FIN 317 WK 11 Final Exam Part 1 and 2

FIN 317 WK 11 Final Exam Part 1,2

True-False Questions

 

1.  The accounting emphasis on accrued revenue and expenses and depreciation is the same emphasis as that of finance managers.

 

2.  Traditional accounting does not focus on the implicit cost of equity that is the required capital gains to complement dividends.  However, evaluation methods exist to determine this value by financial managers.

 

3.  Formal historical accounting procedures include explicit records of debt (interest and principal) and dividend capital costs.

 

4.  Public financial markets are markets for the creation, sale and trade of illiquid securities having less standardized negotiated features.

 

5.  A venture’s “riskiness” in terms of poor performance or failure is usually very high during the maturity stage of its life cycle.

 

6.  A venture’s “riskiness” in terms of poor performance or failure is usually high to moderate during the rapid-growth stage of its life cycle.

 

7.  First-round financing during a venture’s survival stage comes primarily from venture capitalists and investment banks.

 

8.  Startup financing usually comes from entrepreneurs, business angels, and investment bankers.

 

9.  Commercial banks provide liquidity-stage financing for ventures in the rapid-growth stage of their life cycles.

 

10.  A venture’s “riskiness” in terms of the likelihood of poor performance or failure decreases as it moves from its development stage through to its rapid-growth stage.

 

11.  A nominal interest rate is an observed or stated interest rate.

 

12.  The “real interest rate” (RR) is the interest one would face in the absence of inflation, risk, illiquidity, and any other factors determining the appropriate interest rate.

 

13.  The risk-free interest rate is the interest rate on debt that is virtually free of inflation risk.

 

14.  Inflation premium is the rising prices not offset by increasing quality of goods being purchased.

 

15.  “Default-risk” is the risk that a borrower will not pay the interest and/or the principal on a loan.

 

16.  The “prime rate” is the interest rate charged by banks to their highest default risk business customers.

 

17.  Bond ratings reflect the inflation risk of a firm’s bonds.

 

18.  The relationship between real interest rates and time to maturity when default risk is constant is called the term structure of interest rates.

 

19.  The graph of the term structure of interest rates, which plots interest rates to time to maturity is called the yield curve.

 

20.  Liquidity premiums reflect the risk associated with firms that possess few liquid assets.

 

21.  Subordinated debt is secured by a venture’s assets, while senior debt has an inferior claim to a venture’s assets.

 

22.  Early-stage ventures tend to have large amounts of senior debt relative to more mature ventures.

 

23.  Investment risk is the chance or probability of financial loss on one’s venture investment, and can be assumed by debt, equity, and founding investors.

 

24.  A venture with a higher expected return relative to other ventures will necessarily have a higher standard deviation or returns.

 

25.  Historically, large-company stocks have averaged higher long-term returns than small-company stocks

 

26.  The coefficient of variation measures the standard deviation of a venture’s return relative to its expected return.

 

27.  Closely held corporations are those companies whose stock is traded over-the-counter.

 

28.  Typically, the stocks of closely held corporations aren’t publicly traded.

 

29.  Organized exchanges have physical locations where trading takes place, while the over-the-counter market is comprised of a network of brokers and dealers that interact electronically.

 

30.  Market cap is determined by multiplying a firm’s current stock price by the number of shares outstanding.

 

.           31.  The excess average return of long-term government bonds over common stock is called the market risk premium.

 

32.  The weighted average cost of capital is simply the blended, or weighted cost of raising equity and debt capital.

 

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FIN 317 WK 11 Final Exam Part 1 and 2

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FIN 317 WK 11 Final Exam Part 1 and 2