FINA 3332: UH Exam 1And 2 Spring
2013 Test Questions All Solved
Correctly.
shareholder wealth - Answer present value of the expected future returns to the owners
(shareholders) of the firm; measured by the market value of the shareholders' common stock
holdings (price per share times the number of shares outstanding)
primary normative goal of firm - Answer maximize shareholder wealth
Achievement of shareholder wealth maximization goal often constrained by - Answer social
responsibility concerns and problems arising out of agency relationships
most important forms of business organization - Answer sole proprietorship; partnership--
both limited and general; corporation
present value - Answer value today of a future payment (or series of future payments)
evaluated at the appropriate discount rate
discount rate - Answer the rate of intereste used in the process of finding present values; also
called *required rate of return*
market value - Answer price at which a stock trades in the financial market place
stakeholders - Answer constituent groups in a firm, including stockholders, bondholders,
suppliers, customers, employees, community neighbors, and creditors
agency relationships - Answer Occur when one or more individuals (principals) hire another
individual (agent) to perform a service on their behalf; often lead to agency problems and costs.
Two of most important in finance are between stockholders (owners) and managers and
between owners and creditors.
principal - Answer an amount of money that has been borrowed or invested
agent - Answer The party who acts on behalf of the principal and has a legal responsibility to
act in the best interests of the principal in an agency relationship.
,exercise price - Answer the price at which an option holder can purchase or sell a company's
stock; also called *strike price*
book value - Answer (term) per share of common stock is equal to the total (term) of the
common stockholders equity, divided by the total number of shares of common stock
outstanding
cash flow - Answer the actual amount of cash collected and paid out by a firm
sole proprietorship - Answer A business owned by one person. The owner of *this* has
unlimited liability for debts incurred by the business
partnership - Answer business organization in which two or more persons form a business
with the intention of making a profit
general partnership - Answer A business organization where each partner has unlimited
liabilities for all obligations of the business.
limited partnership - Answer business organization in which the liability of the partners is
generally limited to their investment
corporation - Answer business organization that is created as a "legal person" separate and
distinct from the individual or individuals who own the firm's stock; primary characteristics and
advantages include limited liability for firm's owners, permanency, and flexibility with respect to
making changes in ownership
risk - Answer the possibility that actual future returns will deviate from expected returns; the
variability of returns
financial middlemen - Answer brokers, dealers, investment bankers
surplus spending units - Answer the ultimate lenders
financial assets - Answer include money, debt securities, equity securities
financial intermediaries - Answer commercial banks, thrift institutions, investment
companies, pension funds, insurance companies, finance companies
deficit spending units - Answer the ultimate borrowers
, primary claims - Answer sold directly by the borrower and bought directly by the saver
(lender)
secondary claims - Answer issued by financial intermediaries to the ultimate lender, ie: bank
savings account
money markets - Answer financial markets in which short-term securities are bought and
sold; maturity less than one year; ie: treasury bills
capital markets - Answer financial markets in which long-term securities are bought and sold;
maturity greater than one year; ie: treasury bonds, corporate bonds, stock
primary financial market - Answer Financial markets in which new securities from an issuing
firm are bought and sold for the first time. Investment bankers are active in these markets;
money goes to issuer
secondary financial market - Answer financial markets in which *existing* securities are
offered for resale; OTC; ie: NY Stock Exchange, AMEX
term loans - Answer A debt obligation having an initial maturity (i.e., maturity at the time of
issue) between 1 and 10 years. Term loans are usually repaid in installments over the life of the
loan. This often is referred to as intermediate-term credit.
listed security exchanges - Answer Organized secondary security markets that operate at
designated places of business. The New York Stock Exchange (NYSE) is an example of a listed
security exchange.
