Financing

Question 1

CBA (Marginal Cost Benefit Analysis)

Answer 1

Marginal benefits - Marginal costs

Question 2

Marginal Benefit

Answer 2

Benefit of ___ - (Less) Benefits ___

Question 3

Marginal Cost

Answer 3

Cost of new ___ - Sale value of old ___

Question 4

Financial Institutions

Answer 4

intermediaries that channel the savings of individuals, businesses, and governments into loans or investments

Question 5

Money Market

Answer 5

Trading in short-term debt. It is a constant flow of cash between governments, corporations, banks, and financial institutions, borrowing and lending for a term as short as overnight and no longer than a year.
Treasury bills, federal agency notes, certificates of deposit (CDs), eurodollar deposits, commercial paper.

Question 6

Capital Market

Answer 6

encompasses the trade in both stocks and bonds. These are long-term assets bought by financial institutions, professional brokers, and individual investors. Bonds, Common Stock, Preferred Stock

Question 7

Total proceeds (IPO)

Answer 7

IPO offer price*No of IPO shares issued

Question 8

Market capitalization

Answer 8

The total market value of all outstanding shares

Market price of stock * No of shares of stock

Question 9

IPO Under-pricing

Answer 9

(Market Price-offer Price) /offer price

Question 10

Securities exchanges (or Stock exchange)

Answer 10

Organisations that provide the marketplace in which firms can sell new securities and in which purchasers can resell pre-owned securities

Question 11

Broker Markets

Answer 11

A market of intermediaries who facilitate trade between a seller and a buyer.

Question 12

Dealer Markets

Answer 12

Markets, like the NASDAQ, in which the buyer and seller are not brought together directly but instead have their orders executed by securities dealers that “make markets” in the given security. Market makers make money on the bid(the lowest price)/ask (the highest price)

Question 13

Bond

Answer 13

Selling and trading of Debt. Mostly include municipal and corporate bonds.

Question 14

Derivatives

Answer 14

The value gained off something else (For example Interest)

Forwards, Futures, Options, Swaps

Question 15

Commercial Paper

Answer 15

Money-market security (promissory note) which is issued by large cooperations to raise short-term funds. Paid back on the specified maturity date.

Question 16

NCD (Negotiable Certificate Deposit)

Answer 16

A bank granted certificate with a face value of £100k+.

Is only redeemable after the maturity rate. Can be traded on the secondary market.

Question 17

Price-Earnings Ratio

Answer 17

Also known as P/E ratio, P/E, or PER, is the ratio of a company’s share price to the company’s earnings per share. Granted you buy 100% of the business. For every “1” it will take that many years to receive your original investment.

Question 18

Dividend Cover (Ratio)

Answer 18

Net income/dividend paid to shareholders.
A low Dividend Cover ratio suggests that the company is paying out a large proportion of its earnings as dividends while a high ratio suggests that the company has plenty of earnings to spare after paying the dividend.

Question 19

Risk-Free Rate

Answer 19

Represents the interest on an investor’s money that would be expected from an absolutely risk-free investment over a specified period of time. For example, treasury bills

Question 20

Risk Premium

Answer 20

An asset’s risk premium is a form of compensation for investors. It represents payment to investors for tolerating the extra risk in a given investment over that of a risk-free asset.

Question 21

Range (risk assessment)

Answer 21

Optimistic outcome - Pessimistic outcome

Question 22

Standard Deviation

Answer 22

Variability in your data set. It tells you, on average, how far each score lies from the mean. 68% 95% 99% Rule.

Question 23

Expected Return

Answer 23

Risk-Free Rate + Risk Premium

Question 24

Standard Deviation of returns

Answer 24

Used to figure out and compare the volatility of a set of results.

Question 25

Volatility

Answer 25

Degree of variation in results

Question 26

Coefficient of Variation (CV)

Answer 26

The measure of relative dispersion (of data) to compare the risks of assets with differing expected results. CV = Standard Deviation/Average(expected) Return

Question 27

The Capital Asset Pricing Model(CAPM)

Answer 27

The capital asset pricing model (CAPM) links non-diversifiable risk to the expected return

Question 28

Beta Coefficient

Answer 28

A relative measure of non-diversifiable risk. for the whole market.

Question 29

Compound Interest

Answer 29

Interest that is earned on a given deposit and has become part of the principal at the end of a specified period

Question 30

Capital Budgeting

Answer 30

1. Proposal Generation
2. Review and analysis
3. Decision making
4. Implementation
5. Follow up

Question 31

Mutually exclusive projects

Answer 31

projects that compete with one another; the acceptance of one project eliminates all other projects that serve a similar function from further consideration

Question 32

The accounting rate of return (ARR)

Answer 32

Average Return/Average Investment*100

Question 33

The payback method (PB)

Answer 33

The amount of time for the business to regain its initial monetary investment.

Question 34

The net present value (NPV)

Answer 34

the present value of the future cash inflows of a project minus the initial investment.

Question 35

The internal rate of return (IRR)

Answer 35

It is the rate of return that the firm will earn if it invests in the project and receives the given cash inflows.