COB 300 Finance Exam 1 Study Guide with correct
Answers
Finance - Answerthe system that includes the circulation of money, the granting of
credit, the making of investments, and the provision of banking facilities
/.Financial Management (Corporate Finance) - Answerfocuses on decisions relating to
how much and what type of assets to acquire, how to raise the capital needed to
purchase assets, and how to run the firm as to maximize its value; same rules apply to
both for-profit and not-for-profit
/.Capital Markets - Answerrelate to the markets where interest rates, along with stock
and bond prices, are determined
/.Federal Reserve System - Answerregulates banks and controls the supply of money
/.Securities and Exchange Commission (SEC) - Answerregulates the trading of stock
and bonds in public markets
/.Investments - Answerrelate to decisions concerning stock and bonds and include a
number of activities
/.Security Analysis - Answerdeals with finding the proper value of individual securities
/.Portfolio Theory - Answerdeals with the best way to structure portfolios, or "baskets" of
stock and bonds
/.Market Analysis - Answerdeals with the issue of whether stock and bond markets at
any given time at too high, too low, or about right; has to do with behavioral finance
/.Behavioral Finance - Answerwhere investor psychology is examined in an effort to
determine whether stock prices have been bid up to unreasonable heights in a
speculative bubble or driven down to unreasonable lows in a fit of irrational pessimism.
/.Hierarchy of Organizations - Answer- Board of Directors
- CEO
- COO
- CFO
/.COO - Answeroften the firm's president and directs the firm's operations: marketing,
manufacturing, sales, and other operating departments
, /.CFO - Answersenior vice president and is in charge of accounting, finance, credit
policy, decisions regarding asset acquisition, and investor relations which involves
communications with stockholders and the press
/.Sarbanes-Oxley Act of 2002 - Answerprovides sweeping new legal protection for
employees who report corporate misconduct
/.Defined Contribution Pension Plan - Answereach year the company puts a specified
number of money into an account that belongs to the employee and the employee must
decide how this money is invested and how much risk they are willing to take
/.Four Main Forms of Business Organizations - Answer1. proprietorships
2. partnerships
3. corporations
4. limited liability companies (LLCs) and limited liability partnerships (LLPs)
/.Proprietorships - Answerunincorporated business owned by an individual
/.Advantages of Proprietorship - Answer1. they are easy and inexpensive to form
2. they are subject to few government regulations
3. they are subject to lower income taxes than are corporations
/.Limitations of Proprietorship - AnswerUnlimited personal liability
Limited life
Transferring ownership is difficult
Difficult to raise capital
/.Partnership - AnswerA legal agreement between two or more people to be jointly
responsible for the success or failure of a business.
/.Advantages of Parnetship - Answereasy to establish and inexpensive; firm's income is
allocated on a pro rata basis and is taxed individually so they can avoid corporate tax
/.Limitations of Partnership - Answerunlimited personal liability, difficult to raise capital,
life is limited to owners' lives
/.Corporations - Answerlegal entity created by a state, and is separate and distinct from
its owners and managesr
/.Advantages of Corporations - Answerownership of corporations is easily transferable
and it rarely has any effect on the daily operations of the business
- unlimited life
- separation limits stockholders' losses to the amount they invested
/.Limitation of Corporations - Answerincomes are subjected to double taxation
Answers
Finance - Answerthe system that includes the circulation of money, the granting of
credit, the making of investments, and the provision of banking facilities
/.Financial Management (Corporate Finance) - Answerfocuses on decisions relating to
how much and what type of assets to acquire, how to raise the capital needed to
purchase assets, and how to run the firm as to maximize its value; same rules apply to
both for-profit and not-for-profit
/.Capital Markets - Answerrelate to the markets where interest rates, along with stock
and bond prices, are determined
/.Federal Reserve System - Answerregulates banks and controls the supply of money
/.Securities and Exchange Commission (SEC) - Answerregulates the trading of stock
and bonds in public markets
/.Investments - Answerrelate to decisions concerning stock and bonds and include a
number of activities
/.Security Analysis - Answerdeals with finding the proper value of individual securities
/.Portfolio Theory - Answerdeals with the best way to structure portfolios, or "baskets" of
stock and bonds
/.Market Analysis - Answerdeals with the issue of whether stock and bond markets at
any given time at too high, too low, or about right; has to do with behavioral finance
/.Behavioral Finance - Answerwhere investor psychology is examined in an effort to
determine whether stock prices have been bid up to unreasonable heights in a
speculative bubble or driven down to unreasonable lows in a fit of irrational pessimism.
/.Hierarchy of Organizations - Answer- Board of Directors
- CEO
- COO
- CFO
/.COO - Answeroften the firm's president and directs the firm's operations: marketing,
manufacturing, sales, and other operating departments
, /.CFO - Answersenior vice president and is in charge of accounting, finance, credit
policy, decisions regarding asset acquisition, and investor relations which involves
communications with stockholders and the press
/.Sarbanes-Oxley Act of 2002 - Answerprovides sweeping new legal protection for
employees who report corporate misconduct
/.Defined Contribution Pension Plan - Answereach year the company puts a specified
number of money into an account that belongs to the employee and the employee must
decide how this money is invested and how much risk they are willing to take
/.Four Main Forms of Business Organizations - Answer1. proprietorships
2. partnerships
3. corporations
4. limited liability companies (LLCs) and limited liability partnerships (LLPs)
/.Proprietorships - Answerunincorporated business owned by an individual
/.Advantages of Proprietorship - Answer1. they are easy and inexpensive to form
2. they are subject to few government regulations
3. they are subject to lower income taxes than are corporations
/.Limitations of Proprietorship - AnswerUnlimited personal liability
Limited life
Transferring ownership is difficult
Difficult to raise capital
/.Partnership - AnswerA legal agreement between two or more people to be jointly
responsible for the success or failure of a business.
/.Advantages of Parnetship - Answereasy to establish and inexpensive; firm's income is
allocated on a pro rata basis and is taxed individually so they can avoid corporate tax
/.Limitations of Partnership - Answerunlimited personal liability, difficult to raise capital,
life is limited to owners' lives
/.Corporations - Answerlegal entity created by a state, and is separate and distinct from
its owners and managesr
/.Advantages of Corporations - Answerownership of corporations is easily transferable
and it rarely has any effect on the daily operations of the business
- unlimited life
- separation limits stockholders' losses to the amount they invested
/.Limitation of Corporations - Answerincomes are subjected to double taxation
