FINC 341 - GUYTON EXAM 1 (CH 1-6) UPDATED ACTUAL Questions And Correct
Answers
C
Terms in this set (220)
intrinsic value an estimate of a stock's "true" value based on accurate risk and return data; can't
be measured precisely; managers estimates are better than outside investors. it is
a long run concept. management should make goals to maximize this not current
market price.
market price stocks' current price based on possibly incorrect info
equilibrium is when... intrinsic value=market price; there is no pressure for a change in the stock's price.
finance anything that deals with analyzing numbers and getting feedback; cash flow
based; management of assets-decision making.
financial management corporate finances, focuses on decisions relating to how much and what types of
assets to acquire, how to raise capital for assets, and how to maximize value of
firm.
capital markets relates to markets where interest rates are determined; financial institutions that
supply capital to businesses (banks mutual funds, insurance comps.); market for
intermediate (1-10 yrs) and long-term (>10 yrs) debt and corporate stocks (ex:
NYSE)
investments managing mutual funds or portfolios; personal financial planning; includes
security analysis (finding proper values of stocks and bonds),portfolio theory
(structures portfolios; want to be diversified),market analysis (too high/low?),
behavioral finance (unreasonable highs and lows)
main certifications needed CFA and CFP
, sole proprietorship easily formed, few gov regulations, lower income tax than corps, unlimited
personal liability, life is limited to owner's life; BY NUMBER most businesses are
these.
partnership easily formed between 2 or more people, lower income tax than corps, unlimited
personal liability, life is limited to owner's life
corporation unlimited life, loss limited to individual investment, easy to transfer ownership and
to raise capital, double taxation, heavy regulation; BY DOLLAR VALUE more than
80% of all business are these; separate and distinct from owners and managers.
s-corporation what gov allows company to become if they want limited tax, taxed as if they
were sole proprietorship/partnership, no more than 100 stockholders (they
become C corporations when they want to sell stock to the public)
primary goals of finance maximize value of firm, maximize stock price (Pø), and maximize shareholder
wealth, NOT PROFIT
stock price is affected by... external factors, mix of debt an equity, % of earnings paid in dividend,
products/services being produced, and the firms' social responsibility
2 goals of Fed... keep unemployment at 5% and inflation at 2%
fed moves in short term rates
as rates go up, banks... increase profit margin value
historical trends of interest rate levels: 1. short-term interest rates are prone to rise during booms
2. during recessions, short term interest rates normally fall and there is LESS
demand for credit, rate of inflation decreases, fed offers lower rates during
recessions AIG ensures mortgages be paid
3. short-term interest rates have higher correlation with inflation than long-term
interest rates-average of short-term (2008 BOA almost closes its doors)
4. inflation has been about 2% (healthy rate) in recent years; it was negative (not
good) in 2009 never want to be in bond if rates are going up
5. higher (adjust) rates of return are expected on riskier investments
-rates going up:loading gun
-bringing it down: firing the gun
you can be sure of 2 things: 1. interest rates will vary
2. increase if inflation is expected to be higher, decrease if inflation is expected
lower
1980 savings and loans crisis known to provide mortgages but most of them went out of business
following a bell curve: bottom left: low rates
mid curve rising: rise
peak:recession
mid curve falling: recover
bottom right: low rates
Answers
C
Terms in this set (220)
intrinsic value an estimate of a stock's "true" value based on accurate risk and return data; can't
be measured precisely; managers estimates are better than outside investors. it is
a long run concept. management should make goals to maximize this not current
market price.
market price stocks' current price based on possibly incorrect info
equilibrium is when... intrinsic value=market price; there is no pressure for a change in the stock's price.
finance anything that deals with analyzing numbers and getting feedback; cash flow
based; management of assets-decision making.
financial management corporate finances, focuses on decisions relating to how much and what types of
assets to acquire, how to raise capital for assets, and how to maximize value of
firm.
capital markets relates to markets where interest rates are determined; financial institutions that
supply capital to businesses (banks mutual funds, insurance comps.); market for
intermediate (1-10 yrs) and long-term (>10 yrs) debt and corporate stocks (ex:
NYSE)
investments managing mutual funds or portfolios; personal financial planning; includes
security analysis (finding proper values of stocks and bonds),portfolio theory
(structures portfolios; want to be diversified),market analysis (too high/low?),
behavioral finance (unreasonable highs and lows)
main certifications needed CFA and CFP
, sole proprietorship easily formed, few gov regulations, lower income tax than corps, unlimited
personal liability, life is limited to owner's life; BY NUMBER most businesses are
these.
partnership easily formed between 2 or more people, lower income tax than corps, unlimited
personal liability, life is limited to owner's life
corporation unlimited life, loss limited to individual investment, easy to transfer ownership and
to raise capital, double taxation, heavy regulation; BY DOLLAR VALUE more than
80% of all business are these; separate and distinct from owners and managers.
s-corporation what gov allows company to become if they want limited tax, taxed as if they
were sole proprietorship/partnership, no more than 100 stockholders (they
become C corporations when they want to sell stock to the public)
primary goals of finance maximize value of firm, maximize stock price (Pø), and maximize shareholder
wealth, NOT PROFIT
stock price is affected by... external factors, mix of debt an equity, % of earnings paid in dividend,
products/services being produced, and the firms' social responsibility
2 goals of Fed... keep unemployment at 5% and inflation at 2%
fed moves in short term rates
as rates go up, banks... increase profit margin value
historical trends of interest rate levels: 1. short-term interest rates are prone to rise during booms
2. during recessions, short term interest rates normally fall and there is LESS
demand for credit, rate of inflation decreases, fed offers lower rates during
recessions AIG ensures mortgages be paid
3. short-term interest rates have higher correlation with inflation than long-term
interest rates-average of short-term (2008 BOA almost closes its doors)
4. inflation has been about 2% (healthy rate) in recent years; it was negative (not
good) in 2009 never want to be in bond if rates are going up
5. higher (adjust) rates of return are expected on riskier investments
-rates going up:loading gun
-bringing it down: firing the gun
you can be sure of 2 things: 1. interest rates will vary
2. increase if inflation is expected to be higher, decrease if inflation is expected
lower
1980 savings and loans crisis known to provide mortgages but most of them went out of business
following a bell curve: bottom left: low rates
mid curve rising: rise
peak:recession
mid curve falling: recover
bottom right: low rates
