F255 Midterm (Week 1-7)
What was the approximate value of gold back in 1971? $15 an ounce $35 an ounce $125 an ounce $535 an ounce $1500 an ounce
$35 an ounce
What is the key element or assumption of using time value of money? A dollar today is worth more than a dollar in the future None of the above statements are correct When using timelines, all outflows occur today and all inflows occur in the future Time value of money is rarely used in finance
A dollar today is worth more than a dollar in the future
In hedge funds, the limited partners typically provide 99% of the capital - how much of the profits from the fund do they usually receive? 99% 80% 50% 20% 1%
80%
Which of the following is NOT a typical reason to begin a sell-side M&A process? A company requires most capital reserve A company has a non-core asset that is a distracting management A company is generating too much free cash flow (FCF) A private equity sponsor needs to "exit" their investment to limited parterns (LPs) All of the above are typical reasons to begin a sell-side M&A process
A company is generating too much free cash flow (FCF)
Which of the following are "Buy-Side Firms"? A corporation like General Electric An investment bank like Goldman Sachs A pension fund like TIAA-CREF The US Government All of the above are Buy-Side firms
A pension fund like TIAA-CREF
Which of the following statements concerning accounting versus finance is most correct? Accounting always wants to err on the side of optimism Accounting rules do NOT take into account economic realities Finance and accounting are in full agreement in all areas Accounting figures and cash flows are often NOT in sync
Accounting figures and cash flows are often NOT in sync
Regarding the hedge fund regulatory environment, which of the following statements is correct? Unlike mutual funds, hedge funds are not subject to some of the regulations designed to protect investors. Depending on the funds under management and the total number of qualified investors, some hedge fund managers may not be required to register with the SEC. Hedge funds are subject to the same prohibitions against fraud as are other market participants. Hedge fund managers owe a fiduciary duty to the funds that they manage. All of above are correct
All of above are correct
All of the following would be considered on the "buy side" of finance, EXCEPT: All of the above Endowments Pension Fund Insurance Company Mutual Fund
All of the above
The primary reason(s) for a private company to go through the rigors of an IPO is to create acquisition currency. to raise cheap capital from the public markets. to enhance the company's profile and other marketing benefits. liquidity for shareholders. All of the above
All of the above
One of the problems of using a Market (trading) Comparables Valuation Analysis is that: there is never a perfect comparable not all comparable are public companies with public information that comparables analysis is market based and could be skewed by irrational exuberance All of the above adequately answers this question None of the above
All of the above adequately answers this question
The primary reason(s) for a private company to go through the rigors of an IPO is: to create acquistion currency to raise cash from the public markets to enhance the company's profile and other marketing benefits to provide liquidity for shareholders All of the above adequately complete this sentence
All of the above adequately complete this sentence
All of the following are considered to be important factors in determining optimal capital structure, EXCEPT: The company's operating risks The company's immediate and expected long-term financing needs The relative costs of debt and equity at the time funds must be raised Attitude of the board and the senior management towards risk taking All of the above are correct
All of the above are correct
Which of the following reasons are why we need financial intermediaries? Issuers always know more than investors To minimize transaction costs and provide diversification opportunities to investors Investors need help in monitoring performance All of the above are correct
All of the above are correct
Which of the following are FALSE regarding a buy-side M&A engagement? they are typically hired by private equity firms part of their job is to minimize the acquisition purchase price they must "quarterback" the process and close the transaction they must recommend a company do nothing and "stay the course" All of the above are true
All of the above are true
A series of cash flows where the same cash flow occurs every period is known as a(an): Uneven cash flow stream Annuity Free cash flow Depreciation
Annuity
Which of the following statements about the Statement of Cash Flows is Most Correct? It provides a reconciliation between net profit and change in cash on the balance sheet It has three parts: Assets, Liabilities and Equity Sources of funds represent money flowing OUT of a firm Most finance professionals do NOT think this is a very important statement
It provides a reconciliation between net profit and change in cash on the balance sheet
The personality traits of multitasking, self confidence, efficiency, and social competence are examples of which of the key attributes of a great finance professional? Behavioral Academic Opportunistic Business Through Process
Behavioral
The division of an investment bank that is closely aligned with Private Wealth Management would be? Institutional Sales Capital Markets Research Asset Management None of the above adequately completes this sentence.
