FIN 3003 EXAM 1 UPDATED ACTUAL QUESTIONS AND CORRECT ANSWERS

FIN 3003 EXAM 1 UPDATED ACTUAL QUESTIONS AND
CORRECT ANSWERS

Question:
1. Finance is concerned with managing ________________ in a world of ________________
Answer:
Money; uncertainty

Question:
2. Finance relies on ________________ and ________________
Answer:
accounting; econonics

Question:
3. Name the 3 areas of finance: ________________________________
________________________________ ________________________________
Answer:
1. Financial markets
2. Investments
3. Financial Management

Question:
4. If you earned a return of 12% on Netflix stock, the cost of raising funds for Netflix is
________________
Answer:
12%

Question:
5. The balance sheet equation is ________________ and shows what an economic unit
________________, ________________, and ________________
Answer:
liabilities + equity = assets; owns; owes; net worth

Question:
6. A firm's 2 sources of capital include ________________ and ________________
Answer:
debt; equity

Question:
7. An investor's two sources of return are ________________ and ________________
Answer:
current income; capital gains

Question:
8. Risk is the presence of ________________________________

, Answer:
uncertainty

Question:
9. If an asset has higher risk, an investor should demand ________________________________
Answer:
higher returns

Question:
10. In order to reduce or manage risk, an investor should ________________________________
Answer:
diversify their portfolio

Question:
11. Leverage is caused by using ________________ and has the advantage of ________________ returns
and leads to ________________ risk
Answer:
debt; magnifying; higher

Question:
12. The value of an asset is NOT its ________________. The value of an asset is found by finding the
________________________________
Answer:
market price; present value of the future cash flows

Question:
13. The goal of the firm is to ________________________________
Answer:
maximize shareholders wealth

Question:
14. Money is anything ________________________________ for payment of
________________________________
Answer:
accepted; goods and services

Question:
15. 3 features of money: ________________________________ ________________________________
________________________________
Answer:
medium of exchange; store of value; liquidity

Question:
16. The money supply is all money in ________________, is controlled by ________________, and can
be measured using ________________
Answer:
circulation; the fed; M1 and M2