UTK FINC 425 Exam 1 with Accurate
Solutions
Real Assets - ANS-Assets used to produce goods and services
- land, buildings, equipment, knowledge
Financial Assets - ANS-Claims on real assets or the income generated by them
-stocks, bonds
**you can't own an auto plant (real asset) but you can own shares of Ford (financial)**
Bonds - ANS-A security that obligates the issuer to make a specified payment to the
holder over a period of time
(Type of debt security that an investor lends money to a borrower for a period of time at
a fixed interest rate)
Government Agency Issues - ANS-Debt securities issued by government-sponsored
enterprises or federal agencies to raise funds for specific purposes
Federal Agency Debt - ANS-Government agencies issue their own securities to finance
their activities
- Federal Home Loan Bank, Freddie Mac, Fannie Mae, etc.
Securitization - ANS-The process of converting a group of illiquid assets into marketable
securities that can be bought and sold by investors
- MBS
Mortgage Backed Securities (MBS) - ANS-Either an ownership claim in a pool of
mortgages or an obligation that is secured by such a pool
Municipal Bond Yields - ANS-Tax-exempt bonds issued by state and local governments
- Used to fund schools, highways, hospitals, etc
General Obligation Bonds (GO Bonds) - ANS-Backed by fill faith and credit of the issuer
- Considered relatively safe because they are backed by the taxing power of the
government
Revenue Bonds - ANS-Issued to finance particular projects and are backed by the
revenue of that project or the municipal agency operating the project
, - RISKIER
Call Option vs Put Option - ANS-Call Option: the right to buy an asset at a specified
exercise price on or before a specified exercise date
- Gives the purchaser the right to buy 100 shares of the underlying stock at a specified
price on or before some specified date
Put Option: the right to sell an asset at a specified exercise price on or before a
specified expiration date
- Gives the holder the right to sell 100 shares of the underlying stock at a specified price
on or before some specified date
Futures Contract - ANS-Obliges traders to purchase or sell an asset at an agreed-upon
price at a specified future date
Long Position: held by the trader who commits to purchasing the asset
Short Position: commits to delivering the asset
Publicly Traded Companies & IPOs - ANS-When a firm decides that it wishes to raise
capital from a wide range of investors
IPOs: Initial Public Offering, first public sale of stock by a formally private company
IPO Process - ANS-1. Choosing Underwriters
2. Due Diligence and Regulatory Filings
3. Pricing the IPO
4. Going Public
5. Post IPO
Roadshows - ANS-Investment bankers travel around the country to publicize the
imminent offering (generate potential interest, provide info about price)
Bookbuilding - ANS-The process of polling potential investors
Bid Price - ANS-The slightly lower price you would receive if you wanted to sell a bill to
a dealer
Ask Price - ANS-The price you would have to pay
Market Orders - ANS-Buy or sell orders that are to be executed immediately at current
market prices
Limit Buy Orders - ANS-An order specifying a price at which an investor is willing to buy
a security
Solutions
Real Assets - ANS-Assets used to produce goods and services
- land, buildings, equipment, knowledge
Financial Assets - ANS-Claims on real assets or the income generated by them
-stocks, bonds
**you can't own an auto plant (real asset) but you can own shares of Ford (financial)**
Bonds - ANS-A security that obligates the issuer to make a specified payment to the
holder over a period of time
(Type of debt security that an investor lends money to a borrower for a period of time at
a fixed interest rate)
Government Agency Issues - ANS-Debt securities issued by government-sponsored
enterprises or federal agencies to raise funds for specific purposes
Federal Agency Debt - ANS-Government agencies issue their own securities to finance
their activities
- Federal Home Loan Bank, Freddie Mac, Fannie Mae, etc.
Securitization - ANS-The process of converting a group of illiquid assets into marketable
securities that can be bought and sold by investors
- MBS
Mortgage Backed Securities (MBS) - ANS-Either an ownership claim in a pool of
mortgages or an obligation that is secured by such a pool
Municipal Bond Yields - ANS-Tax-exempt bonds issued by state and local governments
- Used to fund schools, highways, hospitals, etc
General Obligation Bonds (GO Bonds) - ANS-Backed by fill faith and credit of the issuer
- Considered relatively safe because they are backed by the taxing power of the
government
Revenue Bonds - ANS-Issued to finance particular projects and are backed by the
revenue of that project or the municipal agency operating the project
, - RISKIER
Call Option vs Put Option - ANS-Call Option: the right to buy an asset at a specified
exercise price on or before a specified exercise date
- Gives the purchaser the right to buy 100 shares of the underlying stock at a specified
price on or before some specified date
Put Option: the right to sell an asset at a specified exercise price on or before a
specified expiration date
- Gives the holder the right to sell 100 shares of the underlying stock at a specified price
on or before some specified date
Futures Contract - ANS-Obliges traders to purchase or sell an asset at an agreed-upon
price at a specified future date
Long Position: held by the trader who commits to purchasing the asset
Short Position: commits to delivering the asset
Publicly Traded Companies & IPOs - ANS-When a firm decides that it wishes to raise
capital from a wide range of investors
IPOs: Initial Public Offering, first public sale of stock by a formally private company
IPO Process - ANS-1. Choosing Underwriters
2. Due Diligence and Regulatory Filings
3. Pricing the IPO
4. Going Public
5. Post IPO
Roadshows - ANS-Investment bankers travel around the country to publicize the
imminent offering (generate potential interest, provide info about price)
Bookbuilding - ANS-The process of polling potential investors
Bid Price - ANS-The slightly lower price you would receive if you wanted to sell a bill to
a dealer
Ask Price - ANS-The price you would have to pay
Market Orders - ANS-Buy or sell orders that are to be executed immediately at current
market prices
Limit Buy Orders - ANS-An order specifying a price at which an investor is willing to buy
a security
