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Managerial Finance

Exam 3

QuestionAnswer
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