Finance - Answer-the management of money
Corporate Finance - Answer-how companies raise money, how they invest money, how they manage financial resources
Capital Markets - Answer-Financial markets where debt instruments and equity securities are bought and sold
Investment Decision - Answer...
FIN 301 Exam #1 Questions with Latest
Update
Finance - Answer-the management of money
Corporate Finance - Answer-how companies raise money, how they invest money, how
they manage financial resources
Capital Markets - Answer-Financial markets where debt instruments and equity
securities are bought and sold
Investment Decision - Answer-corporate managers need to make sure that the
company's money is invested in projects that will be worth more than they cost
Financing Decision - Answer-Corporate managers need to decide what combination of
debt and equity they should use to raise funds to finance a project
Dividend Decision - Answer-corporate managers decided what percent of the
company's profits should be paid to shareholders and what should be reinvested
Primary Markets - Answer-capital markets where governments, agencies, and
municipalities issue debt securities and corporations issue stock and bonds to investors
Secondary Markets - Answer-Capital markets where stocks and bonds are trade after
their initial issuance
Warren Buffet - Answer-Most successful investor ever. Generates 20% annual returns
consistently. Started Berkshire Hathaway, has never split and trades for over 100,000.
Keys to Buffets success - Answer-1. Full of majority ownership in corporations
2. Management are also owners
3. Barriers to keep competition out
4. Does not invest in technology
5. Invests in companies that generate cash flow
Risk vs. Return - Answer-positive relationship between risk and return. Proved by
Ibbotson and Sinquefield Study
Risk and Standard Deviation - Answer-Higher Standard Deviation yields higher Risk
Efficient Capital Market Hypothesis (ECM) - Answer-Eugene Fama
, stock market is extremely efficient, stock prices reflect current public info, and stock
prices react instantaneously to what is happening
Random Walk Hypothesis - Answer-Changes in stock prices are random, and past
performance does not predict future performance
Risk-averse - Answer-pain of losing dollar exceeds pleasure of gaining a dollar
Risk-neutral - Answer-pain of losing dollar is equal to pleasure. Want compensation
Risk-takers - Answer-pleasure of winning dollar exceeds pain of losing. Typically do not
invest large amounts of wealth.
Market Capitalization (Market cap) Equation - Answer-Market Cap = Current Stock price
x # of outstanding shares
Goal of financial manager - Answer-Maximize shareholder value (also increase current
stock price)
Capital Budgeting and goal - Answer--Valuation, planning, and managing of corporate
investments for a firm.
-maximize the net present value of investments that are financed by firm's capital
budget
Working Capital Management and goal - Answer--manage short-term assets and short-
term liabilities
-minimize cost of maintaining the net working capital position of the company.
Capital Structure and goal - Answer--mix of long-term debt and equity that a firm uses to
finance its operations and investments
-minimize the weighted average cost of capital (WACC)
Transaction costs - Answer-Costs incurred when making a trade
-Transaction Costs along with inflation and taxes, can reduce real return on investments
Time Value of Money - Answer-$1 today is worth more than $1 tomorrow
Present Value Equation - Answer-Future Value/ (1 + rate)^# of years)
Asset Diversification - Answer-Dividing investment funds among different asset classes
Assets (Least Risky to Most Risky) - Answer-1 Treasury Notes
2 Government Bonds
3 Corporate Bonds
4 Large-Value Stocks
5 Large Growth Stocks
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