Asset Management
Which of the following investment banks failed as a result of the 2008 financial crisis? Goldman Sachs and Morgan Stanley Morgan Stanley and Bear Stearns Bear Stearns and Lehman Brothers Lehman Brothers and Bank of America JP Morgan and Merill Lynch
Bear Stearns and Lehman Brothers
Who is primarily responsible for setting a company's objectives and making sure that they meet those objectives? Board of Directors Bondholders and Lenders Rank & File Employees Senior Management
Board of Directors
If the company or organization issuing a security is getting money from the transaction, it is most likely occurring in the: Private Market Secondary Market Stock Market Primary Market Bond Market
Primary Market
Current and future financial resources that can be committed to pay obligations are referred to as: Character Capacity Capital Collateral Conditions
Capacity
If you were interested in working with corporations to help them raise capital (debt and equity) to finance their business, which workshop would be best for you? Wealth Management Investment Management Capital Markets and Banking Investment Banking Consulting
Capital Markets and Banking
Which of the following items is NOT considered a common measure of cash flow? Cash on the balance sheet EBITDA Operating cash flow Free cash flow
Cash on the balance sheet
What is the proper order of assets allocation decision, from the lowest risk/return to highest risk/return? Stock, bonds, cash Cash, bonds, stocks Bonds, cash, stocks Bonds, stocks, cash
Cash, bonds, stocks
The National Bank Act of 1863 did all of the following EXCEPT: Regulated federal chartered banks such as the notes that they issued were backed by US Government securities Created the Federal Deposit Insurance Coporation (FDIC) Banks were allowed to provide brokerage or buying and selling as an agent on the behalf of clients Established the National Banking System in US All of the above are part of the National Bank Act
Created the Federal Deposit Insurance Coporation (FDIC)
Which of the followin would be considered a "qualatative" factor in determining a bond rating? Debt maturity Debt ratio TIE (Coverage) Ratio Current Ratio Quick Ratio
Debt maturity
Which of the following is considered to be an Advantage of Debt Financing? Debt increases the financial risks of company Debt usually costs less due to lower risk and tax-deductibility of interest Debtholders get to vote in elections, giving them a control advantage over equity shareholders Payments on debt are usually variable and can be adjusted down if the company has bad period All of the above are advantages to using debt
Debt usually costs less due to lower risk and tax-deductibility of interest
The fixed income investment risk that focuses on an investor receiving less than the promised return and that has a big impact on a bond rating is known as: Price Risk Default Risk Bond Risk Interest Rate Risk
Default Risk
The concept that companies may set their dividend policy to attract certain types of investors is known as: Institutionalized dividends Stock dividends Dividend catering or clientele effect Dividend stability Dividend reinvestment plans (DRIPs)
Dividend catering or clientele effect
The Glass-Steagall of 1933 did all of the following, EXCEPT: Separated commercial banking from investment banking Created the FDIC Stabilized capital markets Established the National Banking System in the US
Established the National Banking System in the US
Which of the followng parties would most likely use financial statement analysis to make decisions about purchasing and/or selling corporate debt and equity securities? Trading Partners Rating Agencies Suppliers None of the above Investors
Investors
Which of the following is a visual summary of several valuation analyses? Sum of the parts analysis Comphensive review analysis Comparative companies analysis Football field analysis None of the above
Football field analysis
Which of the following measures captures all the cash consequences of a business and ensures that the underlying flows are available to capital providers? Free Cash Flow Revenues Net Profit EBITDA Operating Cash Flow
Free Cash Flow
Which of the following entities are most likely to become activist investors? Hedge funds Money market funds Bond funds Index funds Passive mutual funds
Hedge funds
Which of the following statements concerning hedge funds is NOT correct? Hedge funds generally invest in public companies and may acquire large minority stakes, which may give some influence over the company's board. Hedge funds had access to and rely on publicly available information for the companies they invest in. Hedge funds usually require long-term illiquid commitments for a finite period, with little or no borrowing within the fund. Hedge fund managers are often rewarded for the quarterly increase in value of the portfolio they manage. All of the above are correct
Hedge funds usually require long-term illiquid commitments for a finite period, with little or no borrowing within the fund.
