TAMU FINC 341 EXAM 1 GUYTON EXAM Updated
Practice Questions WITH 100% RATED Correct
Answers/EXPERT VERIFIED JUST RELEASED GET IT A+
capital markets - CORRECT ANSWER-relates to markets where interest rates are
determined; financial institutions that supply capital to businesses (banks mutual funds,
insurance comps.); market for intermediate (1-10 yrs) and long-term (>10 yrs) debt and
corporate stocks (ex: NYSE)
investments - CORRECT ANSWER-managing mutual funds or portfolios; personal financial
planning; includes security analysis (finding proper values of stocks and bonds),portfolio
theory (structures portfolios; want to be diversified),market analysis (too high/low?),
behavioral finance (unreasonable highs and lows)
main certifications needed - CORRECT ANSWER-CFA and CFP
sole proprietorship - CORRECT ANSWER-easily formed, few gov regulations, lower income
tax than corps, unlimited personal liability, life is limited to owner's life; BY NUMBER most
businesses are these.
partnership - CORRECT ANSWER-easily formed between 2 or more people, lower income
tax than corps, unlimited personal liability, life is limited to owner's life
corporation - CORRECT ANSWER-unlimited life, loss limited to individual investment, easy
to transfer ownership and to raise capital, double taxation, heavy regulation; BY DOLLAR
VALUE more than 80% of all business are these; separate and distinct from owners and
managers.
,s-corporation - CORRECT ANSWER-what gov allows company to become if they want limited
tax, taxed as if they were sole proprietorship/partnership, no more than 100 stockholders
(they become C corporations when they want to sell stock to the public)
primary goals of finance - CORRECT ANSWER-maximize value of firm, maximize stock price
(Pø), and maximize shareholder wealth, NOT PROFIT
stock price is affected by... - CORRECT ANSWER-external factors, mix of debt an equity, % of
earnings paid in dividend, products/services being produced, and the firms' social
responsibility
2 goals of Fed... - CORRECT ANSWER-keep unemployment at 5% and inflation at 2%
fed moves in - CORRECT ANSWER-short term rates
as rates go up, banks... - CORRECT ANSWER-increase profit margin value
historical trends of interest rate levels: - CORRECT ANSWER-1. short-term interest rates are
prone to rise during booms
2.during recessions, short term interest rates normally fall and there is LESS demand for
credit, rate of inflation decreases, fed offers lower rates during recessions *AIG ensures
mortgages be paid*
3. short-term interest rates have higher correlation with inflation than long-term interest
rates-average of short-term (2008 BOA almost closes its doors)
4. inflation has been about 2% (healthy rate) in recent years; it was negative (not good) in
2009 *never want to be in bond if rates are going up*
5. higher (adjust) rates of return are expected on riskier investments
-rates going up:loading gun
-bringing it down: firing the gun
you can be sure of 2 things: - CORRECT ANSWER-1. interest rates will vary
2. increase if inflation is expected to be higher, decrease if inflation is expected lower
, 1980 savings and loans crisis - CORRECT ANSWER-known to provide mortgages but most of
them went out of business
intrinsic value - CORRECT ANSWER-an estimate of a stock's "true" value based on accurate
risk and return data; can't be measured precisely; managers estimates are better than
outside investors. it is a long run concept. management should make goals to maximize this
not current market price.
market price - CORRECT ANSWER-stocks' current price based on possibly incorrect info
equilibrium is when... - CORRECT ANSWER-intrinsic value=market price; there is no pressure
for a change in the stock's price.
finance - CORRECT ANSWER-anything that deals with analyzing numbers and getting
feedback; cash flow based; management of assets-decision making.
financial management - CORRECT ANSWER-corporate finances, focuses on decisions
relating to how much and what types of assets to acquire, how to raise capital for assets,
and how to maximize value of firm.
