FIN 320F Exam 4 (Units 8, 9, 10) Questions and Answers Already Passed
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FIN 320F Exm
FIN 320F Exam 4 (Units 8, 9, 10)
Questions and Answers Already Passed
What is "liquidity risk" in financial management?
The risk that a company will not be able to meet its short-term financial obligations due to
insufficient liquid assets.
How does "duration" measure the interest rate ri...
FIN 320F Exam 4 (Units 8, 9, 10)
Questions and Answers Already Passed
What is "liquidity risk" in financial management?
✔✔ The risk that a company will not be able to meet its short-term financial obligations due to
insufficient liquid assets.
How does "duration" measure the interest rate risk of a bond?
✔✔ Duration calculates the weighted average time until a bond’s cash flows are received,
indicating its sensitivity to interest rate changes.
What is the purpose of conducting a "sensitivity analysis" in financial forecasting?
✔✔ To evaluate how different scenarios or changes in assumptions affect the financial outcomes
or projections.
What does "credit risk" refer to in financial management?
✔✔ The risk that a borrower will default on a loan or other credit obligations, leading to
potential financial loss.
1
,How is "beta" used in the Capital Asset Pricing Model (CAPM)?
✔✔ Beta measures the sensitivity of an asset's returns to the overall market returns, helping to
assess its systematic risk.
What is the significance of the "Sharpe ratio" in evaluating investment performance?
✔✔ The Sharpe ratio measures the risk-adjusted return of an investment by comparing its excess
return to its standard deviation.
What does "capital structure" entail in corporate finance?
✔✔ The mix of debt and equity financing a company uses to fund its operations and growth,
influencing its financial risk and return.
How does "the efficient market hypothesis" (EMH) impact investment strategies?
✔✔ EMH suggests that all available information is already reflected in asset prices, making it
challenging to consistently achieve above-average returns through active management.
What is the "cost of preferred equity" and how is it calculated?
✔✔ The cost of preferred equity is the dividend rate paid on preferred shares, calculated as the
annual dividend divided by the market price of the preferred stock.
2
, What role does "economic value added" (EVA) play in performance measurement?
✔✔ EVA measures a company's financial performance by calculating the value created above
the required return on invested capital.
What does "diversification" seek to achieve in an investment portfolio?
✔✔ To spread investments across various assets to reduce the impact of any single asset’s poor
performance on the overall portfolio.
What is the primary objective of "financial statement analysis"?
✔✔ To evaluate a company's financial health and performance by examining its financial
statements and ratios.
How is "the payout ratio" calculated, and what does it indicate?
✔✔ The payout ratio is calculated by dividing dividends paid by net income, indicating the
proportion of earnings distributed to shareholders.
What does "operating leverage" measure in a business?
3
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