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Principles of Finance

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Principles of FinanceMultiple Choice
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Table of contents
  1. Preface
  2. 1 Introduction to Finance
    1. Why It Matters
    2. 1.1 What Is Finance?
    3. 1.2 The Role of Finance in an Organization
    4. 1.3 Importance of Data and Technology
    5. 1.4 Careers in Finance
    6. 1.5 Markets and Participants
    7. 1.6 Microeconomic and Macroeconomic Matters
    8. 1.7 Financial Instruments
    9. 1.8 Concepts of Time and Value
    10. Summary
    11. Key Terms
    12. Multiple Choice
    13. Review Questions
    14. Video Activity
  3. 2 Corporate Structure and Governance
    1. Why It Matters
    2. 2.1 Business Structures
    3. 2.2 Relationship between Shareholders and Company Management
    4. 2.3 Role of the Board of Directors
    5. 2.4 Agency Issues: Shareholders and Corporate Boards
    6. 2.5 Interacting with Investors, Intermediaries, and Other Market Participants
    7. 2.6 Companies in Domestic and Global Markets
    8. Summary
    9. Key Terms
    10. CFA Institute
    11. Multiple Choice
    12. Review Questions
    13. Video Activity
  4. 3 Economic Foundations: Money and Rates
    1. Why It Matters
    2. 3.1 Microeconomics
    3. 3.2 Macroeconomics
    4. 3.3 Business Cycles and Economic Activity
    5. 3.4 Interest Rates
    6. 3.5 Foreign Exchange Rates
    7. 3.6 Sources and Characteristics of Economic Data
    8. Summary
    9. Key Terms
    10. CFA Institute
    11. Multiple Choice
    12. Review Questions
    13. Problems
    14. Video Activity
  5. 4 Accrual Accounting Process
    1. Why It Matters
    2. 4.1 Cash versus Accrual Accounting
    3. 4.2 Economic Basis for Accrual Accounting
    4. 4.3 How Does a Company Recognize a Sale and an Expense?
    5. 4.4 When Should a Company Capitalize or Expense an Item?
    6. 4.5 What Is “Profit” versus “Loss” for the Company?
    7. Summary
    8. Key Terms
    9. Multiple Choice
    10. Review Questions
    11. Problems
    12. Video Activity
  6. 5 Financial Statements
    1. Why It Matters
    2. 5.1 The Income Statement
    3. 5.2 The Balance Sheet
    4. 5.3 The Relationship between the Balance Sheet and the Income Statement
    5. 5.4 The Statement of Owner’s Equity
    6. 5.5 The Statement of Cash Flows
    7. 5.6 Operating Cash Flow and Free Cash Flow to the Firm (FCFF)
    8. 5.7 Common-Size Statements
    9. 5.8 Reporting Financial Activity
    10. Summary
    11. Key Terms
    12. CFA Institute
    13. Multiple Choice
    14. Review Questions
    15. Problems
    16. Video Activity
  7. 6 Measures of Financial Health
    1. Why It Matters
    2. 6.1 Ratios: Condensing Information into Smaller Pieces
    3. 6.2 Operating Efficiency Ratios
    4. 6.3 Liquidity Ratios
    5. 6.4 Solvency Ratios
    6. 6.5 Market Value Ratios
    7. 6.6 Profitability Ratios and the DuPont Method
    8. Summary
    9. Key Terms
    10. CFA Institute
    11. Multiple Choice
    12. Review Questions
    13. Problems
    14. Video Activity
  8. 7 Time Value of Money I: Single Payment Value
    1. Why It Matters
    2. 7.1 Now versus Later Concepts
    3. 7.2 Time Value of Money (TVM) Basics
    4. 7.3 Methods for Solving Time Value of Money Problems
    5. 7.4 Applications of TVM in Finance
    6. Summary
    7. Key Terms
    8. CFA Institute
    9. Multiple Choice
    10. Review Questions
    11. Problems
    12. Video Activity
  9. 8 Time Value of Money II: Equal Multiple Payments
    1. Why It Matters
    2. 8.1 Perpetuities
    3. 8.2 Annuities
    4. 8.3 Loan Amortization
    5. 8.4 Stated versus Effective Rates
    6. 8.5 Equal Payments with a Financial Calculator and Excel
    7. Summary
    8. Key Terms
    9. CFA Institute
    10. Multiple Choice
    11. Problems
    12. Video Activity
  10. 9 Time Value of Money III: Unequal Multiple Payment Values
    1. Why It Matters
    2. 9.1 Timing of Cash Flows
    3. 9.2 Unequal Payments Using a Financial Calculator or Microsoft Excel
    4. Summary
    5. Key Terms
    6. CFA Institute
    7. Multiple Choice
    8. Review Questions
    9. Problems
    10. Video Activity
  11. 10 Bonds and Bond Valuation
    1. Why It Matters
    2. 10.1 Characteristics of Bonds
    3. 10.2 Bond Valuation
    4. 10.3 Using the Yield Curve
    5. 10.4 Risks of Interest Rates and Default
    6. 10.5 Using Spreadsheets to Solve Bond Problems
