Corporate Finance -- Exam #1 (Ch. 1 - 5)
CORPORATE FINANCE -- EXAM #1 (CH.
1 - 5) QUESTIONS AND ANSWERS
UPDATED 20O24 - 25
Finance ANS -The study of investing
Investing ANS -Committing resources today in hopes of earning a profit in the future
Goal of the firm ANS -Maximize stockholder wealth or maximize the stock price
Three elements of financial decision making ANS -1. Money
2. Time
3. Risk (Uncertainty)
Risk ANS -The chance that some unfavorable event will occur
Risk/Expected Return relationship ANS -In a financial market context, the chance that an investment
will provide a low or negative return
Proprietorship ANS -An unincorporated business owned by one individual
Partnership ANS -An unincorporated business owned by two or more persons
Corporation ANS -A legal entity created by a state, separate and distinct from its owners and managers,
having unlimited life, easy transferability of ownership, and limited liability
, Intrinsic value ANS -An estimate of a stock's "true" value based on accurate risk and return data. The
intrinsic value can be estimated, but not measured precisely
Over/Under valued ANS -Over Valued - selling above the intrinsic value
Under Valued - selling below the intrinsic value
Financial markets (two types): ANS -1. Deficit Spenders
2. Surplus Spenders
Deficit Spenders ANS -Spend more than they tend to have
Surplus Spenders ANS -Have more then they tend to spend
Commercial bank ANS -The traditional department store of finance serving a variety of savers and
borrowers; is a financial institution that provides various financial service, such as accepting deposits
and issuing loans
Investment bank ANS -An organization that underwrites and distributes new investment securities and
helps businesses obtain financing; help companies raise money by issuing new securities
Money market ANS -The financial markets in which funds are borrowed or loaned for short periods
(less than one year)
Capital market ANS -The financial markets for stocks and for intermediate- or long-term debt (one year
or longer)
Primary market ANS -Markets in which corporations raise capital by issuing new securities
Secondary market ANS -Markets in which securities and other financial assets are traded among
investors after they have been issued by corporations
CORPORATE FINANCE -- EXAM #1 (CH.
1 - 5) QUESTIONS AND ANSWERS
UPDATED 20O24 - 25
Finance ANS -The study of investing
Investing ANS -Committing resources today in hopes of earning a profit in the future
Goal of the firm ANS -Maximize stockholder wealth or maximize the stock price
Three elements of financial decision making ANS -1. Money
2. Time
3. Risk (Uncertainty)
Risk ANS -The chance that some unfavorable event will occur
Risk/Expected Return relationship ANS -In a financial market context, the chance that an investment
will provide a low or negative return
Proprietorship ANS -An unincorporated business owned by one individual
Partnership ANS -An unincorporated business owned by two or more persons
Corporation ANS -A legal entity created by a state, separate and distinct from its owners and managers,
having unlimited life, easy transferability of ownership, and limited liability
, Intrinsic value ANS -An estimate of a stock's "true" value based on accurate risk and return data. The
intrinsic value can be estimated, but not measured precisely
Over/Under valued ANS -Over Valued - selling above the intrinsic value
Under Valued - selling below the intrinsic value
Financial markets (two types): ANS -1. Deficit Spenders
2. Surplus Spenders
Deficit Spenders ANS -Spend more than they tend to have
Surplus Spenders ANS -Have more then they tend to spend
Commercial bank ANS -The traditional department store of finance serving a variety of savers and
borrowers; is a financial institution that provides various financial service, such as accepting deposits
and issuing loans
Investment bank ANS -An organization that underwrites and distributes new investment securities and
helps businesses obtain financing; help companies raise money by issuing new securities
Money market ANS -The financial markets in which funds are borrowed or loaned for short periods
(less than one year)
Capital market ANS -The financial markets for stocks and for intermediate- or long-term debt (one year
or longer)
Primary market ANS -Markets in which corporations raise capital by issuing new securities
Secondary market ANS -Markets in which securities and other financial assets are traded among
investors after they have been issued by corporations
