Test your basic knowledge |

Finance Basics

Subject : business-skills
Instructions:
  • Answer 50 questions in 15 minutes.
  • If you are not ready to take this test, you can study here.
  • Match each statement with the correct term.
  • Don't refresh. All questions and answers are randomly picked and ordered every time you load a test.

This is a study tool. The 3 wrong answers for each question are randomly chosen from answers to other questions. So, you might find at times the answers obvious, but you will see it re-enforces your understanding as you take the test each time.
1. An investor whose views determine the actual stock price






2. Regulates the trading of stocks and bonds in public markets






3. Acquisition of a company over the opposition of its management






4. Investor psychology is examined in an effort to determine if stock prices have been bid up to unreasonable heights in a speculative bubble or driven down to unreasonable lows in a fit of irrational pessimism






5. Principal task is to evaluate proposed decisions and judge how they will affect the stock price and thus shareholder wealth. Success or lack thereof of projects can determine the stock prices






6. A relatively new type of organization that is a hybrid between a partnership and a corporation. It has limited liability like corporations - but is taxed like partnerships. Investors have votes in proportion to their share of ownership






7. Regulates banks and controls the supply of money






8. The larger the expected cash flows - and the lower the perceived risk the higher the stock's price






9. 1) Increased globalization of business 2) Ever improving information technology 3) Corporate governance (the way top managers operate and interface with stockholders)






10. Net income / Common shares outstanding






11. Receive more when the company does better - often in conflict with bondholders






12. Dividends paid to common shareholders / Common shares outstanding






13. Sales revenues - operating costs (including depreciation & amoritizaton)






14. An unincorporated business owned by 2 or more persons. 3 advantages - Easy and inexpensive to form - subject to few government regulations - and subject to lower income taxes than corporations. 3 disadvantages - Unlimited personal liability for the






15. Charge used to reflect the cost of long term assets used up in the production process over their useful life (not a cash outlay). Accelerated generally used for the IRS and straight line for investors






16. Profit a company would generate if it had no debt and held only operating assets - = EBIT x (1-T)






17. For example - based on 50% probability of failure/success and current bond value of $1000 - a current stock price of $10 and projected new stock price of $2000 if successful






18. Finding the proper values of individual securities






19. An individual who targets a corporation for takeover because it is undervalued






20. Situation in which the actual market price equals the intrinsic value so investors are indifferent between buying or selling a stock






21. Total common equity / Common shares outstanding






22. The best way to structure portfolios or 'baskets' of stocks and bonds






23. Shows the amount of equity the stockholders had at the start of the year - the items that increased or decreased it and the equity at the end of the year


24. An uninicorporated business owned by one individual. 3 advantages - Easy and inexpensive to form - subject to few government regulations - and subject to lower income taxes than corporations. 3 disadvantages - Unlimited personal liability for the bu






25. Amount of cash that could be withdrawn from a firm without harming its ability to operate and to produce future cash flows/ how much cash a firm can distribute to its investors - [ EBIT x (1-T) + Depreciation & Amoritization] - [Capital expenditures






26. Focuses on decisions relating to how much and what types of assets to acquire - how to raise the capital needed to purchase assets - and how to run the firm so as to maximize its value






27. Receive fix payments regardless of how well the company does - often in conflict with stockholders






28. Bears = pessimists - Bulls = optimists






29. How did sales perform and did it make a profit? A report summarizing a firm's revenues - expenses and profits during a reporting period (generally a quarter or a year)






30. Sole Proprietorships - Partnerships - Corporations (incl. S Corp. and Non-profits - Limited Liability Companies (LLC) and Limited Liability Partnerships






31. A special designation that allows small businesses that meet qualifications to be taxed as if they were a proprietorship or a partnership rather than a corporation - exempt from corporate tax - must have less than 100 stockholders to qualify






32. Expected % Gain of Stock Price = Increase of stock $ less original stock $ ($1 - 000 - $10) divided by original stock price (/ $10 x 100%) (100% is a constant)






33. The issue of whether stock and bond markets at any given time are 'too high' or 'too low' or 'about right' - Behavioral Finance is a tool often used to aid in this analysis






34. What investors DO expect given the limited information they actually have






35. Earnings Before Interest - Taxes - Depreciation & Amoritization = Sales revenues - operating costs






36. The markets where interest rates - along with stock and bond prices are determined






37. Cumulative total of all earnings kept by the company during its life - a claim against assets - they do not represent cash on the balance sheet






38. 1) Limited liability reduces the risks borne by investors - the lower the risk - the higher the value. 2) Firm's value is dependent on its growth opportunities - less risk easier to attract investor - more money more growth opportunities. 3) Valu






39. Stock value based on 'perceived' but possibly incorrect information as seen by the marginal investor






40. Success (0.5 x $2000) + Failure (0.50 x $0) = $1 - 000 (New Stock Price)






41. An estimate of a stock's 'true' value based on accurate risk adn return data - it can be estimated but not measured precisely - estimate by stock analysts - a long term concept - management should maximize this value not the market price






42. Current assets - (Current liabilities - Notes payable)






43. A company's attitude and conduct toward its employees - customers - community - and stockholders






44. Current assets - (Current liabilities - Notes payables)






45. Represents the amount that stockholders paid the company when shares were purchased and the amount or earnings the company has retained since its origination


46. Usually considered a debt (fixed charge) by stockholders and equity by bondholders. A hybrid between convertible bonds and long-term leases






47. Similar to an LLC but used for professional firms in the fields of accounting - law - and architecture. It has limited liability like corporations - but is taxed like partnerships.Investors have votes in proportion to their share of ownership






48. What investors would expect if they had all of the information that existed about a company






49. New investments - raise funds through financing - repurchased debt or equity - or paid dividends. How much cash the firm started the year with - how much it ended up with and what it did to increase or decrease its cash. A report that shows how th






50. Debt securities that give the bondholder an option to exchange their bonds for shares of common stock