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END TERM FINANCE EXAM
Terms in this set (212)
The Financial Crisis of 2008 was an example of ______ risk.
The Financial Crisis of 2008 occurred in the ______ ______ market.
The basic goal of a business is to maximize shareholder ______.
When the interest of the agents and principal conflict you have an ______ problem.
An ______ is a person who has the implied or actual authority to act on behalf of another person.
A special type of corporation where owners are taxed as if they were members of a partnership is called a ______ ______ corporation
A ______ is a type of business organization that is double taxed.
A stakeholder is an individual who has a ______ in a business.
Wealth refers to ______.
Cash moving through a business is called cash ______.
A general partner has ______ liability
A limited partner has ______ liability and is only liable for the amount they have invested in the partnership.
In a large corporation, the comptroller reports to the ______ ______ ______.
The ______ of cash flows affects a firm's value.
The ______ is responsible for financial planning, fund-raising, and allocation of money in a business.
Systematic risk is a ______ risk that impacts the entire system or entire market.
A ______ is the manager who is responsible for the financial and cost accounting activities of a firm.
The value of a firm is affected by the___ ,______ ,and the_______ of future cash flows.
SIZE, TIMING, RISK
The less risk associated with future cash flows, the higher the _____ of the company.
A mortgage backed security is a ______ of mortgages.
One indicator of a firm's value is the current price of its______.
Two or more people may join together to form a business as a_______.
Three career paths in the field of finance are financial management, financial markets and institutions and ______.
In business, ______ guidelines determine how money is raised and spent.
An employee, a customer, and a supplier are all ______ of a firm.
Firms often take into account ______ factors, the interests of other stakeholders, and the long-term interests of society when making business decisions.
A stockholder in a company has limited liability and therefore cannot lose more than the amount they ______ to buy the stock.
A financial ______ is an economic period in which the price of an asset increases drastically and exceeds the fundamental value of the asset.
Current profit maximization overlooks future cash flows, timing of cash flows, and ______.
______ maximization as a goal of the firm takes a long-run perspective that focuses on the owners
It is important to realize that ______ are not the same as cash inflows.
______ is a primary motive for using the money market.
Financial markets bring together______ and ________of financial securities.
BUYERS AND SELLERS
The three most important financial instruments in Corporate Finance are , , and .
CORPORATE BONDS, COMMON STOCK, PREFERRED STOCK
The ______ rate of interest is the rate of interest charged by the lender and includes premiums for inflation and risk.
The nominal risk-free rate of interest is equal to the ______ rate of interest plus an expected inflation premium.
You wish to purchase stock from your broker. Your purchase will most likely occur in the ______ market.
An example of a Federal Government security issued with a maturity of less than one year is a ______ bill.
Common stockholders receive a return on their investment in the form of common stock ______.
The prevailing rate of interest in any situation is called the ______ interest rate.
The adjustments lenders make to their current interest rates to compensate for the uncertainty about future changes in rates for long-term securities is called the ______ ______ ______.
MARKET RISK PREMIUM
Investment bankers arrange securities sales on either an ______basis or a_______ basis.
UNDERWRITING, BEST EFFORTS
The two types of corporate stock are _______ Stock and _________ stock.
COMMON AND PREFERRED
Bonds issued by state and local governments are known as ______ bonds.
The three special features of a bond are ________, __________ , and __________.
PAR VALUE, , MATURITY DATE, INTEREST
Bonds that do not pay any coupon interest are called ______-______ bonds.
A short-term promissory note issued by large corporations with a strong credit rating in called ______ ______.
If the risk-free rate of interest is 8%, and the real rate of interest is 2.5%, ______ is the expected rate of inflation.
In an efficient market, securities can be traded______ ,________ , and _______.
EASILY, QUICKLY, AND LOW COST
Short-term securities are traded in the market______, and long-term securities trade in the ________market.
The shape of the yield curve gives _________ and _________ useful information for financial decisions.
BORROWERS AND LENDERS
A typical yield curve is ______-______, reflecting a greater maturity risk premium associated with long-term bonds.
If a market has no fixed locations of business, it is said to be ______.
OVER THE COUNTER
______ ______ can be negative.
A business or household that has more income than expenses is called a ______ economic unit
Someone that has expenditures greater than their income is called a ______ economic unit.
