COB 300 B- EXAM CH1-4 QUESTIONS
WITH COMPLETE ANSWERS
financial services corporations - Answer-large conglomerates that combine many
different financial institutions within a single corporation
-most started in one area but now diversified to cover the financial spectrum
credit unions - Answer-cooperative associations whose members are supposed to have
a common bond, such as being employees of the same firm.
-members savings are loaned only to other members usually for cars home
improvement loans and home mortages
-cheapest source of funds available
pension funds - Answer-retirement plans funded by corporations or government
agencies for their workers
-administered primarily by the trust departments of commercial banks or life insurance
companies
life insurance companies - Answer-Take savings in the form of annual premiums; invest
these funds in stocks, bonds, real estate, and mortgages; and make payments to the
beneficiaries of the insured parties.
mutual funds - Answer-are corpoerations that accept money from savers and then use
these funds to buy stocks long term bonds or short term debt instruments issued by
businesses or gov't units
-they also pool funds reducing risk by diversification
-they manage portfolios, buy and sell securities
money market funds - Answer-are used as interest bearing checking accounts
indexed funds - Answer-are designed to simply replicate the performance of a specific
market index
-tracks the S&P 500 index will simply hold the basket of stocks that comprise the S&P
500
actively managed funds - Answer-try to outperform the overall markets
-portfolio manager of an actively managed stock fund uses his or her expertise to select
what he or she thinks will be the best-performing stocks over a given time period.
exchange traded funds - Answer-ETFs buy a portfolio of stocks of a certain type—for
example, the S&P 500 or media companies or Chinese companies—and then sell their
own shares to the public
,private equity companies - Answer-organizations that operate much like hedge funds,
but rather than purchasing some of the stock of a firm, private equity players buy and
then manage entire firms.
-most of the money to buy the target companies is borrowed
-UNREGULATED
Dodd-Frank Act - Answer-main goals were to create a new agency for consumer
protection, work to increase the transparency of derivative transactions, and force
financial institutions to take steps to limit excessive risk taking and to hold more capital.
the stock market is where - Answer-the prices of firms stocks are established
Physical location exchanges - Answer-NYSE
-tangible entities
-has its own building, allows limited # of people on the floor to trade
-has elected governing body
-open on all normal working days
-auction markets
electronic dealer-based markets - Answer-NASDAQ less formal over-the-counter
market, and the recently developed electronic communications networks (ECNs).
-buy and sell orders come in more or less simultaneously, and exchange members
match these orders
-These "dealers" buy when individual investors want to sell, and they sell part of their
inventory when investors want to buy.
-dealer markets consist of
1)
the relatively few dealers who hold inventories of these securities and who are said to
"make a market" in these securities,
2)
the thousands of brokers who act as agents in bringing the dealers together with
investors, and
3)
the computers, terminals, and electronic networks that provide a communication link
between dealers and brokers.
closely held corporations - Answer-privately owned
-closely held stock
Outstanding shares of established publicly owned companies that are traded (type of
stock transaction) - Answer-Allied Food Products has 75 million shares of stock
outstanding If the owner of 100 shares sells his or her stock, the trade is said to have
occurred in the secondary market. Thus, the market for outstanding shares, or used
shares, is the secondary market.
-- the company recieves no new money when sales occur in this market
, Additional shares sold by established publicly owned companies (type of stock
transaction) - Answer-If Allied Food decides to sell (or issue) an additional 1 million
shares to raise new equity capital, this transaction is said to occur in the primary market
Initial public offerings made by privately held firms: the IPO market. - Answer-in the
summer of 2004, Google sold shares to the public for the first time at $85 per share. By
March 2018, its parent company's stock (Alphabet Inc.) was selling for more than
$1,030.
oversubscribed - Answer-which means that the demand for shares at the offering price
exceeds the number of shares issued
market price - Answer-The current price of a stock.
ex: Internet showed that on one day, Twitter's stock traded at $29.01.
intrinsic value - Answer-The price at which the stock would sell if all investors had all
knowable information about a stock
-intrinsic value is based on its expected future cash flows and its risk.
-market price tends to fluctuate around the intrinsic value, and the intrinsic value
changes over time as the company succeeds or fails with new projects, competitors
enter or exit the market, and so forth.
equilibrium price - Answer-the price that balances buy and sell orders at any given time
-he price remains relatively stable until new information becomes available and causes
the price to change.
Efficient market - Answer-A market in which prices are close to intrinsic values and
stocks seem to be in equilibrium.
when markets are efficient - Answer-investors can buy and sell stocks and be confident
that they are getting good prices.
when markets are inefficient - Answer-investors may be afraid to invest
behavioral finance theory - Answer-on average, asset prices are about equal to their
intrinsic values
-many events in the real world are inconsistent with this theory
The equation used to find the annual rate of return on any given stock is - Answer-
stock's dividend for the year plus the change in the stock's price during the year, divided
by its beginning-of-year price.
IPO - Answer-initial public offering, in which the prices are usually determined by the
investment bankers based on indications of interest from investors.
