PSU FINANCE 301 EXAM 1
QUESTIONS & ACCURATE
COMPLETE SOLUTIONS
Finance - Correct Answer ✔✔ Involves the management of money
Corporate Finance - Correct Answer ✔✔ the management of money/capital within a
corporation. the major monetary decisions facing a corporation concern working capital
management , capital budgeting and the capital structure decision
capital market - Correct Answer ✔✔ financial markets (such as NYSE, NASDAQ,
OTC,CBOT) where issues and investors buy and sell long term (<1 year) financial
instruments
debt - Correct Answer ✔✔ a financial asset ( obligation) that typically has "fixed" cash
inflows (outflows)
debt examples - Correct Answer ✔✔ bonds, loans, revolving credit facilities
stocks - Correct Answer ✔✔ financial asset that represents equity ownership in a
company. it is characterized by having junior status to the claims of creditors and
preferred stockholders in the event of liquidation
market efficiency - Correct Answer ✔✔ the stock market is brutally efficient, current
prices reflect all publicly available information and prices react completely, correctly and
almost instantly to incorporate the receipt of new information
asset allocation - Correct Answer ✔✔ the process of dividing a portfolio among major
asset categories such as bonds, stocks or cash. the purpose of asset allocation is to
reduce risk by diversifying the portfolio
diversification - Correct Answer ✔✔ a risk management technique that mixes a wide
variety of investments within a portfolio. it is designed to minimize the impact of any one
security on overall portfolio performance
risk - Correct Answer ✔✔ the chance that an investment's actual return will be different
than expected. this includes the possibility of losing some or all of the original
investment. it is usually measured by calculating the standard deviation of the historical
returns or average returns of a specific investment. the greater the amount of risk an
investor is willing to take, the greater the potential return they expect
, markets - Correct Answer ✔✔ where shares are issued and traded either through
exchanges or over-the-counter markets. also known as the equity market, it is one of
the most vital areas of a market economy as it provides companies with access to
capital and investors with ownership in the economy and the exposure to potential gains
based on the company's future performance
financial intermediaries - Correct Answer ✔✔ when a financial intermediary borrows
fund from savers or investors by issuing a claim, and uses those funds to make loans or
to purchase higher yielding securities. financial institutions act as middlemen, linking
lenders and borrowers through intermediation
investment decision - Correct Answer ✔✔ investing the funds of the company in
working capital, tangible and intangible assets to buy or build projects and investment
that will be worth more than they cost
financing decision - Correct Answer ✔✔ raising money for the company from
institutional and individual investors through the sale of debt and equity claims to
finance the investment projects or the firm
net present value - Correct Answer ✔✔ the present value of the expected future cash
flows minus the initial cost /investment
cost of capital - Correct Answer ✔✔ the required return for a capital budgeting project
as measured by the return offered by equivalent risk investments. it is the cost of raising
debt and equity for the company. weighted average cost of debt and equity financing
primary markets - Correct Answer ✔✔ capital markets in which governments, agencies
and municipal entities issue debt securities and corporations issue stock and bonds to
investors, and the issuer of the securities receives the proceeds from the sale of
securities
secondary markets - Correct Answer ✔✔ where stocks and bonds are traded after their
initial issuance. the issuing corporation receives no proceeds from the sale
liquidity - Correct Answer ✔✔ the ease with which an owner of a security can sell an
investment to another investor or trade it in the securities market
direct finance - Correct Answer ✔✔ the process in which issuers receive funds directly
from he purchasers of stocks and bonds in the markets
indirect finance - Correct Answer ✔✔ the process of funds moving from investors
through financial intermediaries to borrowers
return and risk - Correct Answer ✔✔ there is a positive relationship between risk and
return. the higher the risk, the higher the expected return
QUESTIONS & ACCURATE
COMPLETE SOLUTIONS
Finance - Correct Answer ✔✔ Involves the management of money
Corporate Finance - Correct Answer ✔✔ the management of money/capital within a
corporation. the major monetary decisions facing a corporation concern working capital
management , capital budgeting and the capital structure decision
capital market - Correct Answer ✔✔ financial markets (such as NYSE, NASDAQ,
OTC,CBOT) where issues and investors buy and sell long term (<1 year) financial
instruments
debt - Correct Answer ✔✔ a financial asset ( obligation) that typically has "fixed" cash
inflows (outflows)
debt examples - Correct Answer ✔✔ bonds, loans, revolving credit facilities
stocks - Correct Answer ✔✔ financial asset that represents equity ownership in a
company. it is characterized by having junior status to the claims of creditors and
preferred stockholders in the event of liquidation
market efficiency - Correct Answer ✔✔ the stock market is brutally efficient, current
prices reflect all publicly available information and prices react completely, correctly and
almost instantly to incorporate the receipt of new information
asset allocation - Correct Answer ✔✔ the process of dividing a portfolio among major
asset categories such as bonds, stocks or cash. the purpose of asset allocation is to
reduce risk by diversifying the portfolio
diversification - Correct Answer ✔✔ a risk management technique that mixes a wide
variety of investments within a portfolio. it is designed to minimize the impact of any one
security on overall portfolio performance
risk - Correct Answer ✔✔ the chance that an investment's actual return will be different
than expected. this includes the possibility of losing some or all of the original
investment. it is usually measured by calculating the standard deviation of the historical
returns or average returns of a specific investment. the greater the amount of risk an
investor is willing to take, the greater the potential return they expect
, markets - Correct Answer ✔✔ where shares are issued and traded either through
exchanges or over-the-counter markets. also known as the equity market, it is one of
the most vital areas of a market economy as it provides companies with access to
capital and investors with ownership in the economy and the exposure to potential gains
based on the company's future performance
financial intermediaries - Correct Answer ✔✔ when a financial intermediary borrows
fund from savers or investors by issuing a claim, and uses those funds to make loans or
to purchase higher yielding securities. financial institutions act as middlemen, linking
lenders and borrowers through intermediation
investment decision - Correct Answer ✔✔ investing the funds of the company in
working capital, tangible and intangible assets to buy or build projects and investment
that will be worth more than they cost
financing decision - Correct Answer ✔✔ raising money for the company from
institutional and individual investors through the sale of debt and equity claims to
finance the investment projects or the firm
net present value - Correct Answer ✔✔ the present value of the expected future cash
flows minus the initial cost /investment
cost of capital - Correct Answer ✔✔ the required return for a capital budgeting project
as measured by the return offered by equivalent risk investments. it is the cost of raising
debt and equity for the company. weighted average cost of debt and equity financing
primary markets - Correct Answer ✔✔ capital markets in which governments, agencies
and municipal entities issue debt securities and corporations issue stock and bonds to
investors, and the issuer of the securities receives the proceeds from the sale of
securities
secondary markets - Correct Answer ✔✔ where stocks and bonds are traded after their
initial issuance. the issuing corporation receives no proceeds from the sale
liquidity - Correct Answer ✔✔ the ease with which an owner of a security can sell an
investment to another investor or trade it in the securities market
direct finance - Correct Answer ✔✔ the process in which issuers receive funds directly
from he purchasers of stocks and bonds in the markets
indirect finance - Correct Answer ✔✔ the process of funds moving from investors
through financial intermediaries to borrowers
return and risk - Correct Answer ✔✔ there is a positive relationship between risk and
return. the higher the risk, the higher the expected return
