FINANCE 301 Study Guide for Exams| Questions
all with 100% Correct Answers
warren buffett (5 keys) - ANSWER -generated consistent 20% returns
- prefers full ownership
-management acts like owners
-create barriers for competitors
-no tech
-companies that create cash flows
-Profit Margin & Return on Equity
Ibbotson and sinquefield study - ANSWER -shows relationship between risk and return
least risky to most risky 7 - ANSWER -treasury notes and bills
-government bonds
-corporate bonds
-large-value stock
-large growth stocks
-small cap stocks
-international stocks
stock return - ANSWER ((new-old)+dividends) /old
average return on stock market - ANSWER 7-10%
efficient capital markets - ANSWER -current stock prices reflect all current information
,random walk hypothesis - ANSWER -changes in stock prices are random
unsystematic risk - ANSWER -firm specific risk
systematic risk - ANSWER -risk to the market as a whole
risk averse - ANSWER -pain of losing a dollar is greater than the pleasure of gaining a
dollar
risk takers - ANSWER -pleasure of gaining a dollar is greater than the pain of losing a
dollar
what drives stock prices in the short run? - ANSWER -supply and demand
Market capitalization formula - ANSWER -current stock price x number of shares
outstanding
-total value of common stock
what drives stock prices in the long run? - ANSWER -fundamentals
-measures of business performance, ex corporate earnings
working capital management - ANSWER -managing a firm's short term assets and
liabilities
capital budgeting - ANSWER -planning and managing a company's long term
investments
, capital structure - ANSWER -the mixing of long term debt and equity that a firm uses to
finance its activities
asset allocation (diversification) - ANSWER -spreading out stocks reduces risk
-after 20-25 different stocks the standard deviation does not change much
behavioral finance - ANSWER -branch of finance that examines human decision making
and behavioral patterns
CFO (traditional) - ANSWER -managing controller and treasurer
CFO new - ANSWER -communicator with markets
-more involved in capital and risk management
controller - ANSWER -head accountant
treasure - ANSWER -manages company's cash inflows and outflows
command and control (traditional finance) - ANSWER -corporate cop
-not accountable for performance
-control financial info
competitive team model - ANSWER -accountable for performance
-business advocates
-understanding business units
all with 100% Correct Answers
warren buffett (5 keys) - ANSWER -generated consistent 20% returns
- prefers full ownership
-management acts like owners
-create barriers for competitors
-no tech
-companies that create cash flows
-Profit Margin & Return on Equity
Ibbotson and sinquefield study - ANSWER -shows relationship between risk and return
least risky to most risky 7 - ANSWER -treasury notes and bills
-government bonds
-corporate bonds
-large-value stock
-large growth stocks
-small cap stocks
-international stocks
stock return - ANSWER ((new-old)+dividends) /old
average return on stock market - ANSWER 7-10%
efficient capital markets - ANSWER -current stock prices reflect all current information
,random walk hypothesis - ANSWER -changes in stock prices are random
unsystematic risk - ANSWER -firm specific risk
systematic risk - ANSWER -risk to the market as a whole
risk averse - ANSWER -pain of losing a dollar is greater than the pleasure of gaining a
dollar
risk takers - ANSWER -pleasure of gaining a dollar is greater than the pain of losing a
dollar
what drives stock prices in the short run? - ANSWER -supply and demand
Market capitalization formula - ANSWER -current stock price x number of shares
outstanding
-total value of common stock
what drives stock prices in the long run? - ANSWER -fundamentals
-measures of business performance, ex corporate earnings
working capital management - ANSWER -managing a firm's short term assets and
liabilities
capital budgeting - ANSWER -planning and managing a company's long term
investments
, capital structure - ANSWER -the mixing of long term debt and equity that a firm uses to
finance its activities
asset allocation (diversification) - ANSWER -spreading out stocks reduces risk
-after 20-25 different stocks the standard deviation does not change much
behavioral finance - ANSWER -branch of finance that examines human decision making
and behavioral patterns
CFO (traditional) - ANSWER -managing controller and treasurer
CFO new - ANSWER -communicator with markets
-more involved in capital and risk management
controller - ANSWER -head accountant
treasure - ANSWER -manages company's cash inflows and outflows
command and control (traditional finance) - ANSWER -corporate cop
-not accountable for performance
-control financial info
competitive team model - ANSWER -accountable for performance
-business advocates
-understanding business units