The nominal interest rates includes premiums for risk, ______ and other various things.
Preferred stock is ______ risky than common stock
A ______ occurs when a borrower fails to pay interest and principal on a loan on time.
The ______ markets trade securities with maturities greater than one year, expose the investor to somewhat higher risk, have higher expected rates of return, and are less liquid.
Three types of financial intermediaries are investment bankers, ______, and dealers.
______ make their living buying securities and reselling them to others.
The nominal risk-free interest rate is the______ rate of interest plus an _________ premium.
The ______ curve is a plot of interest rates and time to maturity of bonds with similar characteristics
The main types of economic units include ______, businesses, and households.
Rather than borrowing money by issuing bonds, a corporation may choose to raise money by selling ______.
______ stockholders own a portion of the company.
When the Fed wants to raise the federal funds rate, thus decreasing the money supply, it will ______ treasury securities.
When the Fed wants to increase the money supply, it will ______ treasury securities.
Purchases and sales of government securities and/or foreign currencies conducted by the Fed to increase or decrease the money supply are called ______-_____ operations.
______ plans are set up by companies, government, and unions to pay retirement benefits for their employees.
Savings and Loan Associations are very similar to ______ _______.
A pension fund is a defined ______ plan.
A retirement plan that turns over the accumulated assets to the employee upon retirement is called a defined ______ plan.
Banks and other financial institutions can borrow emergency funds from the ______ ______ ______.
FEDERAL RESERVE BANK
The Fed requires all commercial banks to keep a minimum amount of ______ on hand.
The required level of reserves a bank must hold is determined by apply8ing a percentage to the average weekly deposits held by the bank and is referred to as the ______ ______ ratio.
Financial institutions analyze and absorb credit ______.
Credit risk is the risk that the issuer of the security will ______.
The difference between the rate charged to borrowers and the rate paid to depositors is known as the ______ ______ ______.
INTEREST RATE SPREAD
The Federal Reserve banks lend money to financial institutions at the ______
Finance companies are ______ firms.
One of the main differences in Banks, Savings & Loan Associates, and Credit Unions is that they are each ______ by different entities.
The______-_______ Wall Street Reform and Consumer Protection Act was created after the 2008 financial crisis to promote financial stability.
An ______ is a series of equal payments that are made at regular time intervals for a specified period of time.
The three types of finance companies are , , and .
COSUMER, COMMERCIAL, SALES
The two types of insurance companies are insurance companies and insurance companies.
LIFE, PROPERTY AND CASUALTY
Property and casualty insurance companies insure against a wide range of ______ associated with person and property.
A member-owned institution is a _______ Union.
______ is the process that allows funds to flow from surplus economic units through a financial institution to a deficit economic unit.
The central bank of the U.S. is called the ______.
In order to operate in the U.S., all banks must obtain either a state or federal ______.
Almost all banks, whether federally or state chartered , have ______ insurance for their depositors.
The risk that an issuer of a security may fail to make the scheduled payments to the investor is called ______ risk.
Freddie Mae and Freddie Mac are ______-______ enterprises because they were created and governed by the US Government.
If the economy is experiencing a severe recession, the Fed will most likely ______ money supply.
Fannie Mae and Freddie Mac were created by the federal government to support the ______ markets.
Commercial banks make money by charging a ______ interest rate on the money they lend than the rate they pay on money lent to them in the form of deposits.
The rate you are charged for borrowing money is called ______.
The Federal Reserve requires all commercial banks to keep a minimum amount of ______ on hand.
______ ______ often serve those customers who don't qualify for loans at other financial institutions.
Fannie Mae, Freddie Mac, Lehman Brothers, AIG, Bear Stearns, Countrywide Financial, and Washington Mutual were huge financial institutions that signaled financial strength, but all ______ in 2008.
Three services that financial institutions provide are denomination matching, ______ matching, and absorbing credit risk.
The twin roles of the Federal Reserve System are to regulate financial institutions and to control the ______ supply.
The ______ ______ is a snapshot of a company's financial position, which shows its assets, liabilities, and equity at a given point in time.
