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Finance 3101 Keen Exam 2 Edition with Correct Answers!!, Exams of Financial Accounting

Finance 3101 Keen Exam 2nd Edition with Questions and Correct Answers!!

Typology: Exams

2024/2025

Available from 11/19/2024

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Finance 3101 Keen Exam 2 Edition with
Correct Answers!!
What are the four elements needed to appropriately compare
alternative investments? - Correct Ans: ✔✔
1. profit or loss
2. size of original investment
3. timing (annualize return)
4. risk
What are HPRs, simple and compounded annual returns and how do
you compute them? - Correct Ans: ✔✔HPRs (holding period returns):
however long you hold an asset asset- HPR = HPR
simple returns: HPR/n
compound returns:
(1+HPR)^(1/n)-1
What is the relationship between the standard deviation (σ) and the
degree of risk? - Correct Ans: ✔✔standard deviation is the measure of
risk
Total risk = - Correct Ans: ✔✔total risk = unsystematic risk + systemic
risk
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Finance 3101 Keen Exam 2 Edition with

Correct Answers!!

What are the four elements needed to appropriately compare alternative investments? - Correct Ans: ✔✔

  1. profit or loss
  2. size of original investment
  3. timing (annualize return)
  4. risk What are HPRs, simple and compounded annual returns and how do you compute them? - Correct Ans: ✔✔HPRs (holding period returns): however long you hold an asset asset- HPR = HPR  simple returns: HPR/n  compound returns:  (1+HPR)^(1/n)- 1 What is the relationship between the standard deviation (σ) and the degree of risk? - Correct Ans: ✔✔standard deviation is the measure of risk Total risk = - Correct Ans: ✔✔total risk = unsystematic risk + systemic risk

3 other names for unsystematic risk? - Correct Ans: ✔✔

  1. unique
  2. company specific
  3. diversifiable 2 other names for systematic risk? - Correct Ans: ✔✔
  4. market risk
  5. non diversifiable risk What type of risk can be eliminated and by what process/ - Correct Ans: ✔✔Unsystematic risk can be eliminated by diversification The correlation coefficient is a measure of: - Correct Ans: ✔✔the degree of variation between asset returns. What are the measure for total and systematic risk? - Correct Ans: ✔✔Total risk: standard deviation systematic: Beta
  1. forms of future cash flows: dividends, market value What do the Bid and Ask prices for stock represent? - Correct Ans: ✔✔  prices from the dealers  bid: price willing to buy at  ask: selling stock Who pays which price in the transaction between investors and dealers? - Correct Ans: ✔✔  ask: investor buys  bid: dealer buys What is meant by bull/bear market? - Correct Ans: ✔✔Bull market is when the market is up. Bear market is when the market is down. What is meant by bid-ask spreads? - Correct Ans: ✔✔the difference between the prices quoted for an immediate sale and an immediate purchase for stocks, futures contracts, options, or currency pairs What is meant by limited liability? - Correct Ans: ✔✔only liable for shares of stock

What are the forms of future cash flows that investors in stock might receive? - Correct Ans: ✔✔dividend or market value What are the 3 basic parts of the balance sheet? - Correct Ans: ✔✔  assets  liabilities  owners equity What is the Balance Sheet or Accounting Identity? - Correct Ans: ✔✔assets = liabilities + owners equity To whom does NI belong to and where does it go? - Correct Ans: ✔✔It belongs to shareholders and it goes in dividends or retained earnings Why does Finance focus on cash flow rather than NI? - Correct Ans: ✔✔You can't spend net income. Easier to manipulate net income? What are 3 factors cited by Brooks that cause NI to not equal cash flow? - Correct Ans: ✔✔

  1. accrual accounting
  2. non cash expense items (mainly depreciation)
  3. interest expense

what are two major sources of financing for a corporation? - Correct Ans: ✔✔  debt  equity Compared to equity, what is the major advantage and disadvantage of financing with debt? - Correct Ans: ✔✔Debt:  is cheaper than equity  is less risky  has tax advantages with financial leverage, what is fixed and what gets magnified? - Correct Ans: ✔✔Cost gets fixed. Magnified: impact or change in EPS from a changed in EBIT What are two ways to determine if the use of debt will help or hurt shareholders? - Correct Ans: ✔✔

  1. Compare returns of the borrowed funds to the cost of borrowing
  2. breakeven EBIT analysis