Based on our class discussions, what do you think the primary goal of a firm's management should be? Increase the economic value of the business to the benefit of all key stakeholders Get today's stock price as high as you can, no matter what you have to do Maximize the compensation to the senior management team (CEO, COO, CFO) Make the firm the biggest one in its industry
Increase the economic value of the business to the benefit of all key stakeholders
If you were interested in developing deals for mergers and acquisitions or restructuring of companies, which workshop would be best for you? Wealth Management Investment Management Capital Markets and Banking Investment Banking Consulting
Investment Banking
Which of the following statements is NOT an accurate description of the income statement? It is used to measure the ongoing operations a firm It shows how a company realizes net profit after taking into account all of its revenues and costs It shows the values of all assets and liabilities at a specific point in time It can be used to determine common measures of operating profit such as EBIT
It shows the values of all assets and liabilities at a specific point in time
What would be the primary reason for using the DuPont framework for analyzing a company? It primarily focuses on profitability It primarily focuses on leverage It takes into account profitability, productivity and leverage It primarily focuses on productivity
It takes into account profitability, productivity and leverage
Which of the following would produce the highest valuation in a normal economic and market conditions? Discounted Cash Flow Analysis Market (Trading) Comparative Analysis Precedent Transactions Analysis Leveraged Buyout
Precedent Transactions Analysis
Which of the following should produce the lowest valuation in normal economic and market conditions? Discounted Cash Flow Analysis Market (Trading) Comparative Analysis Precedent Transaction Analysis Leveraged Buyout Analysis Football Field Analysis
Leveraged Buyout Analysis
The ratios that measure a firm's ability to meet its payment obligations and cash management efficiency are known as what? Debt Management Performance Asset Management Liquidity
Liquidity
A hedge fund that takes directional bets on the market as a whole (either long or short) based on research and/or the fund's philosophy is known as a(an): Long-Short Fund Market-Neutral Fund Event-Driven Fund Macro Fund None of the above
Macro Fund
Which of the following is NOT a typical debt covenant? Maximum allowable liquidity ratio Maximum allowable debt ratio Minimum allowable coverage ratio Limitations on increased debt Conditions to be met before dividends are paid
Maximum allowable liquidity ratio
All of the following are major objectives of treasury management, EXCEPT: Maintain liquidity Minimize cash resources Manage investments Manage risk Maintain access to financing
Minimize cash resources
Which of the following bond ratings would be ranked as below investment grade? AAA AA A BBB None of the above are considered to be below investment grade
None of the above are considered to be below investment grade
Which of the following would considered an advantage of debt financing from the perspective of the corporate financial manager? Debt has a priority of claim over equity Debt increased the financial risk of a company Debt can be accompanied by liens on assets Payments on long-term debt are usually fixed, or limited Debt financing may involve covenants or other restrictions on management decisions
Payments on long-term debt are usually fixed, or limited
All of the following statements concerning stocks or equity investments is correct, EXCEPT: Stockholders are the last ones to get paid Stockholders hold the residual risk of investing in a company Perceived investor cash flows and risk have the primary impact on a stock's market price Perceived investor cash flows and risk have the primary impact on a stock's intrinsic value Market equilibrium is when a stocks intrinsic value equals is market stock price
Perceived investor cash flows and risk have the primary impact on a stock's intrinsic value
The ratios that measure a firm's profitability in relation to revenues and/or investment are known as what? Asset Management Performance Debt Management Liquidity
Performance
The two types of financings within capital markets function of an investment bank are __________________. Public offerings & commercial paper Public offerings & private placements Public offerings & asset-backed securities Bond offerings & credit default swaps Bond offerings & syndicates
Public offerings & private placements
All of the following are considered to be challenges of corporate governance, EXCEPT: Separation of ownership and control Agency problems Regulators Management perks
Regulators
Which of the following funds would probably have the lowest management fees charged back to the investors? S&P 500 Index Fund High-growth Company Stock Mutual Fund Balanced Stock and Bond Mutual Fund Hedge Fund Impossible to determine without more information
