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FIN 201 chapter 1

QuestionAnswer
Divisions of finance Financial institutions, corporate (business) finance, investments
What does finance address? The management of assets and the sources of finance used to acquire the assets
What does a balance sheet show? What a firm owns, owes, and its net worth
Sources of finance Debt, equity
Sources of return Income, price appreciation
Risk The uncertainty that the expected return will not be achieved
What happens if you don't like risk? You're going to get a lower return
Balance sheet columns Assets, liabilities and equity
Financial Leverage The use of borrowed funds
Valuation Determination of what an asset is currently worth/ "how much something is worth"
What is the goal of management? Maximization of shareholder value
Will I be more likely to do a good job if I own stock in the company? If you answered yes, you're assuming everyone else in the company is also working hard because they own stock in it, which is not a given
What is analysis built on? Assumptions
What do text illustrations do? Employ assumptions
Where are the roots of finance? Accounting and economics
What is finance studied from? A business perspective, an individual's perspective, valuation of securities, portfolio construction
How is finance studied from a business perspective in corporate finance or financial management courses? Corporate finance emphasizes raising funds and their subsequent allocation
What do investments emphasize? The construction of diversified portfolios and the allocation of wealth among competing securities
Why should you understand finance even if you don't major in finance or have a career in this industry? It is used almost everywhere and affects many aspects of our daily lives directly/indirectly, you can advocate 4 it to be used as a force 4 good, basic things like buying a car or saving 2 buy a house affect all, use compound interest to your advantage
Created by: lavenderdreamy
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