OTC security markets - Answer A network of security dealers connected by a communications
system of telephones and computer terminals that provides price quotations on individual
securities; ie: NASDAQ
spread - Answer The difference between the selling price to the public of a new security
offering and the proceeds received by the offering firm. This also is termed an underwriting
discount
Securities and Exchange Commission (SEC) - Answer government regulatory agency
responsible for administering federal securities legislation
multinational corporation - Answer a firm with direct investments in more than one country
2013 Test Questions All Solved
Correctly.
shareholder wealth - Answer present value of the expected future returns to the owners
(shareholders) of the firm; measured by the market value of the shareholders' common stock
holdings (price per share times the number of shares outstanding)
primary normative goal of firm - Answer maximize shareholder wealth
Achievement of shareholder wealth maximization goal often constrained by - Answer social
responsibility concerns and problems arising out of agency relationships
most important forms of business organization - Answer sole proprietorship; partnership--
both limited and general; corporation
present value - Answer value today of a future payment (or series of future payments)
evaluated at the appropriate discount rate
discount rate - Answer the rate of intereste used in the process of finding present values; also
called *required rate of return*
market value - Answer price at which a stock trades in the financial market place
stakeholders - Answer constituent groups in a firm, including stockholders, bondholders,
suppliers, customers, employees, community neighbors, and creditors
agency relationships - Answer Occur when one or more individuals (principals) hire another
individual (agent) to perform a service on their behalf; often lead to agency problems and costs.
Two of most important in finance are between stockholders (owners) and managers and
between owners and creditors.
principal - Answer an amount of money that has been borrowed or invested
agent - Answer The party who acts on behalf of the principal and has a legal responsibility to
act in the best interests of the principal in an agency relationship.
,exercise price - Answer the price at which an option holder can purchase or sell a company's
stock; also called *strike price*
book value - Answer (term) per share of common stock is equal to the total (term) of the
common stockholders equity, divided by the total number of shares of common stock
outstanding
cash flow - Answer the actual amount of cash collected and paid out by a firm
sole proprietorship - Answer A business owned by one person. The owner of *this* has
unlimited liability for debts incurred by the business
partnership - Answer business organization in which two or more persons form a business
with the intention of making a profit
general partnership - Answer A business organization where each partner has unlimited
liabilities for all obligations of the business.
limited partnership - Answer business organization in which the liability of the partners is
generally limited to their investment
corporation - Answer business organization that is created as a "legal person" separate and
distinct from the individual or individuals who own the firm's stock; primary characteristics and
advantages include limited liability for firm's owners, permanency, and flexibility with respect to
making changes in ownership
risk - Answer the possibility that actual future returns will deviate from expected returns; the
variability of returns
financial middlemen - Answer brokers, dealers, investment bankers
surplus spending units - Answer the ultimate lenders
financial assets - Answer include money, debt securities, equity securities
financial intermediaries - Answer commercial banks, thrift institutions, investment
companies, pension funds, insurance companies, finance companies
deficit spending units - Answer the ultimate borrowers
, primary claims - Answer sold directly by the borrower and bought directly by the saver
(lender)
secondary claims - Answer issued by financial intermediaries to the ultimate lender, ie: bank
savings account
money markets - Answer financial markets in which short-term securities are bought and
sold; maturity less than one year; ie: treasury bills
capital markets - Answer financial markets in which long-term securities are bought and sold;
maturity greater than one year; ie: treasury bonds, corporate bonds, stock
primary financial market - Answer Financial markets in which new securities from an issuing
firm are bought and sold for the first time. Investment bankers are active in these markets;
money goes to issuer
secondary financial market - Answer financial markets in which *existing* securities are
offered for resale; OTC; ie: NY Stock Exchange, AMEX
term loans - Answer A debt obligation having an initial maturity (i.e., maturity at the time of
issue) between 1 and 10 years. Term loans are usually repaid in installments over the life of the
loan. This often is referred to as intermediate-term credit.
listed security exchanges - Answer Organized secondary security markets that operate at
designated places of business. The New York Stock Exchange (NYSE) is an example of a listed
security exchange.
OTC security markets - Answer A network of security dealers connected by a communications
system of telephones and computer terminals that provides price quotations on individual
securities; ie: NASDAQ
spread - Answer The difference between the selling price to the public of a new security
offering and the proceeds received by the offering firm. This also is termed an underwriting
discount
Securities and Exchange Commission (SEC) - Answer government regulatory agency
responsible for administering federal securities legislation
multinational corporation - Answer a firm with direct investments in more than one country
