ASU FIN 300 QUESTIONS AND ANSWERS SURE A+
✔✔Brokers - ✔✔market specialists who *bring buyers and sellers together* usually for
commission
in secondary markets
✔✔Dealers - ✔✔market specialists who *make markets for securities* by *buying and
selling from* their *own inventories*
bear risk
price risk - selling security for less than what paid for
✔✔efficient market - ✔✔market where prices reflect the knowledge and expectations of
all investors
✔✔market operational efficiency - ✔✔the degree to which the transaction costs of
bringing buyers and sellers together are minimized
✔✔market informational efficiency - ✔✔the degree to which current market prices reflect
relevant information and, therefore, the true value of the security
✔✔efficient market hypothesis - ✔✔a theory concerning the extent to which information
is reflected in security prices and how information gets incorporated into security prices
✔✔Strong-form versus weak-form efficient market hypothesis - ✔✔strong = securities
prices reflect all information
weak = security prices reflect all information in past prices but do not reflect all
private/public information
✔✔private vs public information - ✔✔private = not available to all investors
, public = available to all investors
✔✔Initial Public Offering (IPO) - ✔✔The first public offering of a corporation's stock.
✔✔interest - ✔✔the price paid for the use of borrowed money
✔✔real interest rate - ✔✔the interest rate that would exist in the absence of inflation
(*inflation adjusted* return earned by lender-savers or cost by borrower spenders)
✔✔Fluctuations in the real rate: - ✔✔*decrease in real rate* from:
↓ in tax rates (more money left to lend)
↑ in money supply by FED
-growth in population, demographics, age of population, cultural differences
around 3% in US (between 2-4%)
✔✔nominal interest rate - ✔✔the rate of interest that is *unadjusted for inflation*
✔✔Equilibrium rate of interest - ✔✔interest rate at which the *supply of funds = demand
for those funds*
✔✔Fisher Equation (protection against inflation) - ✔✔real interest rate = nominal
interest rate + expected annualized price-level change
or real interest rate = nominal interest rate - inflation rate
✔✔Long Term Trends in Interest Rates - ✔✔1. the level of interest rates tends to rise
and fall with changes in the actual rate of inflation
2. the level of inflation rates tends to rise during periods of economic expansion and
decline during periods of economic contraction
✔✔annual report - ✔✔most important report the firm issue to their stockholders/general
public
3 parts:
1. financial information about operations and performance
2. PR, firm's product lines, service etc.
3. Audited Financial statements
✔✔GAAP - ✔✔a set of rules that defines how companies are to prepare financial
statements
-how to maintain financial records and prepare financial reports
✔✔Brokers - ✔✔market specialists who *bring buyers and sellers together* usually for
commission
in secondary markets
✔✔Dealers - ✔✔market specialists who *make markets for securities* by *buying and
selling from* their *own inventories*
bear risk
price risk - selling security for less than what paid for
✔✔efficient market - ✔✔market where prices reflect the knowledge and expectations of
all investors
✔✔market operational efficiency - ✔✔the degree to which the transaction costs of
bringing buyers and sellers together are minimized
✔✔market informational efficiency - ✔✔the degree to which current market prices reflect
relevant information and, therefore, the true value of the security
✔✔efficient market hypothesis - ✔✔a theory concerning the extent to which information
is reflected in security prices and how information gets incorporated into security prices
✔✔Strong-form versus weak-form efficient market hypothesis - ✔✔strong = securities
prices reflect all information
weak = security prices reflect all information in past prices but do not reflect all
private/public information
✔✔private vs public information - ✔✔private = not available to all investors
, public = available to all investors
✔✔Initial Public Offering (IPO) - ✔✔The first public offering of a corporation's stock.
✔✔interest - ✔✔the price paid for the use of borrowed money
✔✔real interest rate - ✔✔the interest rate that would exist in the absence of inflation
(*inflation adjusted* return earned by lender-savers or cost by borrower spenders)
✔✔Fluctuations in the real rate: - ✔✔*decrease in real rate* from:
↓ in tax rates (more money left to lend)
↑ in money supply by FED
-growth in population, demographics, age of population, cultural differences
around 3% in US (between 2-4%)
✔✔nominal interest rate - ✔✔the rate of interest that is *unadjusted for inflation*
✔✔Equilibrium rate of interest - ✔✔interest rate at which the *supply of funds = demand
for those funds*
✔✔Fisher Equation (protection against inflation) - ✔✔real interest rate = nominal
interest rate + expected annualized price-level change
or real interest rate = nominal interest rate - inflation rate
✔✔Long Term Trends in Interest Rates - ✔✔1. the level of interest rates tends to rise
and fall with changes in the actual rate of inflation
2. the level of inflation rates tends to rise during periods of economic expansion and
decline during periods of economic contraction
✔✔annual report - ✔✔most important report the firm issue to their stockholders/general
public
3 parts:
1. financial information about operations and performance
2. PR, firm's product lines, service etc.
3. Audited Financial statements
✔✔GAAP - ✔✔a set of rules that defines how companies are to prepare financial
statements
-how to maintain financial records and prepare financial reports
