COB 300 FINANCE PRACTICE EXAM
QUESTIONS AND ANSWERS
Debt holders - Answer-banker and bondholders
receive fixed payments no matter how a company does
Stockholders - Answer-people or entities that own stock in a corporation and therefore
are its owners
receive payments on how well a company does
Conflict between Debt holders and Stockholders - Answer-stockholders prefer riskier
projects because they are protected by limited liability
debt holders are concerned about the use of debt
Intrinsic Value - Answer-estimate of a stock's "true" value based on accurate risk and
return data
ESTIMATE
Primary Goal of Financial Management - Answer-maximize shareholder wealth
maximize stock price
Market Equilibrium - Answer-intrinsic value = stock price
Federal Funds Rate - Answer-used by commercial banks
Discount Rate - Answer-used by federal reserve
1% higher - Answer-discount rate is always ____ higher than federal funds rate
Federal Reserve raises and cuts: - Answer-Federal Funds Rate
Balance Sheet - Answer-provides a snapshot of a firm's financial position at one point in
time
Income Statement - Answer-summarizes a firm's revenues and expenses over a given
period of time
Statement of Stockholders' Equity - Answer-shows how much of the firm's earnings
were retained, rather than paid out as dividends
QUESTIONS AND ANSWERS
Debt holders - Answer-banker and bondholders
receive fixed payments no matter how a company does
Stockholders - Answer-people or entities that own stock in a corporation and therefore
are its owners
receive payments on how well a company does
Conflict between Debt holders and Stockholders - Answer-stockholders prefer riskier
projects because they are protected by limited liability
debt holders are concerned about the use of debt
Intrinsic Value - Answer-estimate of a stock's "true" value based on accurate risk and
return data
ESTIMATE
Primary Goal of Financial Management - Answer-maximize shareholder wealth
maximize stock price
Market Equilibrium - Answer-intrinsic value = stock price
Federal Funds Rate - Answer-used by commercial banks
Discount Rate - Answer-used by federal reserve
1% higher - Answer-discount rate is always ____ higher than federal funds rate
Federal Reserve raises and cuts: - Answer-Federal Funds Rate
Balance Sheet - Answer-provides a snapshot of a firm's financial position at one point in
time
Income Statement - Answer-summarizes a firm's revenues and expenses over a given
period of time
Statement of Stockholders' Equity - Answer-shows how much of the firm's earnings
were retained, rather than paid out as dividends
