©THESTAR 2024/2025 ALL RIGHTS RESERVED 12:43 PM.
HFT 4464 Exam Questions With Correct
Answers 100% Verified.
The three major decisions in financial management involve - Answer✔investing, financing, and
the payment of dividens
When does a project create value? - Answer✔incremental benefits exceed incremental costs
Advantages and disadvantages of the different forms of business organizations - Answer✔Sole
Proprietorship: ease of formation, greater control, single taxation. Disadvantages: unlimited
liability relative difficulty in raising capital. Partnership: ease of formation, greater control,
single taxation. Disadvantages: unlimited liability, relative difficulty in raising capital..
Corporation: unlimited life,limited liability, relative ease in raising capital. Disadvantages:
relatively difficult to form, increased regulation, double taxation on dividends.
The difference between preferred stocks and common stocks. - Answer✔Common stockholders
can vote for the board of directors
How to maximize value for the owners of stocks. - Answer✔By receiving a stream of dividend
payments and by eventually selling their stock at a higher price than they paid aka capital gain
Factors that determine the value of the future dividends. - Answer✔1.) size of dividends, all else
being equal, larger dividends will yield a higher stock price
2.)The timing of the dividends
3.) The risk associated with the dividends
Who do we satisfy first if we want to maximize wealth? - Answer✔The goal of wealth
maximization for the owners makes sense for the firm because if we have satisfied owners, we
have satisfied all other parties as well
What is an agency problem: examples? - Answer✔EXP:lenders disagreeing with hotel owners
about dividend payments
EXP:Shirking is when a manager receives a guaranteed high, fixed salary but has no other
reasons to be invested in the company's success
1|Page
, ©THESTAR 2024/2025 ALL RIGHTS RESERVED 12:43 PM.
Why does an agency problem arise? - Answer✔People usually act in their own best interest.
How to address an agency problem? - Answer✔design the initial contract properly with
appropriate incentives
How did McDonald's, Marriott, and holiday Inns create value for themselves? -
Answer✔Marriott: international hotel management McDonalds: Breakfast sandwich Holiday
inn: offered swimming pool food and beverage and children to stay with no charge, first
reservation system
Why do people invest? - Answer✔Giving something up today to own something bigger in the
future. Deferring present consumption in hopes of increased future consumption.
Factors that affect the present value of future cash flows. - Answer✔PV of cash flows is cash
flow discounted and rounded to nearest dollar
What happens to a price of a bond if interest rates fluctuate? - Answer✔it is unlikely that
investor will reinvest all coupons at promised yield; if interest rates increase, coupons
reinvested at higher yields, increasing reinvestment income, inc. total return; if interest rates
decrease, opposite is true
What is the first stock issue available to the public? - Answer✔IPO
The concept of currency exchange, if you are in japan and the yen strengthens against the
dollar, what happens to your profits converted to dollars? - Answer✔They are weakened
What is the measure of risk in stock returns? - Answer✔standard deviation
Why is depreciation added to the net income statement? - Answer✔it is a non-cash expense
that was subtracted to initially lower the taxable income.
Limitations of a ratio analysis. - Answer✔Ratios are more meaningful when compared to some
standard of performance.
Definition of risk. - Answer✔uncertainty about an outcome
Definition of risk averse. - Answer✔being compensated for taking risks.
What is the expected value in a normal distribution? - Answer✔A normal bell shaped curve also
known as normal distribution. weighted avg calculation
What does correlation of +1, -1, and 0 mean? - Answer✔These are the extremes. For example:
two moving together in perfect lockstep have a rho of +1 and are positive. The opposite for
negative. If there is no relationship between variables the correlation coefficient is 0
What is diversification, how is it done and why? - Answer✔Holding 2 or more assets to max
return and minimize risk
2|Page
HFT 4464 Exam Questions With Correct
Answers 100% Verified.
The three major decisions in financial management involve - Answer✔investing, financing, and
the payment of dividens
When does a project create value? - Answer✔incremental benefits exceed incremental costs
Advantages and disadvantages of the different forms of business organizations - Answer✔Sole
Proprietorship: ease of formation, greater control, single taxation. Disadvantages: unlimited
liability relative difficulty in raising capital. Partnership: ease of formation, greater control,
single taxation. Disadvantages: unlimited liability, relative difficulty in raising capital..
Corporation: unlimited life,limited liability, relative ease in raising capital. Disadvantages:
relatively difficult to form, increased regulation, double taxation on dividends.
The difference between preferred stocks and common stocks. - Answer✔Common stockholders
can vote for the board of directors
How to maximize value for the owners of stocks. - Answer✔By receiving a stream of dividend
payments and by eventually selling their stock at a higher price than they paid aka capital gain
Factors that determine the value of the future dividends. - Answer✔1.) size of dividends, all else
being equal, larger dividends will yield a higher stock price
2.)The timing of the dividends
3.) The risk associated with the dividends
Who do we satisfy first if we want to maximize wealth? - Answer✔The goal of wealth
maximization for the owners makes sense for the firm because if we have satisfied owners, we
have satisfied all other parties as well
What is an agency problem: examples? - Answer✔EXP:lenders disagreeing with hotel owners
about dividend payments
EXP:Shirking is when a manager receives a guaranteed high, fixed salary but has no other
reasons to be invested in the company's success
1|Page
, ©THESTAR 2024/2025 ALL RIGHTS RESERVED 12:43 PM.
Why does an agency problem arise? - Answer✔People usually act in their own best interest.
How to address an agency problem? - Answer✔design the initial contract properly with
appropriate incentives
How did McDonald's, Marriott, and holiday Inns create value for themselves? -
Answer✔Marriott: international hotel management McDonalds: Breakfast sandwich Holiday
inn: offered swimming pool food and beverage and children to stay with no charge, first
reservation system
Why do people invest? - Answer✔Giving something up today to own something bigger in the
future. Deferring present consumption in hopes of increased future consumption.
Factors that affect the present value of future cash flows. - Answer✔PV of cash flows is cash
flow discounted and rounded to nearest dollar
What happens to a price of a bond if interest rates fluctuate? - Answer✔it is unlikely that
investor will reinvest all coupons at promised yield; if interest rates increase, coupons
reinvested at higher yields, increasing reinvestment income, inc. total return; if interest rates
decrease, opposite is true
What is the first stock issue available to the public? - Answer✔IPO
The concept of currency exchange, if you are in japan and the yen strengthens against the
dollar, what happens to your profits converted to dollars? - Answer✔They are weakened
What is the measure of risk in stock returns? - Answer✔standard deviation
Why is depreciation added to the net income statement? - Answer✔it is a non-cash expense
that was subtracted to initially lower the taxable income.
Limitations of a ratio analysis. - Answer✔Ratios are more meaningful when compared to some
standard of performance.
Definition of risk. - Answer✔uncertainty about an outcome
Definition of risk averse. - Answer✔being compensated for taking risks.
What is the expected value in a normal distribution? - Answer✔A normal bell shaped curve also
known as normal distribution. weighted avg calculation
What does correlation of +1, -1, and 0 mean? - Answer✔These are the extremes. For example:
two moving together in perfect lockstep have a rho of +1 and are positive. The opposite for
negative. If there is no relationship between variables the correlation coefficient is 0
What is diversification, how is it done and why? - Answer✔Holding 2 or more assets to max
return and minimize risk
2|Page
