Principles of Finance WGU C708, Exam Questions & Answers, graded A+

Document Content and Description Below

Principles of Finance WGU C708, Exam Questions & Answers, graded A+ Buying and Selling stocks and bonds Common Stock, preferred stock, and most bonds are first sold in the primary market. the spec... ialist who arrange for these sales are called investment bankers. the compnay that issues the stock or teh bonds recieves the money from the buyers, excepts for the amounts that the investment bankers and affiliated stockbrokers are paid The three main areas of finance are ____. financial Institutions, financial markets, and financial management Parts of Finance - personal, corporate, government, and behavioral Personal Finance The study of household wealth management over time Corporate Finance The study of fund management by businesses (management) overtime -primary goal is to maximize shareholder value Government Finance The Study of public policy and government cash flows Behavioral Finance The study of stock market behavior The two main drivers of finance are ____. the time value of money and risk - since the value of assets change overtime, finance seeks to ensure the change is beneficial for the organization or individual Investment a placement of capital in expectation of deriving income or profit from its use. Asset something or someone of any value; any portion of one's property or effects so considered. Debtor a person or firm that owes money, one in debt, or one who owes a debt. The underlying driver behind all of finance is ____. Time Finance is fundamentally a ____-looking field, while accounting is fundamentally a ___-looking field. Forward; backward -accounting: organize and compile past information -Fiance: prepares one to decide what to do with that information "future", fund manangement and assset allocation Economics the social science that analyze the production, distribution, and consumption of goods and services return gain or loss from an investment. Leverage the use of borrowed funds with a contractually determined return to increase the ability of a business to invest and earn an expected higher return (usually at high risk). Equity Ownership, especially in terms of net monetary value, of a business shareholder One who owns shares of stock Liability an obligation, debt or responsibility owed to someone. dividends a small payment to each person who owns a stock of a company -payments made to shareholders -(it is a portion of the firms net income) -normally paid on a per share basis Why should we care about finance in business? - maximize shareholder value (return on investment) -choose between different investment choices (where should we invest our funds) -make sure money is in the right place at the right time( time value of money, when do we actually issue shares of stocks and collect the money from investors, when do we use it.) * focus on cash flow, not provit: longevity: can show the health of a business Net Present Value the present value of a project or an investment decision determined by summing the discounted incoming and outgoing future cash flows resulting from the decision. Financial Managers -managers who examine financial data prepared by accountants and recommend strategies for improving the financial performance of the firm -perform data analysis and advise senior managerson profit maximizing ideas -types: controllers, treasures, credit managers, cash managers, risk managers, and insurance managers What Financial Managers May Do - prepare financial statements, business activity reports and forecasts -supervise employees who do financial reporting and budgeting -monitor financial details to ensure the legal requirements are met -review company financial reports and seeks ways to reduce costs -analyze market trends to find opportunities for expansion or for aquiring other companies -help managment make financial and investment decisions Values collection of guiding principles, what one deems correct, important, desirable in life, especially regarding personal conduct ______ managers perform data analysis and advise senior managers on profit-maximizing ideas. Financial capital budgeting Management must allocate limited resources between competing opportunities (projects) Finance to provide or obtain funding for a transaction or undertaking; to back; to support. valuation The process of estimating the market value of a financial asset or liability he primary goal of both investment and financing decisions is to ___________. Maximize shareholder value Expected Return considering the magnitude and likelihood of exogenous events, the average yield that an investor predicts will be earned. The _____ is the simplest structure open to collaborative ownership. partnership Sole Proprietorship - smallest business type -easiest to start -one owner who is soley liable for business decisons -all profits of the business become the owners income -no separation from entreprenuer vs business -business does not pay federal taxes, you do General Partnership -Two owners at a minimum -owners persoanally share the liability for teh business debts and other financial decisions -partners share the business profits -business profits are considered income for the individual partners -business doesn't pay taxes, each partner does Corporation - business is its own taxable entitiy -must create a board of directors -corporation becomes liable for the debts and financial decisions of the business -corporation seeks external funding (shareholders) -usually goes public to get money -protection from personal assets Moral Hazard The prospect that a party insulated from risk may behave differently from the way it would behave if it were fully exposed to the risk. Business Valuation anaylze the company financial statements to help determine if it would be a good investment principal-agent problem concerns the difficulties in motivating one party (the "agent"), to act on behalf of another (the "principal"). -when the principles (shareholders) preferences are NOT aligned with the agents (managers) preferences The deviation from the principal's interest by the agent Agency costs Three parties key to the corporation's functioning are ____. Managers, shareholders, and bondholders Bond a documentary obligation to pay a sum or to perform a contract; a debenture. maturity the date when a bond is due to be repaid Fundamental Analysis an analysis of a business with the goal of financial projections in terms of income statement, financial statements and health, management and competitive advantages, and competitors and markets. Market Value the total value of the company as traded in the market. Calculated by multiplying the number of shares outstanding by the price per share. Shareholders -company stock ownership -has voting rights, may lose if company underperforms Bond holders -lenders to the company -no voting rights -gets paid no matter what Who prefers riskier projects? (shareholder or bond holders) Share holders do, because of the chance or probabiity of a higher expected return 9 major types of financial institutions central banks, retail and commercial banks, internet banks, credit unions, savings and loan associations, investment banks and companies, brokerage firms, insurance companies, mortgage companies Finance Markets classificatin What is the most common method of classifying financial markets based on? Based on maturity and trading fungible able to replace or be replaced by another identical item; mutually interchangeable derivatives financial instruments whose value depends on the valuation of an underlying asset such as a warrant or option. two common capital markets stocks and bonds capital market the part of a financial system concerned with raising capital by dealing in shares, bonds, and other longterm investments. -used when wanting to purchase new equipment -for long term financial nees -has primary market and secondary market Money Market a market in which money is lent for periods of one year or less -a market for trading short-term debt instruments, such as treasury bills, commericial paper, banker's acceptances, and CD's liquidity the ease with which an asset can be converted into cash SEC:Securities and Exchange Commission -is a federal agency which holds primary responsibility for enforcing teh federal securities laws and regulating the securities industry, the nations stock and opitions exchange, and other electronic securities market in the US private placement Private placement (or non-public offering) is a funding round of securities which are sold not through a public offering, but rather through a private offering, mostly to a small number of chosen investors. Regulation S A safe harbor by the SEC to sell securities outside of the US without publicly registering. NASDAQ National Association of Securities Dealers Automated Quotations Securities Exchange Act of 1934 An act that regulates the trading of securities such as stocks and bonds in the secondary market -a law governing the secondary trading of securities in the United States of America. -also known as teh consumer protection laws for retail investors Off-balance-sheet Off-balance sheet (OBS), or Incognito Leverage, usually means an asset or debt or financing activity not on the company's balance sheet. Sarbanes-Oxley Act of 2002 established requirements for proper financial record keeping for public companies and penalties of as much as 25 years in prison for noncomp [Show More]

Last updated: 2 years ago

Preview 1 out of 18 pages