finance unit 1
Suppose you bought a stock for $19.84 one year ago. Today the stock is currently priced at $18.45. The stock recently paid a $3.50 dividend, what is the percentage return for this stock?
(18.45-19.84+3.50)/19.84 = 0.1064 or 10.64%
Suppose you bought a stock for $22.10 one year ago. Today the stock is currently priced at $22.08. The stock recently paid a $4 dividend, what is the percentage return for this stock?
(22.08-22.10 + 4)/22.10 = 0.1801 or 18.01%
Suppose you bought a stock for $45 one year ago. Today the stock is currently priced at $47.42. If the stock does not pay a dividend, what is the percentage return for this stock?
(47.42-45)/45 = 0.0538 or 5.38%
The ask price of stock A is $56.75 while the bid price for stock A is $56.71. What is the bid ask spread?
0.04
The ask price of stock A is $215.54 while the bid price for stock A is $215.14. What is the bid ask spread?
0.4
What is generally the size (in dollars) of a single bond that has been issued by a corporation? In your answer, do not include $ sign or commas.
1000
Suppose you bought a stock for $101.44 one year ago. Today the stock is currently priced at $109.54. If the stock does not pay a dividend, what is the dollar return for this stock?
109.54-101.44 = 8.10
Suppose you bought a stock for $101.44 one year ago. Today the stock is currently priced at $109.54. If the stock does not pay a dividend, what is the percentage return for this stock?
109.54-101.44)/101.44 = 0.0799 or 7.99%
Suppose you bought a stock for $22.10 one year ago. Today the stock is currently priced at $22.08. The stock recently paid a $4 dividend, what is the dollar return for this stock?
22.08-22.10 + 4 = 3.98
Suppose you bought a stock for $45 one year ago. Today the stock is currently priced at $47.42. If the stock does not pay a dividend, what is the dollar return for this stock?
47.42-45 = 2.42
What issue(s) are associated with the firm goal to maximize shareholder value? Agency costs and high profit returns The goal is unattainable Potential unethical behavior Agency costs and potential unethical behavior None of these choices
Agency costs and potential unethical behavior
What are ways firms can maximize shareholder value? Hire new employees to improve production and the profitability. All of the above Invest capital into projects that will improve the profitability of the firm. A and C Invest in new research and development that will be profitable.
All of the above
Maximizing shareholder value ethically can improve society generally by: Employing additional workers Creating growth and leading to increased production by other firms Increasing the profitability of other firms because of increased consumption All of these choices
All of these choices
If you are interesting in working as a financial planner, or want to hire someone to manage your personal assets, which professional designation does the text mention is important? CPA FPM CFA CFP
CFP
What are the two ways a syndicate can place a bond? None of the above. Only negotiated sale Competitive sale or negotiated sale Competitive sale or appreciative sale
Competitive sale or negotiated sale
What are the three important areas of finance discussed in this section.? Corporate Finance, Investments, and Banking/financial institutions Government Finance, WAAC, Ratios Neither of these
Corporate Finance, Investments, and Banking/financial institutions
When dealers have to compete with one another, transaction costs will generally ___________. Do nothing Decrease Increase Remain constant
Decrease
A Treasury bond is a debt instrument issued by corporations. True False
False
A limit order to buy a stock at $101.55 would execute at the current ask price. True False
False
A market order to sell a stock would execute at the current ask price. True False
False
A stock is a debt instrument issued by corporations. True False
False
Agency costs are commonly mitigated by increasing management compensation. True False
False
An IPO is a seasoned equity offering. True or False
False
An example of agency costs is increased costs incurred because of higher levels of production. True False
False
Banks make money when interest rates they charge to borrowers is less than interest rates they pay depositors. True or False
False
Corporate finance is devoted to understanding various types of financial instruments. True False
False
Dealer markets have a physical location. True False
False
Dealer markets have a physical location. True False
False
Economics is a subfield of Finance, True or False?
False
Firms that are maximizing shareholder value will generally see stability in the firm's stock price. True False
False
Firms with low unexpected earnings usually exhibit large positive returns on the earnings announcement day. True False
False
NASDAQ is the world's largest secondary financial market. True False
False
Nasdaq is an example of an auction market. True False
False
Privately-held companies and publicly traded companies will always maximize shareholder value in the same way. True False
False
The NYSE specialist will charge a higher price to sellers of the stock and a lower price to the buyer of the stock. True False
False
While competitive sales allow underwriters to submit bids to purchase bonds, negotiated sales do not. True False
False
stocks that are listed on dealer markets generally have a single dealer for each stock. True False
False
Which of the following is not an example of firm capital? Cash Machinery Labor Financial markets None of the above
Financial Markets
What are ways firms can maximize shareholder value? Invest in new machinery that will be profitable. A and C A and B Invest capital into projects that will improve the visibility of the firm. Provide raises to all employees to improve morale.
Invest in new machinery that will be profitable.
What are the two types of orders that are used by investors? Market Orders and Limit Orders Debit Orders and Equity Orders Market Orders and Timely Orders
Market Orders and Limit Orders
Which group would most likely say something like, "No matter how good your finance people are, if you don't have any sales, you don't have a business." Operations Finance Marketing OB/HR
Marketing
The goal of the firm is to ___________ shareholder value. Maximize Preserve Protect
Maximize
Which of the following deals mainly with the people issues of a firm? Accounting Finance OB/HR Operations
OB/HR
Which of the following is NOT mentioned as an area in which an asset manager may invest when we think of the Investments sub-field? PP&E Venture capital Mutual funds Real estate All of the above are
PP&E
Which of the following is NOT another name for corporate finance? Financial Management Managerial Finance Business Finance Quantitative Finance
Quantitative Finance
Which of the following is NOT one of the main three sub-specialties of finance? Real Estate Institutions Investments Corporate Finance
Real Estate
The goal of the firm is to maximize ___________ value. Stockholder Customer Shareholder
Shareholder
Which of the following would a corporate finance professional NOT work with? Investing and financing decisions Financial policy implementation Tax strategies Supply chain management Cash management
Supply chain management
A bond is a debt instrument issued by corporations or governments. True False
True
A bond is similar to a loan. True False
True
A limit order to buy a stock at $101.55 would execute when the ask price at or below $101.55. True False
True
A market order to buy a stock would execute at the current ask price. True False
True
Agency costs are commonly mitigated by compensating management with company stock. True False
True
Agency costs are costs that are incurred when management does not act in the best interest of shareholders. True False
True
An example of agency costs is a firm's decision to invest in a project because management enjoys working on the project. True False
True
An example of agency costs is management spending company money on unprofitable goods and services. True False
True
Auction markets have a physical location. True False
True
Capital is defined as a financial asset. True False
True
Companies can raise capital by issuing bonds or stocks. True False
True
Companies should always maximize shareholder value. True False
True
Corporate finance focuses on the decision making by the management of the firm. True False
True
Firms that are maximizing shareholder value will generally see increases in the firm's stock price. True False
True
Firms try to mitigate agency costs by aligning managers' interests with shareholders' interests. True False
True
Firms with high unexpected earnings usually exhibit large positive returns on the earnings announcement day. True False
True
Markets are where prices are determined. True False
True
Primary financial markets are markets where issuers place new securities with investors. True or False
True
Stock represents ownership in a particular company. True False
True
Stocks and bonds are two types of financial instruments. True False
True
Syndicates are generally made up of investment banks and other institutional investors. True False
True
The NYSE specialist has an objective to provide liquidity to the market. True False
True
The bid-ask spread is compensation to the specialist for providing liquidity to the market. True False
True
The goal of the firm is to maximize shareholder value. True False
True
The text mentions some historical investment banks. Which of the following is NOT one of them? Lehman Brothers Zions International Morgan Stanley Goldman Sachs Merrill Lynch
Zions International
Which of the following is an example of firm capital? Bank deposits Cash all of the above none of the above
cash
Which of the following areas is typically in charge of the actual production of the product? Operations Strategic management Marketing Accounting OB/HR FEEDBACK
operations
A stock is a share of ______________ in a particular company.
ownership
Market orders are __________ sensitive while limit orders are _____________ sensitive. time, perception time, price market, price
time, price
