WGU C214 FINANCIAL MANAGEMENT EXAM (WESTERN
GOVERNORS UNIVERSITY) | QUESTIONS AND ANSWERS | LATEST
EXAM UPDATE
Corporate Finance - CORRECT ANSWER - focuses on financial decision
making by a firms management
Investments - CORRECT ANSWER - various types of financial instruments
(stocks, bonds, etc)
Banking or Financial Institutions - CORRECT ANSWER - make money by
paying depositors a smaller interest rate than the interest rate charged to
borrowers
Treasury Securities - CORRECT ANSWER - generally bonds that are issued
by the US government
Corporate Bonds - CORRECT ANSWER - firms borrowing from the public
Stocks - CORRECT ANSWER - a share of ownership in a company
Primary financial markets - CORRECT ANSWER - markets where securities
are first issued
Syndicate - CORRECT ANSWER - a group that is temporarily formed to
handle a bond or stock issue: generally large investment bank or institutional
investors
Underwriter - CORRECT ANSWER - responsible for determining the value of
the security; may purchase all the securities & then resale to investors
,Competitive sale - CORRECT ANSWER - underwriters submit bids offering
highest price/lowest interest rate; underwriter resales a slightly higher price
Negotiated sale - CORRECT ANSWER - underwriters submit bids, go thru
interview to be selected
Secondary financial markets - CORRECT ANSWER - where securities are
traded after the initial offering (stock market)
Auction market - CORRECT ANSWER - has a physical location & prices are
determined by the highest price an investor is willing to pay (New York Stock
Exchange)
Dealer market - CORRECT ANSWER - no physical location- securities are
bought & sold thru a network of dealers that trade for themselves; multi dealers
per stock (NASDAQ)
Role of financial markets - CORRECT ANSWER - they reduce the cost of
borrowing from the public or selling ownership to the public
Role of Specialist (NYSE) or Dealers - CORRECT ANSWER - provide
liquidity for a fair & orderly market; may increase the spread to do so (charge a
lower price to seller and a higher price to buyer)
Financial market liquidity - CORRECT ANSWER - the ease of trading in the
market (high frquency traders)
Market orders - CORRECT ANSWER - time sensitive; sales at current bid
price/buys at current asking price when order is placed-immediately
,Limited orders - CORRECT ANSWER - price sensitive; sell occurs when
price of stock matches order price
Role of price - CORRECT ANSWER - convet information to consumers;
affect incentives &affect the distribution of income
Dollar Returns - CORRECT ANSWER - Pt - Pt-1 + CFt (Pt= sold price, Pt-
1=bought price, CFt=cash flow-coupons for bonds/dividians for stocks)
Percentage Returns - CORRECT ANSWER - Pt - Pt-1/Pt-1 + CFt/Pt-1 x 100
(1.2)
(figure for dollar return and divide into bought price)
Goal of company/firm - CORRECT ANSWER - to maximize shareholder
value or maximize profit
Agency costs - CORRECT ANSWER - costs that are incurred when
management doesn't act in the best interests of shareholders
Profit maximizarion - CORRECT ANSWER - the potential effect of focusing
soley on profits
Accounting - CORRECT ANSWER - is backward-looking and risk free
Finance - CORRECT ANSWER - is forward-looking and involes massive
uncertainty
Income Statement - CORRECT ANSWER - show results of operation over
time; revenues - expenses = net income
, Balance Sheet - CORRECT ANSWER - a "snap shot" of a firm's assests &
financing at a paticular point in time; Assets= Liabilities + Owner's Equity
Statement of Cash Flows - CORRECT ANSWER - tracks all cash in and out
of the firm
Cash Accounting - CORRECT ANSWER - cash in =revenue; cash
out=expense
Accrual Accounting - CORRECT ANSWER - revenues are recognized when
the earnings process is complete; expenses are "matched" to recongized
revenues
Cash-based income - CORRECT ANSWER - an informal metric based on
cash in & cash out of the firm
Income for tax purposes - CORRECT ANSWER - based on the government's
definition of income, this is the amount of income the government will tax
Accounting income - CORRECT ANSWER - the income calculated using
accrual accounting (aka, GAAP); best & most complicated metric for
understanding the operations of the firm
On the Income statement - CORRECT ANSWER - Revenues- Cost of goods
sold= Gross profit
- Operating expenses= earning before interest & taxes
- interest expenses, - taxes= Net income
Revenue - CORRECT ANSWER - recognized when "earned"
Cost of Goods Sold - CORRECT ANSWER - direct costs of materials & labor
