FINC 3610 Exam 1 Questions and Answers Already Passed Latest Update 2025-2026
4 basic areas of finance - Answers •Corporate finance
•Investments
•Financial institutions
•International finance
Investments - Answers -Works with financial assets such as stocks and bonds
-The Value of financial assets, risk versus return and asset allocation
3 main financial institutions - Answers 1. Banks - commercial and investment, credit unions,
savings and loans
2. Insurance companies
3. Brokerage firms
Financial management decisions - Answers 1. Capital budgeting
2. Capital structure
3. Working capital management
capital budgeting - Answers What long-term investments or projects should the business take
on?
capital structure - Answers How should we pay for our assets? Should we use debt or equity?
working capital management - Answers How do we manage the day-to-day finances of the firm?
goal of a firm's financial manager - Answers To maximize the current market value (share price)
of the equity of the firm (whether it's publicly traded or not).
Initial public offerings (IPO)'s are - Answers A primary market transaction.
auction market - Answers NYSE, brokers and agents meet at a physical location (the exchange)
to match buyers and sellers of assets
sole proprietorship advantages - Answers Easiest to start
Least regulated
Single owner keeps all the profits
Taxed once as personal income
, sole proprietorship disadvantages - Answers Limited to life of owner
Equity capital limited to owner's personal wealth
Unlimited liability
Difficult to sell ownership interest
partnership advantages - Answers Two or more owners
More capital available
Relatively easy to start
Income taxed once as personal income
partnership disadvantages - Answers Unlimited liability
•General partnership•Limited partnership
Partnership dissolves when one partner dies or wishes to sell
Difficult to transfer ownership
corporation advantages - Answers Limited liability
Unlimited life
Separation of ownership and management
Transfer of ownership is easy
Easier to raise capital
corporation disadvantages - Answers Double taxation (income taxed at the corporate rate and
then dividends taxed at the personal rate)
agency relationship - Answers -Principal hires an agent to represent his/her interests
-Stockholders (principals) hire managers (agents) to run the company
agency problem - Answers Conflict of interest between principal and agent
managerial compensation - Answers -Incentives can be used to align management and
stockholder interests
-The incentives need to be structured carefully to make sure that they achieve their goal
Dealer markets - Answers NASDAQ, consist of dealers operating at dispersed locales who buy
and sell assets themselves, communicating with other dealers either electronically or literally
4 basic areas of finance - Answers •Corporate finance
•Investments
•Financial institutions
•International finance
Investments - Answers -Works with financial assets such as stocks and bonds
-The Value of financial assets, risk versus return and asset allocation
3 main financial institutions - Answers 1. Banks - commercial and investment, credit unions,
savings and loans
2. Insurance companies
3. Brokerage firms
Financial management decisions - Answers 1. Capital budgeting
2. Capital structure
3. Working capital management
capital budgeting - Answers What long-term investments or projects should the business take
on?
capital structure - Answers How should we pay for our assets? Should we use debt or equity?
working capital management - Answers How do we manage the day-to-day finances of the firm?
goal of a firm's financial manager - Answers To maximize the current market value (share price)
of the equity of the firm (whether it's publicly traded or not).
Initial public offerings (IPO)'s are - Answers A primary market transaction.
auction market - Answers NYSE, brokers and agents meet at a physical location (the exchange)
to match buyers and sellers of assets
sole proprietorship advantages - Answers Easiest to start
Least regulated
Single owner keeps all the profits
Taxed once as personal income
, sole proprietorship disadvantages - Answers Limited to life of owner
Equity capital limited to owner's personal wealth
Unlimited liability
Difficult to sell ownership interest
partnership advantages - Answers Two or more owners
More capital available
Relatively easy to start
Income taxed once as personal income
partnership disadvantages - Answers Unlimited liability
•General partnership•Limited partnership
Partnership dissolves when one partner dies or wishes to sell
Difficult to transfer ownership
corporation advantages - Answers Limited liability
Unlimited life
Separation of ownership and management
Transfer of ownership is easy
Easier to raise capital
corporation disadvantages - Answers Double taxation (income taxed at the corporate rate and
then dividends taxed at the personal rate)
agency relationship - Answers -Principal hires an agent to represent his/her interests
-Stockholders (principals) hire managers (agents) to run the company
agency problem - Answers Conflict of interest between principal and agent
managerial compensation - Answers -Incentives can be used to align management and
stockholder interests
-The incentives need to be structured carefully to make sure that they achieve their goal
Dealer markets - Answers NASDAQ, consist of dealers operating at dispersed locales who buy
and sell assets themselves, communicating with other dealers either electronically or literally
