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In which way is accounting different from finance? - (ANSWER)Accounting is backward
looking, while finance is focused on the future.
What is the main question that both individuals and companies must consider when making
financial decisions to reach a goal? - (ANSWER)Will the benefits of the action outweigh the
cost?
A financial manager at a company is trying to determine whether to issue new stocks or new
bonds to cover the costs of a project the company is doing the next year. - (ANSWER)Making
Financing Decision
How can investing help a person reach personal financial goals? - (ANSWER)It provides
access to potential revenue or increases in value to help meet goals faster.
A sign company is planning to have an initial public offering (IPO). In which type of market will
its stock first be sold to the public? - (ANSWER)Primary Market
,Which type of economic indicator changes after the economy changes and helps identify trends
in the long term? - (ANSWER)Lagging Indicator
How does an investment institution, such as a mutual fund, facilitate the circulation of money in
the economy? - (ANSWER)By providing individuals and firms access to financial markets to
buy or sell financial securities.
Which type of economic indicator is used by governments and policymakers to implement or
alter policies in an effort to avoid or minimize the effects of an economic downturn? -
(ANSWER)Leading Indicator
Suppose an individual does not eat chocolate because eating chocolate goes against personal
beliefs. Which type of standard is this? - (ANSWER)Moral
Which action is based upon moral standards? - (ANSWER)Although there is no company
policy regarding it, a financial manager chooses not to accept gifts from the company's clients to
ensure that she does not create a conflict of interest.
What should a potential bondholder (lender) do to prevent a company (borrower) from taking on
risky projects? - (ANSWER)Set strict covenants that the company cannot uphold if it chooses a
risky project
, What is the term for an individual's beliefs concerning what is and is not acceptable to personally
do? - (ANSWER)Morals
Which factor contributes to the inflation of the prices of goods and services over time? -
(ANSWER)increase demand for goods and service
Why can compounding interest be a good tool but also a significant detriment? -
(ANSWER)Compounding interest can be a good tool because it allows a lender to gain interest
on interest, but it is a detriment because it causes a borrower to pay interest on interest.
Which component of the required rate of return takes into account the loss of potential gain from
other alternatives? - (ANSWER)Opportunity Cost
How is inflation calculated? - (ANSWER)Inflation is calculated by determining the rate at
which the average price level of particular goods and services increases over a period of time in
an economy.
Based on the following information about the stocks of several companies, which stock displays
the greatest amount of risk?