-investors commit to buying shares at a specific price
WITH COMPLETE ANSWERS
financial services corporations - Answer-large conglomerates that combine many
different financial institutions within a single corporation
-most started in one area but now diversified to cover the financial spectrum
credit unions - Answer-cooperative associations whose members are supposed to have
a common bond, such as being employees of the same firm.
-members savings are loaned only to other members usually for cars home
improvement loans and home mortages
-cheapest source of funds available
pension funds - Answer-retirement plans funded by corporations or government
agencies for their workers
-administered primarily by the trust departments of commercial banks or life insurance
companies
life insurance companies - Answer-Take savings in the form of annual premiums; invest
these funds in stocks, bonds, real estate, and mortgages; and make payments to the
beneficiaries of the insured parties.
mutual funds - Answer-are corpoerations that accept money from savers and then use
these funds to buy stocks long term bonds or short term debt instruments issued by
businesses or gov't units
-they also pool funds reducing risk by diversification
-they manage portfolios, buy and sell securities
money market funds - Answer-are used as interest bearing checking accounts
indexed funds - Answer-are designed to simply replicate the performance of a specific
market index
-tracks the S&P 500 index will simply hold the basket of stocks that comprise the S&P
500
actively managed funds - Answer-try to outperform the overall markets
-portfolio manager of an actively managed stock fund uses his or her expertise to select
what he or she thinks will be the best-performing stocks over a given time period.
exchange traded funds - Answer-ETFs buy a portfolio of stocks of a certain type—for
example, the S&P 500 or media companies or Chinese companies—and then sell their
own shares to the public
,private equity companies - Answer-organizations that operate much like hedge funds,
but rather than purchasing some of the stock of a firm, private equity players buy and
then manage entire firms.
-most of the money to buy the target companies is borrowed
-UNREGULATED
Dodd-Frank Act - Answer-main goals were to create a new agency for consumer
protection, work to increase the transparency of derivative transactions, and force
financial institutions to take steps to limit excessive risk taking and to hold more capital.
the stock market is where - Answer-the prices of firms stocks are established
Physical location exchanges - Answer-NYSE
-tangible entities
-has its own building, allows limited # of people on the floor to trade
-has elected governing body
-open on all normal working days
-auction markets
electronic dealer-based markets - Answer-NASDAQ less formal over-the-counter
market, and the recently developed electronic communications networks (ECNs).
-buy and sell orders come in more or less simultaneously, and exchange members
match these orders
-These "dealers" buy when individual investors want to sell, and they sell part of their
inventory when investors want to buy.
-dealer markets consist of
1)
the relatively few dealers who hold inventories of these securities and who are said to
"make a market" in these securities,
2)
the thousands of brokers who act as agents in bringing the dealers together with
investors, and
3)
the computers, terminals, and electronic networks that provide a communication link
between dealers and brokers.
closely held corporations - Answer-privately owned
-closely held stock
Outstanding shares of established publicly owned companies that are traded (type of
stock transaction) - Answer-Allied Food Products has 75 million shares of stock
outstanding If the owner of 100 shares sells his or her stock, the trade is said to have
occurred in the secondary market. Thus, the market for outstanding shares, or used
shares, is the secondary market.
-- the company recieves no new money when sales occur in this market
, Additional shares sold by established publicly owned companies (type of stock
transaction) - Answer-If Allied Food decides to sell (or issue) an additional 1 million
shares to raise new equity capital, this transaction is said to occur in the primary market
Initial public offerings made by privately held firms: the IPO market. - Answer-in the
summer of 2004, Google sold shares to the public for the first time at $85 per share. By
March 2018, its parent company's stock (Alphabet Inc.) was selling for more than
$1,030.
oversubscribed - Answer-which means that the demand for shares at the offering price
exceeds the number of shares issued
market price - Answer-The current price of a stock.
ex: Internet showed that on one day, Twitter's stock traded at $29.01.
intrinsic value - Answer-The price at which the stock would sell if all investors had all
knowable information about a stock
-intrinsic value is based on its expected future cash flows and its risk.
-market price tends to fluctuate around the intrinsic value, and the intrinsic value
changes over time as the company succeeds or fails with new projects, competitors
enter or exit the market, and so forth.
equilibrium price - Answer-the price that balances buy and sell orders at any given time
-he price remains relatively stable until new information becomes available and causes
the price to change.
Efficient market - Answer-A market in which prices are close to intrinsic values and
stocks seem to be in equilibrium.
when markets are efficient - Answer-investors can buy and sell stocks and be confident
that they are getting good prices.
when markets are inefficient - Answer-investors may be afraid to invest
behavioral finance theory - Answer-on average, asset prices are about equal to their
intrinsic values
-many events in the real world are inconsistent with this theory
The equation used to find the annual rate of return on any given stock is - Answer-
stock's dividend for the year plus the change in the stock's price during the year, divided
by its beginning-of-year price.
IPO - Answer-initial public offering, in which the prices are usually determined by the
investment bankers based on indications of interest from investors.
-investors commit to buying shares at a specific price
