MBA 620 Midterm ACTUAL QUESTIONS
AND CORRECT ANSWERS
Agency Problem - CORRECT ANSWERS the possibility of conflict of
interest between the owners and management of a firm
annuity - CORRECT ANSWERS A level stream of cash flows for a fixed
period of time
annuity due - CORRECT ANSWERS an annuity for which the cash
flows occur at the beginning of the period
Amortization - CORRECT ANSWERS the process of spreading out a
loan into a series of fixed payments over time
Capital Budgeting - CORRECT ANSWERS the process of planning and
managing a firm's long-term investments.
* in capital budgeting, the finance manager tries to identify investment
opportunities that are worth more to the firm than they cost to acquire.
Capital Structure - CORRECT ANSWERS refers to the specific mixture
of long term debt and equity that a firm uses to finance its operations.
* how and where to raise the money, how much a firm should borrow, etc.
Working Capital Management - CORRECT ANSWERS the managing of
short-term assets and liabilities such as inventory and money owed. It ensures
that the firm has sufficient resources to continue day to day operations.
, Goal of Financial Management - CORRECT ANSWERS to maximize
profit and to make decisions that will increase the value of the stock or increase
the market value of the equity.
face value (par value) - CORRECT ANSWERS the amount that will be
repaid at the end of the loan
current yield - CORRECT ANSWERS a bond's annual coupon divided
by its price
Yield to Maturity (YTM) - CORRECT ANSWERS the rate required in
the market on a bond
Yield to Call (YTC) - CORRECT ANSWERS The average rate of return
earned on a bond if it is held until the first call date.
3 Rules of Bond Trading - CORRECT ANSWERS 1) there is an inverse
relationship between interest rates and bond prices.
2) long term bonds are more sensitive to interest rate changes than short term
bonds.
3) low coupon bonds are more sensitive to interest rate changes than high
coupon bonds
premium bond - CORRECT ANSWERS a bond that sells above its par
value; occurs whenever the going rate of interest is below the coupon rate
discount bond - CORRECT ANSWERS A bond that sells below its par
value; occurs whenever the going rate of interest is above the coupon rate
AND CORRECT ANSWERS
Agency Problem - CORRECT ANSWERS the possibility of conflict of
interest between the owners and management of a firm
annuity - CORRECT ANSWERS A level stream of cash flows for a fixed
period of time
annuity due - CORRECT ANSWERS an annuity for which the cash
flows occur at the beginning of the period
Amortization - CORRECT ANSWERS the process of spreading out a
loan into a series of fixed payments over time
Capital Budgeting - CORRECT ANSWERS the process of planning and
managing a firm's long-term investments.
* in capital budgeting, the finance manager tries to identify investment
opportunities that are worth more to the firm than they cost to acquire.
Capital Structure - CORRECT ANSWERS refers to the specific mixture
of long term debt and equity that a firm uses to finance its operations.
* how and where to raise the money, how much a firm should borrow, etc.
Working Capital Management - CORRECT ANSWERS the managing of
short-term assets and liabilities such as inventory and money owed. It ensures
that the firm has sufficient resources to continue day to day operations.
, Goal of Financial Management - CORRECT ANSWERS to maximize
profit and to make decisions that will increase the value of the stock or increase
the market value of the equity.
face value (par value) - CORRECT ANSWERS the amount that will be
repaid at the end of the loan
current yield - CORRECT ANSWERS a bond's annual coupon divided
by its price
Yield to Maturity (YTM) - CORRECT ANSWERS the rate required in
the market on a bond
Yield to Call (YTC) - CORRECT ANSWERS The average rate of return
earned on a bond if it is held until the first call date.
3 Rules of Bond Trading - CORRECT ANSWERS 1) there is an inverse
relationship between interest rates and bond prices.
2) long term bonds are more sensitive to interest rate changes than short term
bonds.
3) low coupon bonds are more sensitive to interest rate changes than high
coupon bonds
premium bond - CORRECT ANSWERS a bond that sells above its par
value; occurs whenever the going rate of interest is below the coupon rate
discount bond - CORRECT ANSWERS A bond that sells below its par
value; occurs whenever the going rate of interest is above the coupon rate
