D076 Finance Skills for Managers WGU
ACTUAL QUESTIONS AND CORRECT
ANSWERS
Real Return - CORRECT ANSWERS Rate of growth in purchasing power of goods and
services
Holding Period Return - CORRECT ANSWERS Return over the entire period that an
investor owns a financial security
Beta - CORRECT ANSWERS A measure of the volatility, or systematic risk, of a security
or a portfolio in comparison to the market as a whole.
standard deviation - CORRECT ANSWERS Used to measure the total risk of securities
annuity due - CORRECT ANSWERS an annuity whose payments occur at the beginning
of each period, consecutively
Par Bond - CORRECT ANSWERS When the bond's coupon rate equals the market yield;
Bonds are typically issued near par value
Pi - CORRECT ANSWERS Profitability index. At 1, the PI means a internal return rate
equal to the cost of capital
Irr - CORRECT ANSWERS Internal rate of return (IRR) is a discount rate at which the net
present value (NPV) of an investment is equal to zero.
, If the IRR is higher than the cost of borrowing to fund the investment, the investment should be
profitable. Always shown as percentage.
Net Present Value (NPV) - CORRECT ANSWERS A method of ranking investment
proposals using the NPV, which is equal to the present value of the project's free cash flows
discounted at the cost of capital. Shown as dollar amount.. At $0 it means it will neither add nor
subtract value.
Inventory Turnover - CORRECT ANSWERS An activity ratio found by COGS divided by
inventory
dividends in arrears - CORRECT ANSWERS Feature of preferred stock specifying that if
a company ignores preferred stock dividends it cannot pay anything to it's common stockholders
Agency Problem - CORRECT ANSWERS the possibility of conflict of interest between
the owners and management of a firm
Resolved by aligning interests, example giving shares to manangement
Operating Margin - CORRECT ANSWERS A profitability ratio found by EBIT profit
divided by sales
Capital Structure - CORRECT ANSWERS the mixture of debt and equity maintained by a
firm
Defensive Assets - CORRECT ANSWERS Companies or securities with betas less than 1.
ACTUAL QUESTIONS AND CORRECT
ANSWERS
Real Return - CORRECT ANSWERS Rate of growth in purchasing power of goods and
services
Holding Period Return - CORRECT ANSWERS Return over the entire period that an
investor owns a financial security
Beta - CORRECT ANSWERS A measure of the volatility, or systematic risk, of a security
or a portfolio in comparison to the market as a whole.
standard deviation - CORRECT ANSWERS Used to measure the total risk of securities
annuity due - CORRECT ANSWERS an annuity whose payments occur at the beginning
of each period, consecutively
Par Bond - CORRECT ANSWERS When the bond's coupon rate equals the market yield;
Bonds are typically issued near par value
Pi - CORRECT ANSWERS Profitability index. At 1, the PI means a internal return rate
equal to the cost of capital
Irr - CORRECT ANSWERS Internal rate of return (IRR) is a discount rate at which the net
present value (NPV) of an investment is equal to zero.
, If the IRR is higher than the cost of borrowing to fund the investment, the investment should be
profitable. Always shown as percentage.
Net Present Value (NPV) - CORRECT ANSWERS A method of ranking investment
proposals using the NPV, which is equal to the present value of the project's free cash flows
discounted at the cost of capital. Shown as dollar amount.. At $0 it means it will neither add nor
subtract value.
Inventory Turnover - CORRECT ANSWERS An activity ratio found by COGS divided by
inventory
dividends in arrears - CORRECT ANSWERS Feature of preferred stock specifying that if
a company ignores preferred stock dividends it cannot pay anything to it's common stockholders
Agency Problem - CORRECT ANSWERS the possibility of conflict of interest between
the owners and management of a firm
Resolved by aligning interests, example giving shares to manangement
Operating Margin - CORRECT ANSWERS A profitability ratio found by EBIT profit
divided by sales
Capital Structure - CORRECT ANSWERS the mixture of debt and equity maintained by a
firm
Defensive Assets - CORRECT ANSWERS Companies or securities with betas less than 1.