GOVERNORS UNIVERSITY) | QUESTIONS AND ANSWERS | LATEST
EXAM UPDATE
Corporate Finance - CORRECT ANSWER - focuses on financial decision
making by a firms management
Investments - CORRECT ANSWER - various types of financial instruments
(stocks, bonds, etc)
Banking or Financial Institutions - CORRECT ANSWER - make money by
paying depositors a smaller interest rate than the interest rate charged to
borrowers
Treasury Securities - CORRECT ANSWER - generally bonds that are issued
by the US government
Corporate Bonds - CORRECT ANSWER - firms borrowing from the public
Stocks - CORRECT ANSWER - a share of ownership in a company
Primary financial markets - CORRECT ANSWER - markets where securities
are first issued
Syndicate - CORRECT ANSWER - a group that is temporarily formed to
handle a bond or stock issue: generally large investment bank or institutional
investors
Underwriter - CORRECT ANSWER - responsible for determining the value of
the security; may purchase all the securities & then resale to investors
,Competitive sale - CORRECT ANSWER - underwriters submit bids offering
highest price/lowest interest rate; underwriter resales a slightly higher price
Negotiated sale - CORRECT ANSWER - underwriters submit bids, go thru
interview to be selected
Secondary financial markets - CORRECT ANSWER - where securities are
traded after the initial offering (stock market)
Auction market - CORRECT ANSWER - has a physical location & prices are
determined by the highest price an investor is willing to pay (New York Stock
Exchange)
Dealer market - CORRECT ANSWER - no physical location- securities are
bought & sold thru a network of dealers that trade for themselves; multi dealers
per stock (NASDAQ)
Role of financial markets - CORRECT ANSWER - they reduce the cost of
borrowing from the public or selling ownership to the public
Role of Specialist (NYSE) or Dealers - CORRECT ANSWER - provide
liquidity for a fair & orderly market; may increase the spread to do so (charge a
lower price to seller and a higher price to buyer)
Financial market liquidity - CORRECT ANSWER - the ease of trading in the
market (high frquency traders)
Market orders - CORRECT ANSWER - time sensitive; sales at current bid
price/buys at current asking price when order is placed-immediately
,Limited orders - CORRECT ANSWER - price sensitive; sell occurs when
price of stock matches order price
Role of price - CORRECT ANSWER - convet information to consumers;
affect incentives &affect the distribution of income
Dollar Returns - CORRECT ANSWER - Pt - Pt-1 + CFt (Pt= sold price, Pt-
1=bought price, CFt=cash flow-coupons for bonds/dividians for stocks)
Percentage Returns - CORRECT ANSWER - Pt - Pt-1/Pt-1 + CFt/Pt-1 x 100
(1.2)
(figure for dollar return and divide into bought price)
Goal of company/firm - CORRECT ANSWER - to maximize shareholder
value or maximize profit
Agency costs - CORRECT ANSWER - costs that are incurred when
management doesn't act in the best interests of shareholders
Profit maximizarion - CORRECT ANSWER - the potential effect of focusing
soley on profits
Accounting - CORRECT ANSWER - is backward-looking and risk free
Finance - CORRECT ANSWER - is forward-looking and involes massive
uncertainty
Income Statement - CORRECT ANSWER - show results of operation over
time; revenues - expenses = net income
, Balance Sheet - CORRECT ANSWER - a "snap shot" of a firm's assests &
financing at a paticular point in time; Assets= Liabilities + Owner's Equity
Statement of Cash Flows - CORRECT ANSWER - tracks all cash in and out
of the firm
Cash Accounting - CORRECT ANSWER - cash in =revenue; cash
out=expense
Accrual Accounting - CORRECT ANSWER - revenues are recognized when
the earnings process is complete; expenses are "matched" to recongized
revenues
Cash-based income - CORRECT ANSWER - an informal metric based on
cash in & cash out of the firm
Income for tax purposes - CORRECT ANSWER - based on the government's
definition of income, this is the amount of income the government will tax
Accounting income - CORRECT ANSWER - the income calculated using
accrual accounting (aka, GAAP); best & most complicated metric for
understanding the operations of the firm
On the Income statement - CORRECT ANSWER - Revenues- Cost of goods
sold= Gross profit
- Operating expenses= earning before interest & taxes
- interest expenses, - taxes= Net income
Revenue - CORRECT ANSWER - recognized when "earned"
Cost of Goods Sold - CORRECT ANSWER - direct costs of materials & labor