______ are assets that are expected to provide a benefit to the firm for more than one year.
The ______ report contains audited financial statements submitted annually to the SEC for distribution to the public
The tax rate that applies to the next dollar of taxable income earned, the ______ tax rate changes as the level of taxable income changes.
______ specifies the percent of the cost of assets that will be charged each year as depreciation expense during the asset's life as dictated by the Tax Reform Act of 1986.
In addition to the income statement, many firms prepare a short statement of ______ ______ that records dividend and retained earnings information.
The ______ statement measures a firm's profitability over a period of time?
Current assets minus current liabilities = ______ ______ ______.
NET WORKING CAPITAL
Is the net profit equivalent to the net cash flow at the end of an accounting period. ______
The stated value printed on the stock certificate is called the ______.
Depreciation is a ______-______ charge that results in an inflow of cash.
Gross profit equals revenues minus ______.
EBIT is also called ______ income.
The 2017 Tax Cuts and Jobs Act (TCJA) was the first major federal tax code revision since ______.
All companies finance their assets with a mixture of _____________and ______.
DEBT AND EQUITY
In the US, all public corporations much follow the guidelines and rules set by ______.
The ______-______ depreciation method involves dividing the cost of the asset by its useful economic life.
The ______ depreciation method accelerates the depreciation write-off by pushing a greater portion of the total expense to the front of the asset's life.
While federal tax rates are set by Congress, the ______ determines the amount of federal income tax a firm owes.
______ assets are listed first on the balance sheet and are the assets that can easily be converted to cash.
The last entry in the common stock equity section of the balances sheet is ______ ______.
______ reports contain unaudited financial statements and are submitted quarterly to the SEC.
The ________and __________Commission requires all public corporations to file financial statements, and to make them available to the public.
SECURITIES AND EXCHANGE
The 2017 Tax Cuts and Jobs Act (TCJA) created a flat rate tax for corporations of ______.
The sum of liabilities and equity is the total ______ contributed to the business.
In the U.S., the balance sheet lists assets and liabilities according to their degree of ______, from most to least liquid.
The Statement of Cash Flows records cash how cash flows________ and_________ a company over a given period of time.
ENTER AND EXIT
The ______ earnings figure represents the sum of all the net income of a business during its entire history, minus the sum of all the common stock dividends that it has ever paid.
The ______ section of the balance sheet contains common stock, capital in excess of par, and retained earnings.
Capital contributions come from two main sources: ______ and common stockholders.
Assets = ______ + Shareholders Equity.
The financial manager is concerned with how depreciation will impact ______ ______.
The ______ statement shows revenues, expenses, and income.
The common-size income statement shows each item as a percentage of ______.
The common-size balance sheet shows each item as a percentage of ______ ______.
______-______ financial statements help financial managers in the decision-making process.
The ______ ______ compares all the current assets of the firm to all the company's current liabilities.
In the modified Du Pont equation, ROE is the product of net profit margin, total asset turnover, and the ______ ______.
One way to judge whether a firm's ratio is too high or too low is to compare it to the ratios of other firms in the industry. This method is sometimes called ______-______ analysis.
The ______ ______ ratio tells us how efficiently the firm converts inventory to sales.
The ______ ______ ______ measures how much profit out of each sales dollar is left after all expenses are subtracted.
NET PROFIT MARGIN
The Times Interest Earned ratios tells if the firm generates enough ______ income to cover the current interest on its debt.
The ______ ______ ______ measures how many days, on average, the company's credit customers take to pay their accounts.
AVERAGE COLLECTION PERIOD
Market value ratios measure the market's ______ of the future earning power of a company, as reflected by the stock price.
The ______ ______ ______ ratio measures how efficiently a firm utilizes its assets.
TOTAL ASSET TURNOVER
Once you learn a financial concept, you should be able to apply it to ______ situations.
A current ratio of 1 or above means that the company is generating enough operating ______ to pay its current expenses
Liquidity is about a firm's ______-______ solvency.
Debt (leverage) ratios are about a firm's ______-______ solvency.
Asset activity ratios tell how ______ a firm is in using its assets to generate profits.
Ratios can reveal a company's______ and _________.
STRENGTHS AND WEAKNESSES
The EVA measures the amount of ______ a company has left after accounting for the return expected by the firm's investors.
The MVA compares a firm's ______ value to the amount the current owners paid for it.
