foundations of financeTest Bank for Foundations of Finance 10e 10th Edition by Arthur J. Keown, John D. Martin; J. William Petty
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Course
Foundations of finance
Institution
Foundations Of Finance
Finance - Correct answer-Making decisions that add value by focusing on cash flows' timing, risk, and magnitude.
Intrinsic Value - Correct answer-The true worth of something today, as defined by Warren E. Buffett.
Value vs. Price - Correct answer-Value is what something is worth, while price ...
Foundations of Finance 10th Edition by Arthur J. Keown,
John D. Martin; J. William Petty
Finance - Correct answer-Making decisions that add value by focusing on cash flows' timing, risk, and
magnitude.
Intrinsic Value - Correct answer-The true worth of something today, as defined by Warren E. Buffett.
Value vs. Price - Correct answer-Value is what something is worth, while price is what it costs to obtain.
Determining Value - Correct answer-Process of valuing any financial asset by considering cash flows
between now and Judgment Day, discounted at the proper rate of interest.
Present Value - Correct answer-Current value of future cash flows discounted at an appropriate rate.
Personal Finance - Correct answer-Financial decisions specific to an individual or family's situation.
Corporate Finance - Correct answer-Financial decisions made by managers in running businesses or
corporations.
Public Finance - Correct answer-Financial policies implemented by governments to meet social and fiscal
responsibilities.
Investment Finance - Correct answer-Actively valuing investment opportunities like stocks and bonds,
including mutual funds and hedge funds.
,Finance in the movies - Correct answer-Portrays criminals or individuals consumed by greed, giving a
twisted view of finance.
Corporate finance - Correct answer-Involves being the finance leader in a team, influencing decisions on
operations and capital budgeting.
Investments - Correct answer-Involves performing detailed analysis on companies for investment
recommendations.
Personal finance - Correct answer-Involves understanding client needs and helping them make sound
financial decisions.
Decision making in finance - Correct answer-Involves making choices that create value and impact
valuation.
Risk and return tradeoffs - Correct answer-Involves evaluating the balance between risk and return in
financial decisions.
Quantitative methods in finance - Correct answer-Involve using numerical techniques for risk, return,
valuation, and analyses.
Skills in finance - Correct answer-Include being detail-oriented, analytical, logical, and having
interpersonal skills.
Ethical and moral foundation in finance - Correct answer-Necessary for serving clients, shareholders,
and capital markets.
Financial Analyst - Correct answer-Job title in corporate finance involving financial analysis and decision-
making.
Chartered Financial Analyst (CFA) - Correct answer-Credential for professionals in investments,
demonstrating expertise in investment analysis.
,Certified Financial Planner (CFP) - Correct answer-Credential for professionals in financial planning,
focusing on client needs and financial decisions.
Finance is based on four axioms - Correct answer-1) investors prefer more to less
2) Investors are risk averse
3) money paid in the future is worth less than the same amount today
4) financial markets are competitive; no arbitrage
Arbitrage - Correct answer-The ability to make a profit without having cash outplayed by yourself
Zero risk, zero net investment strategy that still generates profits
Real assets - Correct answer-Assets used to produce goods and services
50 trillion in US
Financial assets - Correct answer-Claims on real assets (stocks and bonds)
Derivatives (contingent claims)
All wealth in he economy is real - Correct answer-Every financial security is an asset for somebody and a
liability for somebody else
Use of financial assets - Correct answer-1. Allocation/raising of capital (shift capital from people who
have it to people with the best uses for it)
2. Allocation of risk (diversification) - risk sharing
3. Consumption smoothing
Fixed income securities - Correct answer-Fixed cash flows - coupons or interest payments (interest that
is paid is fixed up front)
Examples: borrowing instruments and bonds (treasury, municipal, corporate)
Valuation: time value of money adjustment
Treasuries (3 types) - Correct answer-Treasury bills (less than one year maturity)
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