financial markets correct answers financial institutions connecting providers with users
financial analysis correct answers a tool used to evaluate risky opportunities
proprietorship correct answers A form of business organization with one owner who takes all the risks and all the profits.
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FINC 5133: mid-term study || very Flawless.
financial markets correct answers financial institutions connecting providers with users
financial analysis correct answers a tool used to evaluate risky opportunities
proprietorship correct answers A form of business organization with one owner who takes all the
risks and all the profits.
partnership correct answers a business owned by two or more people
limited partnership correct answers A partnership with one or more general partners and one or
more limited partners.
limited partners correct answers lose only the amount of their investment in the partnership
general partners correct answers have unlimited liability and participate in the management of
the partnership
limited liability partnership (LLP) correct answers All partners have the right to participate in the
management and have limited liability for company debts
corporation correct answers a legal entity crated under state laws, and it is separate and distinct
from its owners and managers
corporation charter correct answers includes the name of the proposed corporation, types of
activities it will pursue, amount of capital stock, number of directors, and names and addresses of
directors. It is filed with the secretary of the state in which the firm will be incorporated.
bylaws correct answers A set of governing rules adopted by a corporation or other association.
professional corporation (PC) correct answers A corporation formed by licensed professionals,
such as lawyers or physicians. The liability of shareholders is often limited to the amount of their
investments.
S corporation correct answers a corporation who elects to be taxed as if the business were a
proprietorship or partnership if the corporation meets certain requirements regarding size and
number of stockholders
closely held stock correct answers restricting the number and type of investors who can buy
stock and cannot be subsequently sold to the general public
Security and Exchange Commission (SEC) correct answers U.S. government agency that
oversees securities transactions, activities of financial professionals and mutual fund trading to
prevent fraud and intentional deception.
,prostectus correct answers relevant information about a company to investors and regulators
New York Stock Exchange (NYSE) correct answers The largest exchange in the world when
measured by the market value of its listed stocks, and is the oldest registered stock exchange in
the US
Free Cash Flow (FCF) correct answers FCF equals sales revenue MINUS operating costs
MINUS operating taxes MINUS required investments in new operating capital. It represents the
amount of cash flow available to investors (creditors and owners) after the firm has met all
operating needs and paid for investments in net fixed assets and net current assets
Weighted Average Cost of Capital (WACC) correct answers expected rate of return on a
portfolio of all the firm's securities, adjusted for tax savings due to interest payments
fundamental value correct answers also called intrinsic value. the expected future free cash flows
and the cost of capital incorporate all relevant information. If investors have all relevant
information, the market price should equal to the intrinsic value
Benefit Corporation (B Corp) correct answers legally committed to both creating profits for
shareholders and creating value for employees, communities, and the environment as
stakeholders
financial instruments correct answers any claim on a future cash flow
financial security correct answers a claim that is standardized and regulated by the government
types of financial instruments correct answers UT Treasury bills, commercial paper, money
market mutual funds, commercial loans, US treasury notes and bonds, mortgages, corporate
bonds, preferred stocks, common stocks
derivatives correct answers any financial asset whose value is derived from the value of some
other "underlying" asset
fundamental factors affecting the supply and demand of capital and the resulting cost of money
are: correct answers 1) production opportunities: activities that require cash now but have the
potential to generate cash in the future, 2) time preference for consumption: providers can use
their current funds for consumption or saving. by saving they choose not to consume now,
expecting to consume more in the future, 3) risk: if an opportunity's future cash flows are very
uncertain and might be much lower than expected, providers require a higher expected return to
induce them to take the extra risk, & 4) inflation, which impacts purchasing power, real rate of
return. If inflation goes up, then the nominal interest rate also must go up to maintain the real
interest rate.
Investment banks correct answers help companies raise capital
, financial intermediaries correct answers take deposits from savers and then mend most of the
deposited money to borrowers
commercial banks correct answers raise money from depositors and by issuing stock and bonds
to investors
mutual funds correct answers organizations that pool investor funds to purchase financial
instruments
hedge funds correct answers private limited partnerships whose purpose is to raise money from
investors and engage in a variety of investment activities and are limited to institutional investors
and a relatively small number of high-net-worth individuals
Glass-Steagall Act correct answers the 1933 law that established the Federal Deposit Insurance
Corporation to protect individuals' bank accounts
types of financial markets correct answers Physical assets vs. Financial assets
Spot (on the spot delivery)vs. Futures (assets whose delivery is at some future date.
Money (short-term, highly liquid debt securities) vs. Capital (corporate stocks and debt maturing
more than a year in the future)
Primary (markets in which corporations raise new capital) vs. Secondary (existing, already
outstanding securities are traded among investors)
Public (standardized contracts are traded on organized exchanges) vs. Private (transactions are
worked out directly between two parties)
bid-ask spread correct answers the difference between the bid price and the asked price
An investor recently purchased a corporate bond that yields 7.68%. The investor is in the 25%
federal-plus-state tax bracket. What is the bond's after-tax yield to the investor? correct answers
Corporate yield = 7.68%; T = 25% AT yield = (Pre-tax yield)(1 - T) = 7.68%(0.75) = 5.76%.
Corporate bonds issued by Johnson Corporation currently yield 8.0%. Municipal bonds of equal
risk currently yield 5.5%. At what personal tax rate would an investor be indifferent between
these two bonds? correct answers Corporate bond yields 8%. Municipal bond yields 6%. 8%(1-
T) divided by 8; 5.5 divided by 8; 1-T = 0.055/0.08; 1-T = 0.6875; t = 1-0.6875; T = .3125; T =
31.25%
A proprietorship has three important advantages: correct answers (1) It is easily and
inexpensively formed, (2) it is subject to few government regulations, and (3) it is subject to
lower income taxes than are corporations
A proprietorship has three important limitations: correct answers A proprietor has unlimited
personal liability for the business' debts. (2) The life of the business is limited to the life of the
individual who created it. (3) A proprietorship has difficulty obtaining large sums of capital so
proprietorships are used primarily for small businesses.
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