    7. Summary
    8. Key Terms
    9. CFA Institute
    10. Multiple Choice
    11. Review Questions
    12. Problems
    13. Video Activity
  12. 11 Stocks and Stock Valuation
    1. Why It Matters
    2. 11.1 Multiple Approaches to Stock Valuation
    3. 11.2 Dividend Discount Models (DDMs)
    4. 11.3 Discounted Cash Flow (DCF) Model
    5. 11.4 Preferred Stock
    6. 11.5 Efficient Markets
    7. Summary
    8. Key Terms
    9. CFA Institute
    10. Multiple Choice
    11. Review Questions
    12. Problems
    13. Video Activity
  13. 12 Historical Performance of US Markets
    1. Why It Matters
    2. 12.1 Overview of US Financial Markets
    3. 12.2 Historical Picture of Inflation
    4. 12.3 Historical Picture of Returns to Bonds
    5. 12.4 Historical Picture of Returns to Stocks
    6. Summary
    7. Key Terms
    8. Multiple Choice
    9. Review Questions
    10. Video Activity
  14. 13 Statistical Analysis in Finance
    1. Why It Matters
    2. 13.1 Measures of Center
    3. 13.2 Measures of Spread
    4. 13.3 Measures of Position
    5. 13.4 Statistical Distributions
    6. 13.5 Probability Distributions
    7. 13.6 Data Visualization and Graphical Displays
    8. 13.7 The R Statistical Analysis Tool
    9. Summary
    10. Key Terms
    11. CFA Institute
    12. Multiple Choice
    13. Review Questions
    14. Problems
    15. Video Activity
  15. 14 Regression Analysis in Finance
    1. Why It Matters
    2. 14.1 Correlation Analysis
    3. 14.2 Linear Regression Analysis
    4. 14.3 Best-Fit Linear Model
    5. 14.4 Regression Applications in Finance
    6. 14.5 Predictions and Prediction Intervals
    7. 14.6 Use of R Statistical Analysis Tool for Regression Analysis
    8. Summary
    9. Key Terms
    10. Multiple Choice
    11. Review Questions
    12. Problems
    13. Video Activity
  16. 15 How to Think about Investing
    1. Why It Matters
    2. 15.1 Risk and Return to an Individual Asset
    3. 15.2 Risk and Return to Multiple Assets
    4. 15.3 The Capital Asset Pricing Model (CAPM)
    5. 15.4 Applications in Performance Measurement
    6. 15.5 Using Excel to Make Investment Decisions
    7. Summary
    8. Key Terms
    9. CFA Institute
    10. Multiple Choice
    11. Review Questions
    12. Problems
    13. Video Activity
  17. 16 How Companies Think about Investing
    1. Why It Matters
    2. 16.1 Payback Period Method
    3. 16.2 Net Present Value (NPV) Method
    4. 16.3 Internal Rate of Return (IRR) Method
    5. 16.4 Alternative Methods
    6. 16.5 Choosing between Projects
    7. 16.6 Using Excel to Make Company Investment Decisions
    8. Summary
    9. Key Terms
    10. CFA Institute
    11. Multiple Choice
    12. Review Questions
    13. Problems
    14. Video Activity
  18. 17 How Firms Raise Capital
    1. Why It Matters
    2. 17.1 The Concept of Capital Structure
    3. 17.2 The Costs of Debt and Equity Capital
    4. 17.3 Calculating the Weighted Average Cost of Capital
    5. 17.4 Capital Structure Choices
    6. 17.5 Optimal Capital Structure
    7. 17.6 Alternative Sources of Funds
    8. Summary
    9. Key Terms
    10. CFA Institute
    11. Multiple Choice
    12. Review Questions
    13. Problems
    14. Video Activity
  19. 18 Financial Forecasting
    1. Why It Matters
    2. 18.1 The Importance of Forecasting
    3. 18.2 Forecasting Sales
    4. 18.3 Pro Forma Financials
    5. 18.4 Generating the Complete Forecast
    6. 18.5 Forecasting Cash Flow and Assessing the Value of Growth
    7. 18.6 Using Excel to Create the Long-Term Forecast
    8. Summary
    9. Key Terms
    10. Multiple Choice
    11. Review Questions
    12. Problems
    13. Video Activity
  20. 19 The Importance of Trade Credit and Working Capital in Planning
    1. Why It Matters
    2. 19.1 What Is Working Capital?
    3. 19.2 What Is Trade Credit?
    4. 19.3 Cash Management
    5. 19.4 Receivables Management
    6. 19.5 Inventory Management
    7. 19.6 Using Excel to Create the Short-Term Plan
    8. Summary
    9. Key Terms
    10. Multiple Choice
    11. Review Questions
    12. Video Activity
  21. 20 Risk Management and the Financial Manager
    1. Why It Matters
    2. 20.1 The Importance of Risk Management
    3. 20.2 Commodity Price Risk
    4. 20.3 Exchange Rates and Risk
    5. 20.4 Interest Rate Risk
    6. Summary
    7. Key Terms
    8. CFA Institute
    9. Multiple Choice
    10. Review Questions
    11. Problems
    12. Video Activity
  22. Index
1 .
