Ch. 11 Flashcards
1
Q
Business Decisions - Management Cycle
A
- Planning Phase
- Performing Phase
3 Control & Evaluation Phase
2
Q
Planning Phase
A
- Conducting Long term Planning
- Company’s long term goals?
3
Q
Performing Phase
A
- Developing the infrastructure for the company
- Buying the equipment and resources necessary for the company
4
Q
Control & Evaluation Phase
A
- The business leaders are evaluating the past decisions
5
Q
Major Parts of Investing
A
- Return - Measures the performance of an investment
- Risk - Chance of loss
6
Q
Types of Risk
A
- Risk-free rate
- Inflation Risk
- Business Risk
- Liquidity Risk
7
Q
Risk-free Rate
A
- Rate of return on a virtually riskless investment
Short term US Govt. Bond
8
Q
Inflation Risk
A
- A decline in purchasing power due to rising prices
- As prices increase- more money is needed to purchase the same item
9
Q
Business Risk
A
- Risk associated with a specific business
(Ex - Walmart vs K-Mart - more business risk associated with Kmart
10
Q
Liquidity Risk
A
- Risk an investment cannot easily be converted to cash
Ex - Selling a house (Difficult) vs. Selling 100 shares of IBM (easy
11
Q
Risk and Return Related
A
- As the risk of an investment increases, the required return by the market place increases
12
Q
Compound Interest
A
- Interest on Interest
13
Q
CD simple interest or compound?
A
- CD earning compound interest
14
Q
Loan Simple or Compound interest
A
- Loan with simple Interest
15
Q
Annuity
A
- A series of equal payments or deposits
