ACF Exam 1 Questions And Verified
Answers | Graded A+
Sole Proprietorship CORRECT ANSWERS Type of business owned and run by one
person that's easy to set up in which there's no separation between firm and the owner
so the owner has unlimited liability for the firm's debts and the firm only lasts as long as
the owner does
Partnerships CORRECT ANSWERS Business with more than one owner where all
partners are liable for firm's debt and any death or withdrawl of a partner results in
termination of the business
Limited Partnership CORRECT ANSWERS Consists of both general partners and
limited partners (ex. PE or VC)
General partners CORRECT ANSWERS invest capital, manage the business, and are
personally liable for partnership debts
Limited Partners CORRECT ANSWERS partners in a limited partnership who invest
capital but do not participate in management and they have limited liability
Limited Liability Company CORRECT ANSWERS All owners have limited liability and
can also run the business (Risk for owner much higher w/o LL vice versa for investors)
Corporations CORRECT ANSWERS A legal entity separate from its owners, which is
solely responsible for it's own obligations and must be legally formed under a charter
Charter CORRECT ANSWERS Specifies the initial rules that govern how the
corporation is run
Ownership of a corporation CORRECT ANSWERS Entire ownership is divided into
shares with no limit on the number of owners or who can own it
Ownership & Control of Corporations CORRECT ANSWERS Shareholders elect
boarder of directors who delegate to the CEO who manages the C-Suite (CFO, CTO
etc)
Percentage of business vs Percentage of Revenue CORRECT ANSWERS Sole
proprietorships make up the largest % of business, but corporations make up the
greatest % of revenue
Limited Liability CORRECT ANSWERS Owners' liability is limited to the amount they
invested in the firm and stockholders are not responsible for any encumbrances of the
firm (ie not required to pay back any debts incurred by the firm)
, Simple Interest Formula CORRECT ANSWERS FV = PV(1+R*t)
YTM Formula CORRECT ANSWERS (FV/P)^(1/n) - 1
Transitioning annual rate into other discount rate CORRECT ANSWERS (1 + annual) =
(1 + r)^n [n=number of periods of r in a year]
Bond CORRECT ANSWERS A security to raise money from investors today in
exchange for promised future payments
Corporate Bond Market CORRECT ANSWERS Critical funding source that provides
well over half of the debt financing for domestic nonfinancial corporate businesses with
big corps tending to have better access
Yield to maturity CORRECT ANSWERS Discount rate that sets the PV equal to the
current market price
PV CORRECT ANSWERS Sum of promised, future bond payments discounted to today
Zero coupon bonds always trade @ CORRECT ANSWERS a discount to par
Will only earn YTM if: CORRECT ANSWERS the bond is bought today and you hold it
to maturity assuming all promised payments are made
What does a higher YTM demonstrate? CORRECT ANSWERS the one with the higher
YTM has the higher risk as investors need to be compensated accordingly
Price and YTM CORRECT ANSWERS Move in opposite directions and depend on
discount and risk
How does price of a bond change over time CORRECT ANSWERS Will always rise to
FV with increase in prices equal to the coupon amount occurring right before coupon
payments and drops right after by the same amount (Zero coupon is just a straight line
to FV)
Coupon Rate =/</> YTM CORRECT ANSWERS Par, Discount, Premium
When a bond trades at a discount, what return do bond holders earn? CORRECT
ANSWERS returns on both coupons and FV
When a bond trades at a premium, what return do bond holders earn CORRECT
ANSWERS return on coupons is diminished by receiving a FV that's lower than P
Pure discount bond CORRECT ANSWERS zero coupon bond
Answers | Graded A+
Sole Proprietorship CORRECT ANSWERS Type of business owned and run by one
person that's easy to set up in which there's no separation between firm and the owner
so the owner has unlimited liability for the firm's debts and the firm only lasts as long as
the owner does
Partnerships CORRECT ANSWERS Business with more than one owner where all
partners are liable for firm's debt and any death or withdrawl of a partner results in
termination of the business
Limited Partnership CORRECT ANSWERS Consists of both general partners and
limited partners (ex. PE or VC)
General partners CORRECT ANSWERS invest capital, manage the business, and are
personally liable for partnership debts
Limited Partners CORRECT ANSWERS partners in a limited partnership who invest
capital but do not participate in management and they have limited liability
Limited Liability Company CORRECT ANSWERS All owners have limited liability and
can also run the business (Risk for owner much higher w/o LL vice versa for investors)
Corporations CORRECT ANSWERS A legal entity separate from its owners, which is
solely responsible for it's own obligations and must be legally formed under a charter
Charter CORRECT ANSWERS Specifies the initial rules that govern how the
corporation is run
Ownership of a corporation CORRECT ANSWERS Entire ownership is divided into
shares with no limit on the number of owners or who can own it
Ownership & Control of Corporations CORRECT ANSWERS Shareholders elect
boarder of directors who delegate to the CEO who manages the C-Suite (CFO, CTO
etc)
Percentage of business vs Percentage of Revenue CORRECT ANSWERS Sole
proprietorships make up the largest % of business, but corporations make up the
greatest % of revenue
Limited Liability CORRECT ANSWERS Owners' liability is limited to the amount they
invested in the firm and stockholders are not responsible for any encumbrances of the
firm (ie not required to pay back any debts incurred by the firm)
, Simple Interest Formula CORRECT ANSWERS FV = PV(1+R*t)
YTM Formula CORRECT ANSWERS (FV/P)^(1/n) - 1
Transitioning annual rate into other discount rate CORRECT ANSWERS (1 + annual) =
(1 + r)^n [n=number of periods of r in a year]
Bond CORRECT ANSWERS A security to raise money from investors today in
exchange for promised future payments
Corporate Bond Market CORRECT ANSWERS Critical funding source that provides
well over half of the debt financing for domestic nonfinancial corporate businesses with
big corps tending to have better access
Yield to maturity CORRECT ANSWERS Discount rate that sets the PV equal to the
current market price
PV CORRECT ANSWERS Sum of promised, future bond payments discounted to today
Zero coupon bonds always trade @ CORRECT ANSWERS a discount to par
Will only earn YTM if: CORRECT ANSWERS the bond is bought today and you hold it
to maturity assuming all promised payments are made
What does a higher YTM demonstrate? CORRECT ANSWERS the one with the higher
YTM has the higher risk as investors need to be compensated accordingly
Price and YTM CORRECT ANSWERS Move in opposite directions and depend on
discount and risk
How does price of a bond change over time CORRECT ANSWERS Will always rise to
FV with increase in prices equal to the coupon amount occurring right before coupon
payments and drops right after by the same amount (Zero coupon is just a straight line
to FV)
Coupon Rate =/</> YTM CORRECT ANSWERS Par, Discount, Premium
When a bond trades at a discount, what return do bond holders earn? CORRECT
ANSWERS returns on both coupons and FV
When a bond trades at a premium, what return do bond holders earn CORRECT
ANSWERS return on coupons is diminished by receiving a FV that's lower than P
Pure discount bond CORRECT ANSWERS zero coupon bond