Which of the following was NOT identified by your authors as one of the three main areas of financial study?
  1. business finance
  2. capital budgeting
  3. investments
  4. financial markets and institutions
2 .
What is the process of determining which long-term or fixed assets to acquire in an effort to maximize shareholder value?
  1. Business finance
  2. Capital budgeting
  3. Investments
  4. Financial markets and institutions
3 .
In an organization with each of these financial positions, which title is most likely to be associated with a job description that is less of a “hands-on” manager and that engages more in visionary and strategic planning?
  1. comptroller (or controller)
  2. treasurer
  3. vice president of finance
  4. chief financial officer (CFO)
4 .
Which of the following statements is false?
  1. Financial planning is an important tool of for-profit organizations such as corporations and partnerships but is not important for not-for-profit enterprises such charitable organizations or governments.
  2. Good financial planning considers past, present, and pro forma income statements.
  3. Balance sheets are critical elements of the financial planning process and help demonstrate expected sources and uses of funds.
  4. Forecasting in the form of expected sales, cost of funds, and micro- and macroeconomic conditions are essential elements of financial planning.
5 .
Which of the following statements regarding data is generally NOT true?
  1. Financial data is important for internal and external analysis of business firms.
  2. Outsiders use publicly available data about firms to make investment and regulatory decisions.
  3. “Gut feelings” decision-making tends to be more consistent with value maximization.
  4. Suppliers need financial information to determine if they should supply trade credit, and customers need to know if a firm’s products are reliable and appropriately priced.
6 .
Which of the following is generally NOT true about cloud data storage versus on-site data storage?
  1. Cloud data storage provides storage cost advantages.
  2. Cloud data storage causes increased energy consumption.
  3. Cloud data storage comes with specialized data protection services.
  4. Cloud data storage comes with specialized maintenance services.
7 .
Which of the following describes United States Bureau of Labor Statistics (BLS) expectations of jobs using financial skills in the next decade?
  1. plentiful but low paying
  2. few and low paying
  3. plentiful and high paying
  4. few and high paying
8 .
Which of the following organizations would be unlikely to hire a financial analyst?
  1. Government agencies may hire financial analysts to aid in regulatory oversight and enforcement.
  2. Investment companies may hire financial analysts to produce financial reports.
  3. Corporations may hire financial analysts to develop financial forecasts.
  4. All of the above organizations are likely to hire and develop financial analysts.
9 .
The _______________ market is the market for _______________ securities, and the _______________ is the market for _______________ securities.
  1. primary; used; secondary; new
  2. primary; new; secondary; used
  3. secondary; new; primary; new
  4. secondary; used; primary; used
10 .
_______________ own the securities that they buy or sell; when they engage in a financial transaction, they are trading from their own portfolio.
  1. Dealers
  2. Brokers
  3. Advisers
  4. Comptrollers
11 .
_______________ act as facilitators in a market, and they bring together buyers and sellers for a transaction.
  1. Dealers
  2. Brokers
  3. Advisers
  4. Comptrollers
12 .
_______________ is the study of the allocation of scarce resources, _______________ is devoted to the study of these decisions of allocation by small or individual entities, and _______________ examines decisions taken together or in the aggregate.
  1. Macroeconomics; microeconomics; economics
  2. Microeconomics; economics; macroeconomics
  3. Economics; microeconomics; macroeconomics
  4. Economics; macroeconomics; microeconomics
13 .
Which of the following is NOT an economy-wide macroeconomic variable used in macro-forecasting models?
  1. inflation
  2. unemployment
  3. economic growth
  4. CEO turnover
14 .
_______________ is the market for short-term, low-risk, highly liquid, homogeneous securities.
  1. The capital market
  2. The financial market
  3. The stock market
  4. The money market
15 .
_______________ are short-term debt instruments issued by the federal government.
  1. Treasury bills
  2. Treasury notes
  3. Treasury bonds
  4. Federal Reserve notes
16 .
_______________ is a short-term, unsecured security issued by corporations and financial institutions to meet short-term financing needs such as inventory and receivables.
  1. A Treasury bill
  2. Commercial paper
  3. A negotiable certificate of deposit
  4. A Treasury note
17 .
_______________ are US government debt instruments with maturities of 2, 3, 5, 7, or 10 years.
  1. Federal funds
  2. Federal Reserve notes
  3. Treasury notes
  4. Treasury bonds
18 .
_______________ investments tend to have _______________ risk and _______________ expected returns.
  1. Long-term; less; smaller
  2. Long-term; greater; greater
  3. Short-term; greater; smaller
  4. Short-term; less; greater
19 .
_______________ value is what a consumer pays for a product. _______________ value is what a consumer is willing to pay for a product.
  1. Market; Economic
  2. Economic; Market
  3. Book; Market
  4. Economic; Book
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