Finance: Unit 2

Question 1

What are the three main areas of Finance?

Answer 1

• Financial Institutions
• Financial Markets
• Financial Management

Question 2

What are the two main drivers of finance?

Answer 2

• Time Value of Money

- Risk

Question 3

Define investment

Answer 3

A placement of capital in expectation of deriving income or profit from its use.

Question 4

Define asset

Answer 4

Something or someone of any value; any portion of one’s property or effects considered.

Question 5

<p>Define debtor</p>

Answer 5

<p>A person of firm that owes money, one in debt, or one who owes a debt.</p>

Question 6

<p>What is the basic idea of the Time Value of Money?</p>

Answer 6

<p>That money today is worth more than the same amount in the future.</p>

Question 7

<p>Does Accounting look forward or backward?</p>

Answer 7

<p>Backward</p>

Question 8

<p>What is Return?</p>

Answer 8

<p>The gain or loss from an investment.</p>

Question 9

<p>What is Finance?</p>

Answer 9

<p>The study of how to optimally allocate assets.

| Fundamentally a forward looking field concerned with what an asset will be worth in the future.</p>

Question 10

<p>What is Economics?</p>

Answer 10

<p>A social science that analyzes the production, distribution, and consumption of goods and services.</p>

Question 11

<p>What is Accounting?</p>

Answer 11

<p>The communication of a business's financial information.</p>

Question 12

What is Leverage?

Answer 12

The use of borrowed funds with a contractually determined return to increase the ability of a business to invest and earn an expanded higher return (usually at high risk).

Question 13

What is the primary goal of corporate finance?

Answer 13

To maximize shareholder value.

Question 14

Net Income Margin

Answer 14

Net Income / Sales

Question 15

Total Asset Turnover

Answer 15

Sales / Total Assets

Question 16

Leverage Multiplier

Answer 16

Total Assets / Total Equity