S&P 500 Index Fund
All of the following are advantages to stock financing, EXCEPT: Stock financing may extend voting rights and control to more shareholders and dilute shareholder value Common stock does not obligate a company to make fixed payments to investors Common stock does not mature For creditors, common stock offers a cushion against losses If a company is profitable, additional stock can be sold at attractive terms to the issuer
Stock financing may extend voting rights and control to more shareholders and dilute shareholder value
All of the following statements about the Cash Conversion Cycle are correct, EXCEPT: Days of receivables reflects the time it takes to collect money from credit sales Days of inventory measures how long it takes to convert raw materials into a sale of finished goods The cash conversion cycle can never be negative The cash conversion cycle is calculated as days of inventory plus days of receivables minus day of payables
The cash conversion cycle can never be negative
Which of the following is NOT part of the basic recipe for value creation? The company must beats its cost of capital The company must beat the cost of capital for many years The company must have a cost of capital lower than the investor's required rate of return The company must reinvest additional profits at high rates through growth
The company must have a cost of capital lower than the investor's required rate of return
What is the key requirement for a government to have a sovereign wealth fund? The country must have a king or queen The country must be located in the Middle East or Asia The country must have a parliamentary form of government The country must have a budget surplus All of the above are requirements
The country must have a budget surplus
In discussing the trends in the US Financial system we discussed issues related to bank deposits, loans and interest rates. Which of the following statements is most closely aligned with the period of the 1950's and 1960's? The demand of loans exceeded the supply of deposits Money Market Mutual funds were in high demand The rise in commercial paper created competition with commercial banks Interest rates were often high and very volatile The demand for loans were less than the supply of deposits
The demand for loans were less than the supply of deposits
The mix of debit and equity capital used by a company is known as their: capital budget payout ratio capital structure valuation mode none of the above
capital structure
According to the World of Finance Charts we discussed in class; all of the following statements are correct, EXCEPT: The primary purpose of the Chinese Wall is to increase investment bank profits The buy-side (mutual funds, hedge funds, and other investors are primarily provider of funds to the "corporate" side The corporate side (real-estate firms, corporations, etc) are primarily the ones who need the funds or capital One of the primary role of investment banks is help with the flow of funds from the buy-side to the corporate side
The primary purpose of the Chinese Wall is to increase investment bank profits
As discussed in class, what was the main purpose of the Dodd-Frank Act? To establish rules for commercial banks to branch across state lines To "re-regulate" financial institutions after the Financial Crisis of 2007/2008 To create the Federal Reserve To give the Federal Reserve the power to do bank examinations To provide regulations for boutique investment banking firms
To "re-regulate" financial institutions after the Financial Crisis of 2007/2008
What was the primary purpose of the Brady Bonds? To pay for the college education of the Brady Bunch To help solve the Asian Debt Crisis To help solve the Latin-American Debt Crisis To help solve the Greek Debt Crisis To help solve the Irish Debt Crisis (They were actually called "O'Brady Bonds")
To help solve the Latin-American Debt Crisis
What is the role of the Research Analyst on the sell-side of an investment bank? To build a portfolio of stocks and bonds for wealthy clients To sell trading services to the buy-side To think of new investment ideas to sell to the buy-side To manage investment resources for the buy-side All of the above
To think of new investment ideas to sell to the buy-side
Which of the following statements concerning hedge funds and private equity is correct? Private equity funds typically do not own a substantial or controlling stake in a business. Hedge funds usually have access to, and rely on private, non-public information on the companies in which they invest. Private equity funds will not usually undertake substantial due diligence prior to making an investment. Traditionally hedge funds make returns from a series of related trading positions, rather than single investment decisions. None of the above statements are correct.
