FIN 3403 EXAM 1 QUESTIONS WITH CORRECT ANSWERS LATEST UPDATE 2026

FIN 3403 EXAM 1 QUESTIONS WITH CORRECT ANSWERS LATEST UPDATE 2026 Goal of the firm - Answers maximise shareholder wealth Sole proprietorship - Answers business owned by a single individual General partnership - Answers all partners are fully liable for the indebtness incurred by the partnership limited partnership - Answers one or more of the partners has limited liability, restricted to the amount of capital he or she invests in the partnership corporation - Answers an entity that legally functions separate and apart from its owners S corporation - Answers corporation that because of special qualifications is taxed as though it were a partnership Limited liability company - Answers a cross between a partnership and a corporation under which the owners retain limited liability but the company is run and taxed like a partnership public offering - Answers a security offering where all investors have the opportunity to acquire a portion of the financial claims being sold private placement - Answers a security offering limited to a small number of potential investors venture capitalist - Answers an investment firm that provides money to business start ups primary market - Answers market in which securities are offered for the first time for sale to potential investors secondary market - Answers market in which currently outstanding securities are traded Initial public offering - Answers the first time a company issues stock to the public seasoned equity offering - Answers the sale of additional stock by a company whose shares are already publicly traded money market - Answers all institutions and procedures that facilitate transacations for short term instruments issued by borrowers with very high credit ratings capital market - Answers market for long term financial instruments spot market - Answers cash market futures market - Answers markets where you can buy or sell something at a future date organized security exchange - Answers formal organizations that facilitate the trading of securities over the counter market - Answers all security markets except organized exchanges NASDAQ - Answers computerized system that provides price quotes on over 5000 over the counter stocks and also facilitates trades by matching up buyers and sellers investment banker - Answers a financial specialist who underwrites and distributes new securities and advises corporate clients about raising new funds investment banker functions - Answers underwriting, distributing, and advising syndicate - Answers a group of investment bankers who contractually assist in the buying and selling of a new security issue negotiated purchase - Answers most prevalent method of securities distribution in the private sector, thought to be the most profitable technique as far as investment bankers are concerned competitive bid purchase - Answers several underwriting groups bid for the right to purchase the new issue from the corporation that is raising funds best efforts basis - Answers investment bankers acts as an agent rather than as a principal in the distribution process and securities are not underwritten privileged subscription - Answers the process of marketing a new security issue to a select group of investors dutch auction - Answers method of issuing securities by which investors place bids indicating how many shares they are willing to buy and at what price, the price the stock is then sold for becomes the lowest price at which the issuing company can sell all the available shares direct sale - Answers issuing firm sells the securities directly to the investing public without involving an investment banker flotation costs - Answers transaction cost incurred when a firm raises funds by issuing a particular type of security SOX - Answers MEEP opportunity cost of funds - Answers rate of return on the next best investment alternative to the save inflation premium - Answers premium to compensate for the anticipated inflation that is equal to the price change expected to occur over the life of the bond or investment instrument default risk premium - Answers the additional return required by investors to compensate them for the risk of default, calculated as the difference in rates between a US treasury bond and a corporate bond of the same maturity and marketability maturity risk premium - Answers the additional return required by investors in longer term securities to compensate them for the greater risk of price fluctuations on those securities caused by interest rate changes liquidity risk premium - Answers the additional return required by investors for securities that cannot be quickly converted into cash at a reasonably predictable price nominal rate of interest - Answers the interest rate paid on debt securities without an adjustment for any loss in purchasing power real rate of interest - Answers the nominal rate of interest less any loss in purchasing power of the dollar during the time of the investment term structure of interest rates - Answers relationship between interest rates and the term to maturity where the risk of default is held constant yield to maturity - Answers the rate of return a bondholder will receive if the bond is held to maturity unbiased expectations theory - Answers shape of the term structure of interest rates is determined by an investors expectations about future interest rates