. Security pledged for payment of the loan.
Collateral
10. This is the simplest method used in capital budgeting. It measures the amount of time,
usually in years, to recover the initial investment.
Payback method
11. A return on investment over a period. It could be profit or loss. It is basically a
percentage of the amount above or below the investment amount.
Rate of return
12. A debt scheduled to be paid within a year.
Short-term loan
13. To determine the appropriate capital structure of the company and to raise funds from
debt & equity.
Financing
14.  Refers to the quantity of raw materials to be purchased.
Purchases budget
15. Deal with the daily operations of the company.
Operating decisions
III. MATCHING TYPE (5 pts)
Direction: Match column A with the correct answer on column B, write the
letter on the space provided before the number.
COLUMN A COLUMN B
________ 1. Should be supported by a capital a. Financial
budgeting analysis which is among the responsibilities planning
of a finance manager. Long term investment b. Long term
________ 2. A step in capital budgeting proposals for investment
capital expenditure come from different levels within a c. Valuation
business organization. Investment proposal approach
________ 3. Refers to the quantity of units to be d. Social
produced/ manufactured. Production budget responsibility
________ 4. Financial satisfaction is the result of an e. Production
organized process that is commonly referred to as budget
_______. Financial planning f. Investment
_______ 5. The main goal of financial management is proposal
to maximize not profit alone, but the maximization of
overall value of the firm. Valuation Approach

IV. ESSAY (10 pts)

Direction: Read the passage carefully and plan what you will say. Write your
answer at the back or use yellow paper.
1. As a future business owner, what are your financial and life goals?
2. Why is financial management important in a company or firm?
 BUSINESS FINANCE (ABM 12)
Summative Test 2
ANSWER KEY
I. MULTIPLE CHOICE
Direction: Encircle the correct answer.
1. Money placed into a banking institution for safekeeping.
a. Bank account b. Bank deposit c. Savings account
2. Debt investments where an investor loans money to an entity which borrows the funds for
a defined period of time at a variable or commonly, fixed interest rate.
a. Bonds b. Loan c. Interest
3. The interest in the first compounding period is added on the principal, which will then be
the basis for the interest to be computed for the next period.
a. Compound interest b. Simple interest c. Bank interest
4. The number of times interest is computed on a certain principal in one year.
a. Present value b. Single amount c. Compounding frequency
5. An investment that is made up of a pool of funds collected from many investors for the
purposes of investing in stocks, bonds, and similar assets.
a. Unit Investment Trust Fund b. Trust Fund c. Mutual Fund
6. A basic good used in commerce that is interchangeable with other commodities of the
same type (example; gold, oil)
a. Commodities b. Real estate c. Currencies
7. General increase in prices.
a. Hedge b. Inflation c. Liquidity
8. A scenario when a single cash outflow is made and the total receipts will be at a single
future date. 
a. Single amount b. Lump sum c. Annuity
9. It is the process of evaluating and selecting long-term investments that are consistent with
the firm’s goal of maximizing owners’ wealth.
a. Long-term investment b. Capital Budgeting c. Financial budgeting
10. An asset or item acquired with the goal of generating income or appreciation.
a. Investment b. Financial c. Unit Investment Trust Fund

II. TRUE OR FALSE

Direction: Write T if the statement is correct and F if it is not. Write your
answer on the blank.
_______ 1. The debtor must invest within his means. F
_______ 2. The margin trading allows clients to trade more than their capital. It can magnify
both earnings and losses. T
_______ 3. Real estate are the land and any improvements on it” (i.e., land, house and lot,
condominiums). T
_______ 4. Mutual funds are debt investments where an investor loans money to an entity which
borrows the funds for a defined period of time at a variable or commonly, fixed interest rate. F
_______ 5. Savings account earns interest but not that significant, but the most common among
individuals. T
_______ 6. Short-term loan is a loan with scheduled periodic payments that consists of both
principal and interest. F
_______ 7.  Ordinary annuity is a cash flow occurs at the beginning of each period. F
_______ 8. Simple interest is interest in the first compounding period is added on the principal,
which will then be the basis for the interest to be computed for the next period. F
_______ 9. Stocks are type of security that signifies ownership in a corporation and represents a
claim on part of the corporation’s assets and earning. T
_______ 10. Investment opportunities should be grabbed only when you have extra resources. T
 III. MATCHING TYPE
Direction: Match the advantage and disadvantage in column A with the different
types of investments in column B by writing the capital letter on the blank.
COLUMN A COLUMN B
________ 1. Riskiest of all assets (can lose even more than a. Unit Investment
50% of their money in one day) STOCKS Trust Fund
________ 2. No shareholder rights for investors such as b. Insurance
dividends and voting rights. UNIT INVESTMENT Trust c. Bonds
Fund (UITF) d. Stocks
________ 3. Known income based on outstanding principal e. Bank Deposits
and current interest rate. BANK DEPOSITS f. Currencies
________ 4. Largest market in the world in terms of trading
volume, so much liquidity. CURRENCIES
________ 5. On some of traditional insurance plans, no
sickness/death until a certain age may mean not getting any
benefits at all (that’s why VUL’s are now very prevalent).
INSURANCE

IV. JUMBLED WORDS

Directions: Arrange the jumbled letters to find the hidden word describe below.
Write your answer on the blank.
1. T A E D B I S N O K P (2 words) – bank deposits
2. I E D S I D N D V – DIVIDENDS
3. D E H G E – HEDGE
4. L V U- VUL
5. V E T T N I E M N S-INVESTMENT
6. M I S I M C O D O T E-COMMODITIES
7. F D T U S U A N U L M (2 words)- MUTUAL FUNDS
8. I T E I S S P E M L N R E T (2 words) -simple interest
9. N U Y A N I T- ANNUITY
10. O G N M I R N O T I-MONITORING

1. Money placed into a banking institution for safekeeping.

2. Distribution of the company’s income to its shareholders.

3. Investment that reduces the risk of adverse price movement in an asset.

4. Variable Universal Life Insurance or a life insurance that offers both death benefit and
 investment features.
5. An asset or item acquired with the goal of generating income or appreciation.

6. A basic good used in commerce that is interchangeable with other commodities of the
same type.
7. An investment that is made up of a pool of funds collected from many investors for the
purposes of investing in stocks, bonds, and similar assets.

8. The charging interest rate r based on a principal P over T number of years.

9. A periodic stream of equal cash flow at equal time intervals (annually, monthly, etc.).
 10. Results are monitored and actual cost and benefits are compared with those that were
expected.

V. ESSAY
Direction: Read the passage carefully and plan what you will say. Write your
answer at the back or use yellow paper.

Based in your own understanding, explain why investments require additional risk-
taking.