Traditionally hedge funds make returns from a series of related trading positions, rather than single investment decisions.
The type of FX exposure that occurs when a company has an accounts payable or accounts receivable denominated in a foreign currency is known as: Transaction exposure Accounting exposure Translation exposure Economic exposure Double exposure
Transaction exposure
Regarding the debt crisis in Greece, which of the following would be true if they had their own currency rather that the Euro? No change - they still would have had the crisis. Under a financial crisis, their currency could have devalued making imports more expensive and their exports more attractive to other countries. They would have had more control over their monetary policy, but lost control of their fiscal policy. They would have borrowed in US Dollars, which would have made the problem even worse. None of the above would be true
Under a financial crisis, their currency could have devalued making imports more expensive and their exports more attractive to other countries.
In class we discussed the classic economic paper on Asymmetric Information, Akerlof's "The Market for Lemons". What market was he talking about? Produce market Stock market Used car market Housing market
Used car market
All of the following statements regarding value creation are correct, EXCEPT: Value creating is simple and straightforward Finance is hard, and sometimes even the best equity analysts and investors get it wrong The recipe for valuation hinges on the idea of costly capital, and managers must consider the related costs The returns demanded by investors become the costs of capital for the managers All of the above are correct
Value creating is simple and straightforward
If you wanted a career helping individuals with their investment portfolios and retirement plans, which workshop would be the best choice for you? Investment Banking Wealth Management Investment Management Capital Markets and Banking
Wealth Manangement
What does the term WACC stand for? Wandering Around Catching Caterpillars Weighted Average Common Costs World Accepted Cost of Construction Weighty and Corrupt Contractor Weighted Average Cost of Capital
Weighted Average Cost of Capital
Which of the following would be considered a full-service Universal Bank? Wells Fargo William Blair Old National Bank Evercore Moelis & Co
Wells Fargo
Which of the following statements concerning investment risk is most correct? the only risk on stocks that's important is stand alone risk a stock with a wide or broader distribution of returns is considered to be riskier the lower the chance of lower than expected or negative returns, the riskier the investment investment risk is related to the probability of earning a return greater than the expected value none of the above statements are correct
a stock with a wide or broader distribution of returns is considered to be riskier
The Sell-Side M&A advisor's primary job is to: crunch numbers to properly value a company and do market research determine who can pay the highest valuation (price) for their client and close that transaction lead the roadshow by taking their client to multiple institutional investors write the 5-1 registration statement write the private placement
determine who can pay the highest valuation (price) for their client and close that transaction
According to Grant's "Basics of Apprenticeship", people who are long-term investors in relationships and care more others than they do themselves are known as: takes givers matchers losers
givers
The primary difference between a merchant bank and an investment bank is that a merchant bank: can perform restructuring engagements where an investment bank cannot can make principal investments where an investment bank cannot is a depository instution and an investment bank is not is a publicly-traded company where an investment bank is not is a buy-side investor where an investment bank is an advisor
is a depository instution and an investment bank is not
The repackaging of non-traded financial instruments through the formation of a pool against which traded securities are issued to known as: securitization intermediation capitalization collateralization liquidation
securitization
When completing an IPO, the "Road Show" is a part of: due dilligence drafting the beauty contest the selling process All of the above adequately complete this sentence
the selling process
The corporate functional areas of risk management, cash management, and external financing usually fall under which corporate officer? external auditor internal auditor none of the above treasurer controller
treasurer
Which of the following statements concerning bodns and fixed income investment risk is correct? if the price of an issue changes it had no impact on the overall promised return fixed-rate investment will be hurt by falling interest rates variable-rate investment will be hurt by falling interest rates price on bonds will move in the same direction as the underlying interest rate in the economy none of the above statements is correct
variable-rate investment will be hurt by falling interest rates
