Short answer- FINA

How doe the bond rating affect the interest rate paid by corporation on its bonds?

The lower the rating, the higher the interest rate paid by the corporation -Because of the risk the bondholder is taking

What are the reasons for the use of preferred stock by a corporation?

To achieve a balance in their capital structure -Means of expanding the capital base of the firm without diluting the common stock

Why might a corporation use a special category of stock in issuing common stock?

To differentiate the different rights one has to dividends and income - to control voting rights

Briefly describe 3 forms of corporate securities

-Corporate bonds: Fixed life and must be repaid at security (has a maturity date) -Preferred stock: The least used. The dividend is NOT tax deductible to the corporation -Common Stock: There is no maturity date and new stocks are never sold to replace old stocks

Briefly describe three characteristics of useful financial goals

-Goals should be realistic: budget for living conditions and put in savings for emergency funds -Goals should be stated in specific terms: budget for fixed & variable expenses and emergencies; plan should be clear cut and have a time frame -Goals should have a time frame either short-term, intermediate, or long-term -Goals should indicate the action to be taken: consumer product goals -Discuss your goals

The use of corporate debt has been expanding. What are the reasons behind the growth in the use of debt?

-Rapid business expansion -Inflation -Inadequate funds generated by firms

Briefly describe the process of creating an annual budget

1. set financial goals 2. Estimate income from all sources. 3. Budget amount for an emergency fund, periodic expenses and financial goals. 4. Budget set amounts that you are obligated to pay. These are your fixed expenses. BE SURE TO BUDGET FOR SAVINGS 5. Estimate amounts that are to be spent for household and living expenses. These are your variable expenses. 6. Record actual amounts for inflows and outflows, comparing actual amounts with budgeted amounts to determine variances. (deficits and surpluses) 7. Review your spending and saving patterns and evaluate whether you need to revise plan

Briefly describe some factors that might affect your current financial position

Adult life cycle stage -Income level, student/employed, age, education level Marital status, household size, and employment -Single/married- diff tax brackets and advantages -Household size- same with kids, diff tax brackets and advantages but also higher cost Major events -Graduation, marriage, children, retirement Values -What values are important to you? Everyday decisions that affect your spending habits (e.g. type of gas you use, buying organic food) Global Influence -State of the global economy and international trade market Economic conditions -is there a recession or a boom taking place; is it smart to buy, rent, mortgage

If common stockholders are the owners of the company, why do they have the last claim on assets and a residual claim on income?

Because they are the ones who can vote and run the company on an everyday basis

Briefly describe some factors that affect cash inflows and outflows

CASH INFLOWS -Stage your career path: stage of career path affects cash inflow because it affects your income level -Type of job: Income varies by job type. Jobs requiring specialized skills pay more than skills obtained quickly/easily -Number of Income Earners in your household: if you are sole earner it is typically less than if there were two income earners CASH OUTFLOWS -Size of family: a person supporting others will typically spend more than a single person without dependents -Age: As people get older tend to make larger, more expensive purchases (e.g. cars, houses) -Personal Consumption behavior: People's consumption behavior varies drastically. Extreme spenders to extreme savers and all levels in between

Briefly explain the difference between exchanges and OTC markets

Exchange: a physical location where traders meet to conduct business, such as the NYSE Over-the-counter (OTC): A security traded in some context other than on a formal exchange such as the NYSE; used to refer to stocks that trade via a dealer network as opposed to on a centralized exchange

Briefly explain the relationship between bond prices and interest rates and why this occurs

Inverse relationship -A bonds price is the present value of the promised payments at the prevailing rate of interest. If the interest rate goes up, the payments are discounted at a higher rate so the present value (valueof bond) is lower

How do you assess the accuracy of your budget?

Periodically compare your actual cash flows over a recent period to the forecasted cash flows in your budget to determine whether your forecasts are on target. Often people overestimate their cash inflows and underestimate their cash outflows; as a result, their net cash flows are lower than expected. By detecting such forecasting errors, you can take steps to improve your budgeting. You may decide to limit your spending to stay within your budgeted cash outflows or where ever necessary adjustments are needed.

Define personal financing plan. What types of decisions are involved in a personal finance plan?

Process of managing money to achieve personal economic satisfaction Decisions involved in a financial plan -what your current financial situation is -What your financial goals are -identify alternative courses of action, then evaluate alternatives -Opportunity costs (what you give up when you make a choice) -Risks involved (inflation, interest-rates, income, personal lifestyle, liquidity)

Why is secondary trading in the security markets important?

Provides liquidity to investors while keeping competitive prices among alternative security investments, they happens two ways -Enable corporations to raise funds by selling new issues of securities at fair prices -Allow investor who purchases security to sell them with ease and turn paper asset into cash