MBA 727 CHOI LSUS FINANCIAL
MARKETS EXAM 2 CORRECT 100%
Indexed Mutual Funds - ANSWER A mutual fund that holds the same basket of
securities that are represented in an index such as the S&P 500 or the Wilshire 5000,
so that the investor receives roughly the same return as the index to which the fund is
tied.
Exchange- Traded Funds (ETFs) - ANSWER A security created by a securities firm
depositing into a fund that mirrors the holdings of stocks in an index.
Market Risk Premium - ANSWER The risk based on historical data that shows how
much on average the ownership of stocks pays over a risk- free return.
Firm- Specific Risk Premium - ANSWER A risk measured by beta that shows the overall
sensitivity of the stock's return relative to changes in the entire market
Beta - ANSWER A measure of the overall variability of a stock relative to changes in the
entire stock market
Capital Asset Pricing Model - ANSWER A model that asserts that the value of a share
of stock includes a risk- free return, a market risk premium, and a fi rm- specifi c risk
premium that is based on beta
Current Yield - ANSWER The coupon payment divided by the current price.
Leverage Ratio - ANSWER The ratio of the firm's debt relative to its equity.
Time Value of Money - ANSWER The terms on which one can trade off present
purchasing power for future purchasing power; the interest rate.
Compounding - ANSWER A method used to determine the future value of a sum lent
today.
Principal - ANSWER The original amount of funds lent.
Discounting - ANSWER A method used to determine the present value of a sum to be
received in the future.
Present Value - ANSWER The value today of funds to be received or paid on a future
date
Par Value - ANSWER The face value printed on a bond; the amount the bond originally
sold for
, Coupon Payments - ANSWER The periodic payments made to bondholders, which are
equal to the principal times the coupon rate.
Current Account - ANSWER Transactions that involve currently produced goods and
services, including the balance of goods and services.
Net Transfer Payments - ANSWER In the current account, the difference between
transfer payments received from and transfer payments made to foreigners
Trade Balance - ANSWER The difference between merchandise exports and imports.
Trade Deficit. - ANSWER Status when merchandise imports are greater than exports.
Trade Surplus - ANSWER Status when merchandise exports are greater than imports.
Balance of Goods and Ser vices - ANSWER Net exports of services plus the trade
balance.
Balance on Current Account - ANSWER The balance of goods and services plus net
unilateral transfers.
Capital Account - ANSWER The financial flow of funds and securities between the
United States and the world.
Capital Inflows - ANSWER Purchases of U.S. financial securities by foreigners and
borrowing from foreign sources by U.S. firms and residents.
Capital Outflows - ANSWER Purchases of foreign financial securities by U.S. residents
and borrowing by foreigners from U.S. banks and other domestic sources
Net Capital Inflow - ANSWER Status when there is a surplus in the capital account and
capital inflows exceed capital outflows
Financial Forward Contract - ANSWER An agreement in which the terms, including
price, are completed today for a transaction that will occur in the future.
Hedge - ANSWER An investment made to reduce risk
Forward Rate - ANSWER The price today for a delivery on a future date.
Futures Contracts - ANSWER Standardized agreements in agricultural and commodity
markets to trade a fi xed amount of the product or commodity on specifi c dates in the
future at a price determined today
MARKETS EXAM 2 CORRECT 100%
Indexed Mutual Funds - ANSWER A mutual fund that holds the same basket of
securities that are represented in an index such as the S&P 500 or the Wilshire 5000,
so that the investor receives roughly the same return as the index to which the fund is
tied.
Exchange- Traded Funds (ETFs) - ANSWER A security created by a securities firm
depositing into a fund that mirrors the holdings of stocks in an index.
Market Risk Premium - ANSWER The risk based on historical data that shows how
much on average the ownership of stocks pays over a risk- free return.
Firm- Specific Risk Premium - ANSWER A risk measured by beta that shows the overall
sensitivity of the stock's return relative to changes in the entire market
Beta - ANSWER A measure of the overall variability of a stock relative to changes in the
entire stock market
Capital Asset Pricing Model - ANSWER A model that asserts that the value of a share
of stock includes a risk- free return, a market risk premium, and a fi rm- specifi c risk
premium that is based on beta
Current Yield - ANSWER The coupon payment divided by the current price.
Leverage Ratio - ANSWER The ratio of the firm's debt relative to its equity.
Time Value of Money - ANSWER The terms on which one can trade off present
purchasing power for future purchasing power; the interest rate.
Compounding - ANSWER A method used to determine the future value of a sum lent
today.
Principal - ANSWER The original amount of funds lent.
Discounting - ANSWER A method used to determine the present value of a sum to be
received in the future.
Present Value - ANSWER The value today of funds to be received or paid on a future
date
Par Value - ANSWER The face value printed on a bond; the amount the bond originally
sold for
, Coupon Payments - ANSWER The periodic payments made to bondholders, which are
equal to the principal times the coupon rate.
Current Account - ANSWER Transactions that involve currently produced goods and
services, including the balance of goods and services.
Net Transfer Payments - ANSWER In the current account, the difference between
transfer payments received from and transfer payments made to foreigners
Trade Balance - ANSWER The difference between merchandise exports and imports.
Trade Deficit. - ANSWER Status when merchandise imports are greater than exports.
Trade Surplus - ANSWER Status when merchandise exports are greater than imports.
Balance of Goods and Ser vices - ANSWER Net exports of services plus the trade
balance.
Balance on Current Account - ANSWER The balance of goods and services plus net
unilateral transfers.
Capital Account - ANSWER The financial flow of funds and securities between the
United States and the world.
Capital Inflows - ANSWER Purchases of U.S. financial securities by foreigners and
borrowing from foreign sources by U.S. firms and residents.
Capital Outflows - ANSWER Purchases of foreign financial securities by U.S. residents
and borrowing by foreigners from U.S. banks and other domestic sources
Net Capital Inflow - ANSWER Status when there is a surplus in the capital account and
capital inflows exceed capital outflows
Financial Forward Contract - ANSWER An agreement in which the terms, including
price, are completed today for a transaction that will occur in the future.
Hedge - ANSWER An investment made to reduce risk
Forward Rate - ANSWER The price today for a delivery on a future date.
Futures Contracts - ANSWER Standardized agreements in agricultural and commodity
markets to trade a fi xed amount of the product or commodity on specifi c dates in the
future at a price determined today