The DuPont Equations are a different way of calculating the_______ and_______ .
ROA AND ROE
The Modified DuPont breaks down a firm's ROE into ______ components.
The DuPont equations are about ______ among ratios.
The leverage effect of debt will _____ a firm's ROE, driving it higher.
A ______ analysis compares a firm's performance over multiple periods.
Cross-sectional analysis, also called benchmarking, is a comparison that pinpoints ______ from the norm that may indicate problems.
______ ratios measure how the firm's returns compare with its sales, asset investments, and equity.
The ______ ______ ______ indicates how many dollars of income were produced for each dollar invested by the common stockholders.
The ______ value of the firm's equity position is the amount of common stock equity on the firm's balance sheet.
The Price to ______ ratio measures how much investors are willing to pay for claim to one dollar of the firm's EPS.
______ are comparative measures.
______ ______ are the primary source of financial information about a business.
All business owners, investors, and creditors use financial statements and ratio analysis to investigate the financial ______ of a firm
The main inputs to a ratio analysis come from the firm's ______ ______ and balance sheet.
Current and potential lenders of long-term funds are interested in ______ ratios.
Debt ratios refer to the firm's financial ______.
The inventory turnover ratio tells how efficiently the firm converts inventory to ______.
A company with a ______ asset turnover ratio suggest that its assets help promote sales revenue.
The use of the EVA and MVA indicators help managers focus on rewards to stockholders instead of traditional ______ measures.
The ______ budget shows the projected flow of cash in and out of the firm for specified time periods.
When forecasted assets needed exceed forecasted liabilities, the discrepancy is called ______ ______ ______.
ADDITIONAL FUNDS NEEDED
Forecasted financial statements are commonly referred to as ______ ______ financial statements.
The ______ budget shows planned expenditures for major asset acquisitions.
______ financing occurs when forecasted liabilities and equity exceed forecasted assets.
The balancing problem occurs when adjustments are made in ______ expenses associated with financing.
To not forecast is to assume that the future will be ______ to the past.
A ______ is the statistical likelihood that a particular outcome will occur.
A ______ is a forecast of a future dependent variable based upon its association with a known independent variable
______ is using the past as a general guide to future events.
The ______ forecast is probably the most important prediction variable in the job of financial forecasting.
The sales forecast should be a ______ effort.
Pro forma financial statements show what the firm will look like if the ______ forecasts are realized and management plans are carried out.
The ______ budget shows projected cash inflows/outflows as derived from pro forma statements.
The ______ budget reveals major asset expenditures necessary to realize forecasted production activity.
The ______ problem occurs when fund surpluses or deficits depend simultaneously on the financing decision.
The three general approaches to forecasting are experience, probability, and ______.
Forecasts are best ______ estimates of future outcomes.
Financial managers use a variety of budgets to help produce ______ ______ financial statements
When the pro forma balance sheet is completed, total assets and total liabilities and equity will ______ match
The ______ of additional funds needed is one of the most important reasons for producing pro forma financial statements.
Firms often spend a large amount of time, effort, and money to obtain accurate ______.
When analyzing pro forma statements, if forecasters discover negative indicators, they will recommend ______ action.
Sometimes financial analysts make a quick ______ of a company's future sales by extending the trend of past sales.
If no target value is specified by management and if no value from a budget is available, an analyst will ______ the item's past performance and estimate its future value based on experience, probability, or correlation
Forecasting means making ______ about what will happen in the future.
Forecasting the future is based on what has happened in the ______.
No one can forecast the future with ______ precision.
Pro forma financial statements show what assets, ______, and equity a firm is expected to have in the future.
Pro forma financial statements are based on a company's ______ financial statements.
The forecasted value of each current financial statement line item on a pro forma statement is determined by a ______ specified by management, a value extracted from a budget, or an extension of a past trend.
Additional Funds Needed (AFN) is the additional ______ financing required to support projected asset growth.
Excess financing means that too much ______ has been set aside for expected asset growth.
Once the pro forma financial statements are complete, they must be ______.
Financial managers analyze the pro forma statements by using ______ analysis techniques.
Once a company adjusts its plans to correct a problem, the financial managers must prepare a ______ set of pro forma financial statements that reflect the changes.
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