D775 INTRODUCTION TO BUSINESS FINANCE EXAM WITH
CORRECT ANSWERS
1. 3 ltypes lof lfinancial linsturments: lstock, lbond, lderivatives
2. stocks: l certificates lthat lrepresent lownership linterest
3. bond: lloans lsold lto lraise lcapital; lprovide la lfixed lincome lstream lthrough linterest lpayments land
lthe lreturn lof lprincipal lmaturity; lrecorded lunder lliabilities lon lbalance lsheet
4. derivatives: l contracts lwhose lvalue lis lderived lfrom lsome lother lentity l(usually lan lasset lof lsome
lkind); lused lto l hedge lagainst lor lspeculate lon lrisk
5. 6 ltypes lof lfinancial lmarkets: lpublic,
lprivate lprimary, lsecondary
dealer, lauction
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,6. financial l markets l definition: l where lbuyers land lsellers lcan ltrade lfinancial lassets
7. 4 ltypes lof lfinancial linstitutions: ldepositary, linvestment, linsurance, lpension lfund
8. 7 l economic l indicators: l GDP, lCPI, lPPI, lconsumer lspending, lunemployment lrate, lyield lcurve,
linterest lrate
9. GDP l acronym: l Gross lDomestic lProduct l(acronym)
10. GDP l definition: l (definition) lvalue lof lgoods land lservices lproduced lin lan leconomy
11. CPI l acroynm: l Consumer lPrice lIndex l(acronym)
12. CPI l definition: l (definition) lcost lof lliving lchanges lover ltime; leconomic lindicator lthat
lmeasures lchanges lin lthe lprice llevel lof la lmarket lportfolio
13. PPI l acronym: l producer lprice lindex l(acronym)
14. PPI ldefinition: l(definition) laverage lchange lover ltime lin lselling lprices lreceived lby
ldomestic lproducers lfor ltheir loutput
15. 2 lfactors lin linflation: lCPI land lPPI
16. consumer l spending: l economic lindicators lbased lon ltotal lconsumer lspending
17. yield lcurve lpredictions: leconomic lindicator lthat lpredicts lthe ldirection lof linterest
lrates land leconomic lexpansion lor lcontraction
18. accounting: lsystematic lrecording, lreporting, land lanalysis lof lfinancial ltransactions
19. accounting loutputs: lbalance lsheets, lincome lstatements, lcash lflow lstatements
20. finance: l management lof lassets land lliabilities, land lplanning lfor lfuture lgrowth land lstability
21. finance l outputs: l investment lportfolios, lfinancial lstrategies, lbudgets
22. 3 l types l of l finance: l personal, lpublic, lbusiness
23. public lfinance: lmanagement lof lgovt lrenues, lexpenditures, land ldebt lload lthrough lgovt
linstitutions
24. examples lof l public l finance: ltax lcollection, lgovt lspending, lbudgeting, lpublic ldebt
lissuance
25. business l finance: l financial lactivities lof lcompanies
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, 26. business l finance l examples: l capital linvestment ldecisions, lfinancing lmethods,
ldividend lpolicies, lrisk lmanagement
27. goal lof lpublic lfinance: lallocate lresources leflciently land lprovide lpublic lservices
28. goal l of l business l finance: l maximize lshareholder lvalue
29. roles l of l business l finance: l ratio lanalysis, lcapital lbudgeting, lrisk lmanagement
30. ratio lanalysis: lone lof lthe l3 lroles lof lbusiness lfinance; lcomputing lfinancial lmeasures
31. capital lbudgeting: lassessment lof lprojected lcash lflows, lcosts, land lreturn lof lprojects lto
levaluate lpotential linvestments
32. Where l is l common l stock
l recorded?: l is lrecorded lunder lowner lequity lon lthe lbalance
lsheet.
33. Common l stock l is l in l publicly l traded l firms.:
is lliquid lin lpublicly ltraded lfirms
34. common lstockholders lbenefits: lvoting lrights, lreceive lvariable ldividends lafter
lpreferred lstockhold- lers
35. market l capitalization l definition: l metric lfor lmeasuring lthe lsize lof la lfirm
36. capital l appreciation: l when la lstock lis lpurchased lat la llower lprice lthan lwhat lit lwas lso
lat
37. Preferred l stock l is l recorded
l under l the l portion l of l the l balance
l sheet.: l -
Preferred lstock lis lrecorded lunder lthe lowner lequity lportion lof lthe l l .
38. preferred l stockholder l benefits: l receive lfixed ldividends, lno lvoting lrights
39. creditor: l issuer lof lbonds; lbenefits lfrom lproceeds lof lbonds; lmakes lpayments las lagreed lby
lthe lbond lottering
40. issue: lsell
41. coupon lrate: lpayment lterms lof la lbond; lphysical lattachment lto lbond
42. maturity: ldate lwhen llast lbond lcoupon lis ldue
43. yield: linterest lrate learned lby linvestor lfor llending lmoney lto lthe lorganization lissuing lthe lbon
44. junk lbonds: lspeculative lbones lrated lBB lor lbelow
45. corporate l bonds: l issued lby lfirms lto lfinance lbusiness lactivities land lexpansions; lhigh
lrisk, lhigh lyield.
46. Who lcan lforce la lfirm linto lbankruptcy lfor lfailure lto lpay?: lBond
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CORRECT ANSWERS
1. 3 ltypes lof lfinancial linsturments: lstock, lbond, lderivatives
2. stocks: l certificates lthat lrepresent lownership linterest
3. bond: lloans lsold lto lraise lcapital; lprovide la lfixed lincome lstream lthrough linterest lpayments land
lthe lreturn lof lprincipal lmaturity; lrecorded lunder lliabilities lon lbalance lsheet
4. derivatives: l contracts lwhose lvalue lis lderived lfrom lsome lother lentity l(usually lan lasset lof lsome
lkind); lused lto l hedge lagainst lor lspeculate lon lrisk
5. 6 ltypes lof lfinancial lmarkets: lpublic,
lprivate lprimary, lsecondary
dealer, lauction
1 l/
l23
,6. financial l markets l definition: l where lbuyers land lsellers lcan ltrade lfinancial lassets
7. 4 ltypes lof lfinancial linstitutions: ldepositary, linvestment, linsurance, lpension lfund
8. 7 l economic l indicators: l GDP, lCPI, lPPI, lconsumer lspending, lunemployment lrate, lyield lcurve,
linterest lrate
9. GDP l acronym: l Gross lDomestic lProduct l(acronym)
10. GDP l definition: l (definition) lvalue lof lgoods land lservices lproduced lin lan leconomy
11. CPI l acroynm: l Consumer lPrice lIndex l(acronym)
12. CPI l definition: l (definition) lcost lof lliving lchanges lover ltime; leconomic lindicator lthat
lmeasures lchanges lin lthe lprice llevel lof la lmarket lportfolio
13. PPI l acronym: l producer lprice lindex l(acronym)
14. PPI ldefinition: l(definition) laverage lchange lover ltime lin lselling lprices lreceived lby
ldomestic lproducers lfor ltheir loutput
15. 2 lfactors lin linflation: lCPI land lPPI
16. consumer l spending: l economic lindicators lbased lon ltotal lconsumer lspending
17. yield lcurve lpredictions: leconomic lindicator lthat lpredicts lthe ldirection lof linterest
lrates land leconomic lexpansion lor lcontraction
18. accounting: lsystematic lrecording, lreporting, land lanalysis lof lfinancial ltransactions
19. accounting loutputs: lbalance lsheets, lincome lstatements, lcash lflow lstatements
20. finance: l management lof lassets land lliabilities, land lplanning lfor lfuture lgrowth land lstability
21. finance l outputs: l investment lportfolios, lfinancial lstrategies, lbudgets
22. 3 l types l of l finance: l personal, lpublic, lbusiness
23. public lfinance: lmanagement lof lgovt lrenues, lexpenditures, land ldebt lload lthrough lgovt
linstitutions
24. examples lof l public l finance: ltax lcollection, lgovt lspending, lbudgeting, lpublic ldebt
lissuance
25. business l finance: l financial lactivities lof lcompanies
2 l/
l23
, 26. business l finance l examples: l capital linvestment ldecisions, lfinancing lmethods,
ldividend lpolicies, lrisk lmanagement
27. goal lof lpublic lfinance: lallocate lresources leflciently land lprovide lpublic lservices
28. goal l of l business l finance: l maximize lshareholder lvalue
29. roles l of l business l finance: l ratio lanalysis, lcapital lbudgeting, lrisk lmanagement
30. ratio lanalysis: lone lof lthe l3 lroles lof lbusiness lfinance; lcomputing lfinancial lmeasures
31. capital lbudgeting: lassessment lof lprojected lcash lflows, lcosts, land lreturn lof lprojects lto
levaluate lpotential linvestments
32. Where l is l common l stock
l recorded?: l is lrecorded lunder lowner lequity lon lthe lbalance
lsheet.
33. Common l stock l is l in l publicly l traded l firms.:
is lliquid lin lpublicly ltraded lfirms
34. common lstockholders lbenefits: lvoting lrights, lreceive lvariable ldividends lafter
lpreferred lstockhold- lers
35. market l capitalization l definition: l metric lfor lmeasuring lthe lsize lof la lfirm
36. capital l appreciation: l when la lstock lis lpurchased lat la llower lprice lthan lwhat lit lwas lso
lat
37. Preferred l stock l is l recorded
l under l the l portion l of l the l balance
l sheet.: l -
Preferred lstock lis lrecorded lunder lthe lowner lequity lportion lof lthe l l .
38. preferred l stockholder l benefits: l receive lfixed ldividends, lno lvoting lrights
39. creditor: l issuer lof lbonds; lbenefits lfrom lproceeds lof lbonds; lmakes lpayments las lagreed lby
lthe lbond lottering
40. issue: lsell
41. coupon lrate: lpayment lterms lof la lbond; lphysical lattachment lto lbond
42. maturity: ldate lwhen llast lbond lcoupon lis ldue
43. yield: linterest lrate learned lby linvestor lfor llending lmoney lto lthe lorganization lissuing lthe lbon
44. junk lbonds: lspeculative lbones lrated lBB lor lbelow
45. corporate l bonds: l issued lby lfirms lto lfinance lbusiness lactivities land lexpansions; lhigh
lrisk, lhigh lyield.
46. Who lcan lforce la lfirm linto lbankruptcy lfor lfailure lto lpay?: lBond
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l23
