Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Principles of Finance > EXAM 3 (General Terminology) > Flashcards

EXAM 3 (General Terminology) Flashcards

You may prefer our related Brainscape-certified flashcards:
Series 65 flashcards Series 63 flashcards Series 66 flashcards Series 7 Top-off Exam flashcards SIE Exam flashcards CFA flashcards Series 79 Top-Off Exam flashcards
1
Q

Savings for children

A

Section 529

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What does a Section 529 consist of?

A

variable annuites & debt issues

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What does Morning Star sell?

A

They sell stars securities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Mutual Fund

A

The investment pool is managed by a manager and there are multiple investors

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Are Mutual Funds liquid?

A

They are not that liquid

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Do stars have value for mutual funds? And Why?

A

No, because stars are based on historical risk-adjusted performance which has no relationship to future-adjusted performance

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Do stars have value for stocks?

A

Yes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

The best predictor of mutual funds performance according to morning star?

A

Management Operating expense as a percent of net asset value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Call provision

A

gives the company the right to buy bonds back at a predetermined price prior to the maturity date

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is the rule of 72?

A

How long it takes for an investment to double

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Perpetuity

A

An annuity in which the cash flows continue forever

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Consol

A

A type of perpetuity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Website for why rule of 72 works

A

www.moneychimp.com

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Relationship between Future rate and Present value

A

Inverse

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Present Values

A

The current value of future cash flows discounted at the appropriate discount rate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Discount

A

Calculation of the present value of some future amount

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Discount rate

A

The rate used to calculate the present value of future cash flows

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Website for a downloadable windows-based financial calculator

A

www.calculator.org

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Website for using Excel for the time value of money and other calculations

A

www.studyfinance.com

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

When is the Call provision exercised?

A

When the rates drop and the company will refinance

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

The Call Provision is at the Advantage and Disadvantage of who?

A

Advantage - The company
Disadvantage - Investor

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

How do companies refinance

A

By selling new bonds to pay off old bond

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Mortgaging refinancing dropped what percentage?

A

90%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

YTM

A

Yield to Maturity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

What is mortgage refinancing?

A

buying new bonds at a lower rate extinguishing the debt

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

Will interest rates drop, and is yes or no then why?

A

Yes because of historical evidence due to recessions in the past

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

Why did the feds raise the rates

A

They believed it will slow inflation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

Where is the raising price of energy coming from?

A

Ukraine War & Opec

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

What is Opec?

A

Organization of the Petroleum Exporting Countries

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

What company said they will cut petroleum by 2 million barrels a day?

A

Opec

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

Characteristics of a bubble

A
  • everyone is happy
  • Feds created it
  • always end badly
  • interest rates are low
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

Relationship between rate & price

A

Inverse

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

You want a risk-free rate with buying what?

A

A bond

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

Credit Risk

A

liability to pay back what was borrowed, and a lot is based on the financial ratios

35
Q

What is a Risk Free Rate

A

Compensation for credit risk and buying the bond

36
Q

What is a Risk Free rate based on

A

the treasury bill rate

37
Q

Why does the treasury have zero default risk?

A

Because they create the money & raise taxes

38
Q

TMCC Bonds

A

Toyota Motor Credit Corporation

39
Q

Examples of an annuity

A
  • mortgage
  • car payment
40
Q

Types of Annuity

A
  • Regular/ Ordinary
  • Annuity Due
41
Q

Regular Annuity

A

series of equal periodic payments

42
Q

Annuity Due

A

Due at the beginning of each period

43
Q

Difference between an Annuity due and a Regular annuity

A

When the payments are due

44
Q

Difference between stocks and bonds

A

Bonds - pays interest (always paid first)
Stocks - pays dividends (residual)

45
Q

Why do people buy stocks?

A

Fixed interest doesn’t change but common stock has room for growth

46
Q

Relationship between time and rate of discount

A

direct

47
Q

1st step to any problem

A

having the correct table

48
Q

Market value = Price per share (true or false)

A

True

49
Q

What does the Market Value Ratio measure

A

Deals with market price per share of the stock

50
Q

What are all the Market Value Ratios

A
  • Price to Earnings ratio
  • Price to Sales ratio
  • Market-to-book ratio
  • EBITDA ratio
51
Q

EBITDA

A

Earnings before interest taxes, depreciation, and amortization

52
Q

What is the Price-Earnings (PE) Ratio

A

shows how much investors are willing to pay per dollar of current earnings

53
Q

What does high PE show

A

shows prospects for future growth

54
Q

Why PE varies

A

Differences in the expected future earnings growth

55
Q

Do we want PE to be low or high

A

We want it to be low, because price is what you pay, earnings is what you get

56
Q

Growth rate and PE ratio relationship

A

direct

57
Q

Interest rates and PE ratio relationship

A

inverse

58
Q

Earning yield

A

Inverse of the PE and it is the amount you get back per dollar you invest in a stock

59
Q

Market to book Ratio

A

Compares the market value of the firm’s investments to their costs

(a value of less than 1 could mean the firm has not been successful overall in creating value for its stockholders)

60
Q

What is M1?

A

The money supply

61
Q

Since when has M1 been going down?

A

March of 2022

62
Q

M1 annual increase

A

30%

63
Q

Why is Inflation coming down?

A

because M1 is going down

64
Q

What is the Simplest form of loan?

A

Pure discount loan

65
Q

Perpetuities are called what in Canada and the United Kingdom?

A

consols

66
Q

About the 2% target inflation rate

A
  • feds came up with it
  • They said you need to have inflation to favorable growth
  • 2012
67
Q

Yield to maturity

A

How much an investor gets compensated

68
Q

The YTM has to be higher to compensate for what?

A

“Risk of Call”

69
Q

EAR

A

Effective annual rate

70
Q

The relationship between PVSS and r

A

inverse

71
Q

The relationship between PVSS and t

A

inverse

72
Q

The relationship between FVSS and r

A

direct

73
Q

The relationship between FVSS and t

A

direct

74
Q

What do we mean by discounted cash flow, or DCF, valuation?

A

calculating the present value of a future cash flow to determine its worth today

75
Q

Retroactive interest

A

Interest put on the original payment price even though the amount left to pay off is less at that point

76
Q

Future value of annuity (fva)

A

value of periodic payments at the end of a specified period

77
Q

Net future value depends on 2 factors

A
  • Time (number of periods)
  • Rate of return
78
Q

Monetary expansion is the same as what?

A

quantitative expansion

79
Q

What are the determinants of interest are

A

-inflation
-credit risk
-monetary policy
-expanision monetary policy

80
Q

What do we mean by compound interest? How does is differ from simple interest

A

Interest on interest is compound, simple interest is interest on the principle

81
Q

Fun Fact about Wayne

A

Wayne is a company that went bankrupt because they had debt they couldn’t pay off

82
Q

2 types of interests rates

A
  • compound
  • simple
83
Q

Fun Fact about Benjamin Franklin

A
  • Benjamin Franklin funded student loans
  • it was in the trust agreement that the money had to be used for student for loans
  • he set up a trust that stated that for the first 100 years it had to be used for this purpose
  • he used compound interest
84
Q

APR

A

annual percentage rate

Principles of Finance (8 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions