Finance Skills for Managers - D076
In which way is accounting different from finance? - ANSWER: Accounting is backward
looking, while finance is focused on the future.
What is the main question that both individuals and companies must consider when
making financial decisions to reach a goal? - ANSWER: Will the benefits of the action
outweigh the costs?
A financial manager at a company is trying to determine whether to issue new stocks or
new bonds to cover the costs of a project the company is doing the next year.
Which main task in business finance is this situation an example of? - ANSWER:
Making financing decisions
How can investing help a person reach personal financial goals? - ANSWER: It provides
access to potential revenue or increases in value to help meet goals faster.
A sign company is planning to have an initial public offering (IPO). In which type of
market will its stock first be sold to the public? - ANSWER: Primary market
Which type of economic indicator changes after the economy changes and helps
identify trends in the long term? - ANSWER: Lagging indicator
How does an investment institution, such as a mutual fund, facilitate the circulation of
money in the economy? - ANSWER: By providing individuals and firms access to
financial markets to buy or sell financial securities
Which type of economic indicator is used by governments and policymakers to
implement or alter policies in an effort to avoid or minimize the effects of an economic
downturn? - ANSWER: Leading indicator
Suppose an individual does not eat chocolate because eating chocolate goes against
his personal beliefs. Which type of standard is this? - ANSWER: Moral
Which action is based upon moral standards? - ANSWER: Although there is no
company policy regarding it, a financial manager chooses not to accept gifts from the
company's clients to ensure that she does not create a conflict of interest.
What should a potential bondholder (lender) do to prevent a company (borrower) from
taking on risky projects? - ANSWER: Set strict covenants that the company cannot
uphold if it chooses a risky project
, What is the term for an individual's beliefs concerning what is and is not acceptable to
personally do? - ANSWER: Morals
Which factor contributes to the inflation of the prices of goods and services over time? -
ANSWER: Increase in demand for goods and services
Why can compounding interest be a good tool but also a significant detriment? -
ANSWER: Compounding interest can be a good tool because it allows a lender to gain
interest on interest, but it is a detriment because it causes a borrower to pay interest on
interest.
Which component of the required rate of return takes into account the loss of potential
gain from other alternatives? - ANSWER: Opportunity cost
How is inflation calculated? - ANSWER: Inflation is calculated by determining the rate at
which the average price level of particular goods and services increases over a period
of time in an economy.
Based on the following information about the stocks of several companies, which stock
displays the greatest amount of risk?
Stock A: Return = 22.22%, Standard Deviation = 9.99%
Stock B: Return = 15.05%, Standard Deviation = 7.35%
Stock C: Return = 38.83%, Standard Deviation = 4.54%
Stock D: Return = 5.69%, Standard Deviation = 5.32% - ANSWER: Stock A
What is the relationship between risk and return? - ANSWER: The higher risk an
investor takes, the higher return the investor expects to receive.
Maya is considering purchasing stock in a certain company. Her financial advisor
suggests that she purchase stocks in multiple companies instead of just one.
Which risk management technique is this financial advisor suggesting? - ANSWER:
Risk diversification
An energy company discovers that a new bill has been proposed to change the amount
of fuel that can be exported outside the country. If passed, this could have a serious
negative effect on the company's revenues. Some of the company's competitors are
obtaining insurance policies to compensate for this risk, but since the energy company
believes the likelihood of this bill passing is low, it chooses to do nothing—ultimately
taking responsibility for this particular risk instead of trying to transfer the risk through an
insurance policy.
Which risk management technique is this choice an example of? - ANSWER: Risk
avoidance
In which way is accounting different from finance? - ANSWER: Accounting is backward
looking, while finance is focused on the future.
What is the main question that both individuals and companies must consider when
making financial decisions to reach a goal? - ANSWER: Will the benefits of the action
outweigh the costs?
A financial manager at a company is trying to determine whether to issue new stocks or
new bonds to cover the costs of a project the company is doing the next year.
Which main task in business finance is this situation an example of? - ANSWER:
Making financing decisions
How can investing help a person reach personal financial goals? - ANSWER: It provides
access to potential revenue or increases in value to help meet goals faster.
A sign company is planning to have an initial public offering (IPO). In which type of
market will its stock first be sold to the public? - ANSWER: Primary market
Which type of economic indicator changes after the economy changes and helps
identify trends in the long term? - ANSWER: Lagging indicator
How does an investment institution, such as a mutual fund, facilitate the circulation of
money in the economy? - ANSWER: By providing individuals and firms access to
financial markets to buy or sell financial securities
Which type of economic indicator is used by governments and policymakers to
implement or alter policies in an effort to avoid or minimize the effects of an economic
downturn? - ANSWER: Leading indicator
Suppose an individual does not eat chocolate because eating chocolate goes against
his personal beliefs. Which type of standard is this? - ANSWER: Moral
Which action is based upon moral standards? - ANSWER: Although there is no
company policy regarding it, a financial manager chooses not to accept gifts from the
company's clients to ensure that she does not create a conflict of interest.
What should a potential bondholder (lender) do to prevent a company (borrower) from
taking on risky projects? - ANSWER: Set strict covenants that the company cannot
uphold if it chooses a risky project
, What is the term for an individual's beliefs concerning what is and is not acceptable to
personally do? - ANSWER: Morals
Which factor contributes to the inflation of the prices of goods and services over time? -
ANSWER: Increase in demand for goods and services
Why can compounding interest be a good tool but also a significant detriment? -
ANSWER: Compounding interest can be a good tool because it allows a lender to gain
interest on interest, but it is a detriment because it causes a borrower to pay interest on
interest.
Which component of the required rate of return takes into account the loss of potential
gain from other alternatives? - ANSWER: Opportunity cost
How is inflation calculated? - ANSWER: Inflation is calculated by determining the rate at
which the average price level of particular goods and services increases over a period
of time in an economy.
Based on the following information about the stocks of several companies, which stock
displays the greatest amount of risk?
Stock A: Return = 22.22%, Standard Deviation = 9.99%
Stock B: Return = 15.05%, Standard Deviation = 7.35%
Stock C: Return = 38.83%, Standard Deviation = 4.54%
Stock D: Return = 5.69%, Standard Deviation = 5.32% - ANSWER: Stock A
What is the relationship between risk and return? - ANSWER: The higher risk an
investor takes, the higher return the investor expects to receive.
Maya is considering purchasing stock in a certain company. Her financial advisor
suggests that she purchase stocks in multiple companies instead of just one.
Which risk management technique is this financial advisor suggesting? - ANSWER:
Risk diversification
An energy company discovers that a new bill has been proposed to change the amount
of fuel that can be exported outside the country. If passed, this could have a serious
negative effect on the company's revenues. Some of the company's competitors are
obtaining insurance policies to compensate for this risk, but since the energy company
believes the likelihood of this bill passing is low, it chooses to do nothing—ultimately
taking responsibility for this particular risk instead of trying to transfer the risk through an
insurance policy.
Which risk management technique is this choice an example of? - ANSWER: Risk
avoidance
