FIN 3320 Exam 1 TTU Questions with
Verified Answers
limited liability corporation - ANSWER-combines the tax benefits of a partnership
with the limited liability benefit of corporations
COO - ANSWER-marketing, production, human resources, and other operating
departments
CFO - ANSWER-accounting, treasury, credit, legal, capital budgeting, and investor
relations
create value for investors - ANSWER-goal of financial manager
intrinsic value - ANSWER-estimate of stock's true value based on risk and return.
Cannot be measured precisely only estimated. (theoretical value)
market value - ANSWER-stock value based on perceived information as seen by
investors. This is the price the stock buys and sells at. (Trading Value)
equilibrium - ANSWER-actual market price = intrinsic value
stock price should equal what its "true" value is
types of conflict within the business - ANSWER-(1) shareholder - manager conflict
(2) shareholder - debt holder conflict
(3) shareholder interests and society interests
shareholder - manager conflict - ANSWER-managers are naturally inclined to act in
their own best interests AGENCY PROBLEM
affect managerial behavior - ANSWER-- managerial compensation packages
- direct intervention by shareholders
- the threat of firing
- the threat of takeover
- monitoring by the board of directors
- monitoring by financial markets (such as auditors, bankers, security analysts, credit
agencies)
shareholder - debtholder conflict - ANSWER-bondholders are particularly concerned
about the use of additional debt
debtholders protect themselves with covenants in bond agreements
, shareholder interests and society interests - ANSWER-the primary financial goal of
management is creating value for the shareholders
- accomplished by "maximizing stock price"
manager recognize that being socially responsible is not inconsistent with
maximizing shareholder value
three players in financial markets - ANSWER-(1) borrowers (individuals and
businesses)
(2) savers (individuals)
(3) financial institutions
types of financial institutions - ANSWER-investment banks
commercial banks
financial services corporations
credit unions
pension funds
life insurance companies
mutual funds
exchange traded funds
hedge funds
private equity companies
investment banks - ANSWER-specialized financial institutions that help companies
and governments raise money and provide advisory services to client firms when
they enter into major transactions (large account and large transactions)
commercial banks - ANSWER-collect the savings of individuals as well as
businesses and then lend those pooled savings to other individuals and businesses.
They earn money by charging a rate of interest to borrowers that exceeds the rate
they pay to savers.
1933 National Banking Act - ANSWER-Glass-Steagall
1999 repeal of - ANSWER-Glass-Steagall
After 2008 - ANSWER-no major stand alone investment banks
financial services corporation - ANSWER-in the lending or financing business, but
they are not commercial banks
credit unions - ANSWER-cooperative association whose members are supposed to
have a common bond (often the cheapest source of funds available to individual
borrowers)
member driven and pay attention to its customers' opinions
pension funds - ANSWER-retirement plans funded by corporations or government
agencies for their workers
invest primarily in stocks, bonds, and real estate
Verified Answers
limited liability corporation - ANSWER-combines the tax benefits of a partnership
with the limited liability benefit of corporations
COO - ANSWER-marketing, production, human resources, and other operating
departments
CFO - ANSWER-accounting, treasury, credit, legal, capital budgeting, and investor
relations
create value for investors - ANSWER-goal of financial manager
intrinsic value - ANSWER-estimate of stock's true value based on risk and return.
Cannot be measured precisely only estimated. (theoretical value)
market value - ANSWER-stock value based on perceived information as seen by
investors. This is the price the stock buys and sells at. (Trading Value)
equilibrium - ANSWER-actual market price = intrinsic value
stock price should equal what its "true" value is
types of conflict within the business - ANSWER-(1) shareholder - manager conflict
(2) shareholder - debt holder conflict
(3) shareholder interests and society interests
shareholder - manager conflict - ANSWER-managers are naturally inclined to act in
their own best interests AGENCY PROBLEM
affect managerial behavior - ANSWER-- managerial compensation packages
- direct intervention by shareholders
- the threat of firing
- the threat of takeover
- monitoring by the board of directors
- monitoring by financial markets (such as auditors, bankers, security analysts, credit
agencies)
shareholder - debtholder conflict - ANSWER-bondholders are particularly concerned
about the use of additional debt
debtholders protect themselves with covenants in bond agreements
, shareholder interests and society interests - ANSWER-the primary financial goal of
management is creating value for the shareholders
- accomplished by "maximizing stock price"
manager recognize that being socially responsible is not inconsistent with
maximizing shareholder value
three players in financial markets - ANSWER-(1) borrowers (individuals and
businesses)
(2) savers (individuals)
(3) financial institutions
types of financial institutions - ANSWER-investment banks
commercial banks
financial services corporations
credit unions
pension funds
life insurance companies
mutual funds
exchange traded funds
hedge funds
private equity companies
investment banks - ANSWER-specialized financial institutions that help companies
and governments raise money and provide advisory services to client firms when
they enter into major transactions (large account and large transactions)
commercial banks - ANSWER-collect the savings of individuals as well as
businesses and then lend those pooled savings to other individuals and businesses.
They earn money by charging a rate of interest to borrowers that exceeds the rate
they pay to savers.
1933 National Banking Act - ANSWER-Glass-Steagall
1999 repeal of - ANSWER-Glass-Steagall
After 2008 - ANSWER-no major stand alone investment banks
financial services corporation - ANSWER-in the lending or financing business, but
they are not commercial banks
credit unions - ANSWER-cooperative association whose members are supposed to
have a common bond (often the cheapest source of funds available to individual
borrowers)
member driven and pay attention to its customers' opinions
pension funds - ANSWER-retirement plans funded by corporations or government
agencies for their workers
invest primarily in stocks, bonds, and real estate
