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COB 300 Finance Exam 1 Study Guide with correct Answers
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COB 300 Finance Exam 1 Study Guide with correct Answers
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COB 300 Finance Exam 1 Study Guidewith correct Answers
Finance - Answers -the system that includes the circulation of money, the granting of
credit, the making of investments, and the provision of banking facilities
Financial Management (Corporate Finance) - Answers -focuses on decisions relating to
how much and what type of assets to acquire, how to raise the capital needed to
purchase assets, and how to run the firm as to maximize its value; same rules apply to
both for-profit and not-for-profit
Capital Markets - Answers -relate to the markets where interest rates, along with stock
and bond prices, are determined
Federal Reserve System - Answers -regulates banks and controls the supply of money
Securities and Exchange Commission (SEC) - Answers -regulates the trading of stock
and bonds in public markets
Investments - Answers -relate to decisions concerning stock and bonds and include a
number of activities
Security Analysis - Answers -deals with finding the proper value of individual securities
Portfolio Theory - Answers -deals with the best way to structure portfolios, or "baskets"
of stock and bonds
Market Analysis - Answers -deals with the issue of whether stock and bond markets at
any given time at too high, too low, or about right; has to do with behavioral finance
Behavioral Finance - Answers -where investor psychology is examined in an effort to
determine whether stock prices have been bid up to unreasonable heights in a
speculative bubble or driven down to unreasonable lows in a fit of irrational pessimism.
Hierarchy of Organizations - Answers -- Board of Directors
- CEO
- COO
- CFO
, COO - Answers -often the firm's president and directs the firm's operations: marketing,
manufacturing, sales, and other operating departments
CFO - Answers -senior vice president and is in charge of accounting, finance, credit
policy, decisions regarding asset acquisition, and investor relations which involves
communications with stockholders and the press
Sarbanes-Oxley Act of 2002 - Answers -provides sweeping new legal protection for
employees who report corporate misconduct
Defined Contribution Pension Plan - Answers -each year the company puts a specified
number of money into an account that belongs to the employee and the employee must
decide how this money is invested and how much risk they are willing to take
Four Main Forms of Business Organizations - Answers -1. proprietorships
2. partnerships
3. corporations
4. limited liability companies (LLCs) and limited liability partnerships (LLPs)
Proprietorships - Answers -unincorporated business owned by an individual
Advantages of Proprietorship - Answers -1. they are easy and inexpensive to form
2. they are subject to few government regulations
3. they are subject to lower income taxes than are corporations
Limitations of Proprietorship - Answers -Unlimited personal liability
Limited life
Transferring ownership is difficult
Difficult to raise capital
Partnership - Answers -A legal agreement between two or more people to be jointly
responsible for the success or failure of a business.
Advantages of Parnetship - Answers -easy to establish and inexpensive; firm's income
is allocated on a pro rata basis and is taxed individually so they can avoid corporate tax
Limitations of Partnership - Answers -unlimited personal liability, difficult to raise capital,
life is limited to owners' lives
Corporations - Answers -legal entity created by a state, and is separate and distinct
from its owners and managesr
Advantages of Corporations - Answers -ownership of corporations is easily transferable
and it rarely has any effect on the daily operations of the business
- unlimited life
- separation limits stockholders' losses to the amount they invested
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