BSNS114 Exam Study Guide with
Questions and 100% Correct Answers
PV - Answer Present value; what investment is worth today
FV - Answer Future value; principal amount + interest earned
Interest rate - Answer Rate which is charged or paid for the use of assets
Interest rates are comprised of: - Answer Base rate, inflation premium,
uncertainty premium
Present value (PV) formula - Answer PV = FV/(1+r)^t
Compound interest - Answer Increase in the value of investment due to earning
interest on both principal and accumulated interest
Interest on interest - Answer Interest earned upon the reinvestment of
interest payments
Period of investment (t) formula - Answer t = ln(FV/PV) / ln(1+r)
Interest rate (r) formula - Answer r = (FV/PV)^(1/t) – 1
, Sole Proprietorship - Answer Owned and managed by a single person
Partnership - Answer Two or more owners joined together to manage and share profits
General partnership - Answer All partners are owners and active in managing
Limited partnership - Answer Has limited partners who are owners but not managers
Corporation - Answer A group of companies that act as a single entity
Incorporation - Answer Legal process used to form a coporate entity
Competing interest - Answer Shareholders and managers having their own
selfish interests
Agency problems - Answer Conflicts between principal and agent
The 3 disciplinary mechanisms - Answer Shareholders annual meeting, board
of directors, compensation plan
Purpose of shareholders annual meeting - Answer Evaluate performance
Theory of board of directors - Answer Oversee management
Theory of compensation plan - Answer Tying compensation to performance review
Questions and 100% Correct Answers
PV - Answer Present value; what investment is worth today
FV - Answer Future value; principal amount + interest earned
Interest rate - Answer Rate which is charged or paid for the use of assets
Interest rates are comprised of: - Answer Base rate, inflation premium,
uncertainty premium
Present value (PV) formula - Answer PV = FV/(1+r)^t
Compound interest - Answer Increase in the value of investment due to earning
interest on both principal and accumulated interest
Interest on interest - Answer Interest earned upon the reinvestment of
interest payments
Period of investment (t) formula - Answer t = ln(FV/PV) / ln(1+r)
Interest rate (r) formula - Answer r = (FV/PV)^(1/t) – 1
, Sole Proprietorship - Answer Owned and managed by a single person
Partnership - Answer Two or more owners joined together to manage and share profits
General partnership - Answer All partners are owners and active in managing
Limited partnership - Answer Has limited partners who are owners but not managers
Corporation - Answer A group of companies that act as a single entity
Incorporation - Answer Legal process used to form a coporate entity
Competing interest - Answer Shareholders and managers having their own
selfish interests
Agency problems - Answer Conflicts between principal and agent
The 3 disciplinary mechanisms - Answer Shareholders annual meeting, board
of directors, compensation plan
Purpose of shareholders annual meeting - Answer Evaluate performance
Theory of board of directors - Answer Oversee management
Theory of compensation plan - Answer Tying compensation to performance review
