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Managerial Finance
Exam 3
| Question | Answer |
|---|---|
| Case | When return rates that are too good to be true are not true |
| Buying negatively correlated stocks | You more equally distribute your risks in the market |
| Buying positively correlated stocks | You are hedging for fast growth |
| Applying probability | Use the bell shaped curve |
| Why would you not buy stock with a beta of .1 | the value/growth of the stock is not going to go up and down (no equity growth) |
| Unrelated stocks are correlated with this | unrelated goods |
| What caused the 2001 recession | The .com crisis. Investors were ignoring profitability |
| Why do we use weighted averaging | it's the best way to determine the risk of your existing stocks |
| Peter Drucker | Invented the field of management |
| Operating expenditures | less than twelve months |
| Capital expenditures | More than twelve months |
| General electric | reduced their dividends in 2009 |
| What governmental activity causes capital flight | taxes on profits |
| Cause of increase rates of underground activity | higher tax rates |
| What industry doesn't have a business cycle | all industries have business cycles |
| why do we have cycles | because it seems that humans have patterns of activity that are high and low cycles |
| What is the top two concerns for real rate of return | 1. tax liability 2. inflation |
| what harms the stock market the most | capital gains tax |
| inflation premium | inflation goes up, everybody expects higher returns |
| what single event contributed to the market increase of foreign direct investment (FDI) | Internet Technology |
| No negational bares bonds | Las Vegas |
| Crimea Crisis | Russian mob has a greater role in the banking industry |
| If stock has a low beta why would you buy it | for the dividend income |
| If you have a comparative advantage of a stock | The firm has natural advantages and assets in purchasing a stock |
| buying stocks and behavioral activity | People are more motivated by fear of losses than by gains |
| People most often when buying stocks do not consider this | mathematical analysis |
| Most crucial in determining long term investments | Liability based on the payback period |
| Everybody in the class will eventually earn $100,000 because | of the value of money and your age |
| Why did the .com crash happen in 2000 | People forgot about profitability |
| Liquidity premium | less liquid means higher return |
| Standard deviation of the stock | helps define the volatility of the stock price |
| Why are common stocks issued by companies | They get upfront capital stock, and it's short term |
| Why buy preferred stock | You get a higher capital |
| T Bills | Generate negative interest rate, made by the treasury |
| Preemptive right in stocks | If more shares are issued you have the right to buy up in stocks to pertain your same percentage of the business |
| Secured Debt | Debt attached to physical mean |
| Stock with a higher beta | More volatile |
| First thing you need to know when buying a stock | How the firm makes it's money |
| Why would you pay 20% down on a house | Cuts into amortization schedule and less money goes towards the interest |
| What tool has become popular | Computer Stimulation |
| A sunk cost | when a past financial decision does not influence a future |
| Stovepiping | You've invested too much and you're in too deep. Past money decisions that still influence the future. |
| Why buy zero coupon bond | They are bought and sold for their face value |
| Commercial Paper is considered valuable | 1. Financially verified 2. Often controlled taxability 3. less traceable tax wise |
| Book value of a stock | deals with only explicit values |
| Market value of a stock | deals with implicit values only (intellectual property rights) |
| 2032 baby boomers | buy t bills and CD's |
| Two reasons for substantial underground activity | 1. Economy is highly taxed 2. Dysfunctional government |
| When would you sell stocks in the short run | Higher beta coefficient stocks |
| Symmetric information in the market | When the buyer and seller know the same information |
| Asymmetric information in the market | The buyer or the seller knows more than the other |
| Why is the FDI more crucial now than twenty years ago | There are many more places to put the money |
| Competitive advantage | People working in the company are more highly skilled |
| Callable feature | having a bond that is paying you, the company could call that bond and cash it in. High risk |
| If we raise minimum wage to 13 dollars an hour what happens to those making 12 dollars an hour | Nothing happens to those making more and purchasing power goes down |
| Affordable care act influenced jobs how | Fewer full time jobs created |
| If the government has more bonds | There is pressure to raise taxes |
| Every time minimum wage has increased | There has been inflation |
| High Profit | You'll see more people coming into a market |
| Bounded rationality | habitual/predictable decision making |
| Outsourcing | When you move production overseas |
| Subcontracting | Hiring people to work for you but they are not employees. Contractional employment |
| Rational Ignorance | People willfully do not learn about information because they find it more efficient to not read the instructions |
| Complimentary goods and stocks | Positively correlated |
| Substitute goods and stocks | Negatively correlated |
| If interest rates go up what happens | 1. It's harder to borrow money 2. inflation drops |
| Russian Money Crisis | Russians were temporarily moving money and in out of the country |
| Junk bonds | Very high risk, Very high return |
| EE Series | Typical savings bond |
| I-Bonds | Supposedly guaranteed to beat inflation |
| Columbia examples of underground activity | 1/3 of the country isn't even controlled by columbia |
| Denmark examples of underground activity | Heavily taxed, means more aversion, meaning more evasion |
| Aversion | Taking action to avoid tax incidents |
| Evasion | Illegal. Simply not reporting income |
| Municipal bonds Advantage | Not federally taxed |
| Municipal bonds Disadvantage | You may not get the return because municipality could go bankrupt |
| Rational Ignorance | Buying something and not knowing why |
Created by:
brianamikel
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