Finance Exam 1 Vocab

Question 1

Goal of the firm:

Answer 1

Shareholder wealth maximization AKA Maximizing firm value/Maximizing stock price

Question 2

Sole Proprietorship:

Answer 2

A business owned by a single individual

Question 3

General Partnership:

Answer 3

Two or more owners. Each owner is fully responsible for liabilities.

Question 4

Limited Partnership:

Answer 4

Partnership in which one or more partners have limited liability.

Question 5

Corporation:

Answer 5

A business that functions separately and apart from its owners. All owners have limited liability.

Question 6

S-Corporation:

Answer 6

Provides limited liability but taxed like a partnership.

Question 7

Limited Liability Company (LLC):

Answer 7

Provides limited liability, taxed like a partnership, but more flexible than an S-corporation.

Question 8

Public Offering:

Answer 8

Securities are made available to all individual and institutional investors.

Question 9

Private Placement:

Answer 9

Securities are offered and sold directly to a limited number of investors.

Question 10

Primary Market:

Answer 10

Corporation receives money by selling new securities, often to an investment bank.

Question 11

Secondary Market:

Answer 11

Investors buy and sell existing securities.

Question 12

Money Market:

Answer 12

Market for short-term debt instruments (less than one year)

Question 13

Capital Market:

Answer 13

Market for long-term financial instruments.

Question 14

Spot Market:

Answer 14

Market where something sells today.

Question 15

Future Market:

Answer 15

Market where you can buy or sell something at a future date.

Question 16

Organized Security Exchange:

Answer 16

Formal organization for buying and selling securities.

Question 17

Over-the-counter Market:

Answer 17

All security markets except organized security exchanges. A network of brokers and dealers linked by a computer.

Question 18

Unbiased Expectations Theory:

Answer 18

The term structure is determined by expectations of future rates.

Question 19

Liquidity Preference Theory:

Answer 19

Investors require maturity premiums to invest in longer term securities.

Question 20

Market Segmentation Theory:

Answer 20

There are seperate markets for long and short term investments.