following a bell curve: - CORRECT ANSWER-bottom left: low rates
mid curve rising: rise
peak:recession
mid curve falling: recover
bottom right: low rates
stockholders vs managers (agency relationship) - CORRECT ANSWER-stockholders=principal,
managers=agents; motivate managers to act in shareholders' best interests by managerial
compensation, direct intervention, threat of firing, or threat of takeovers (happens when
stock price is low and corporate raider buys enough stock to hold majority); ex: Carl Icahn is
active stockholder who forced Apple to give dividends
stockholders/managers vs creditors (agency relationship) - CORRECT ANSWER-
stockholders/managers=agents, creditors=principal; managers have to protect existing
Practice Questions WITH 100% RATED Correct
Answers/EXPERT VERIFIED JUST RELEASED GET IT A+
capital markets - CORRECT ANSWER-relates to markets where interest rates are
determined; financial institutions that supply capital to businesses (banks mutual funds,
insurance comps.); market for intermediate (1-10 yrs) and long-term (>10 yrs) debt and
corporate stocks (ex: NYSE)
investments - CORRECT ANSWER-managing mutual funds or portfolios; personal financial
planning; includes security analysis (finding proper values of stocks and bonds),portfolio
theory (structures portfolios; want to be diversified),market analysis (too high/low?),
behavioral finance (unreasonable highs and lows)
main certifications needed - CORRECT ANSWER-CFA and CFP
sole proprietorship - CORRECT ANSWER-easily formed, few gov regulations, lower income
tax than corps, unlimited personal liability, life is limited to owner's life; BY NUMBER most
businesses are these.
partnership - CORRECT ANSWER-easily formed between 2 or more people, lower income
tax than corps, unlimited personal liability, life is limited to owner's life
corporation - CORRECT ANSWER-unlimited life, loss limited to individual investment, easy
to transfer ownership and to raise capital, double taxation, heavy regulation; BY DOLLAR
VALUE more than 80% of all business are these; separate and distinct from owners and
managers.
,s-corporation - CORRECT ANSWER-what gov allows company to become if they want limited
tax, taxed as if they were sole proprietorship/partnership, no more than 100 stockholders
(they become C corporations when they want to sell stock to the public)
primary goals of finance - CORRECT ANSWER-maximize value of firm, maximize stock price
(Pø), and maximize shareholder wealth, NOT PROFIT
stock price is affected by... - CORRECT ANSWER-external factors, mix of debt an equity, % of
earnings paid in dividend, products/services being produced, and the firms' social
responsibility
2 goals of Fed... - CORRECT ANSWER-keep unemployment at 5% and inflation at 2%
fed moves in - CORRECT ANSWER-short term rates
as rates go up, banks... - CORRECT ANSWER-increase profit margin value
historical trends of interest rate levels: - CORRECT ANSWER-1. short-term interest rates are
prone to rise during booms
2.during recessions, short term interest rates normally fall and there is LESS demand for
credit, rate of inflation decreases, fed offers lower rates during recessions *AIG ensures
mortgages be paid*
3. short-term interest rates have higher correlation with inflation than long-term interest
rates-average of short-term (2008 BOA almost closes its doors)
4. inflation has been about 2% (healthy rate) in recent years; it was negative (not good) in
2009 *never want to be in bond if rates are going up*
5. higher (adjust) rates of return are expected on riskier investments
-rates going up:loading gun
-bringing it down: firing the gun
you can be sure of 2 things: - CORRECT ANSWER-1. interest rates will vary
2. increase if inflation is expected to be higher, decrease if inflation is expected lower
, 1980 savings and loans crisis - CORRECT ANSWER-known to provide mortgages but most of
them went out of business
intrinsic value - CORRECT ANSWER-an estimate of a stock's "true" value based on accurate
risk and return data; can't be measured precisely; managers estimates are better than
outside investors. it is a long run concept. management should make goals to maximize this
not current market price.
market price - CORRECT ANSWER-stocks' current price based on possibly incorrect info
equilibrium is when... - CORRECT ANSWER-intrinsic value=market price; there is no pressure
for a change in the stock's price.
finance - CORRECT ANSWER-anything that deals with analyzing numbers and getting
feedback; cash flow based; management of assets-decision making.
financial management - CORRECT ANSWER-corporate finances, focuses on decisions
relating to how much and what types of assets to acquire, how to raise capital for assets,
and how to maximize value of firm.
following a bell curve: - CORRECT ANSWER-bottom left: low rates
mid curve rising: rise
peak:recession
mid curve falling: recover
bottom right: low rates
stockholders vs managers (agency relationship) - CORRECT ANSWER-stockholders=principal,
managers=agents; motivate managers to act in shareholders' best interests by managerial
compensation, direct intervention, threat of firing, or threat of takeovers (happens when
stock price is low and corporate raider buys enough stock to hold majority); ex: Carl Icahn is
active stockholder who forced Apple to give dividends
stockholders/managers vs creditors (agency relationship) - CORRECT ANSWER-
stockholders/managers=agents, creditors=principal; managers have to protect existing
