Finance 301 Final Exam Outline

Finance 301 Final Exam Outline -...

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FINANCE 301 (Old Material for Final) 22:03 Chapter 1 What is the financial goal of the firm, and why is it not maximizing income or EPS? The primary goal for managers of publicly owned companies implies that decisions should be made to maximize the long run value of the firms common stock What is meant by the agency conflict, and who is the agent and who is the principle? For example: Managers personal goals may compete with shareholder wealth maximization (managers might be more interested in maximizing their own wealth than their stockholders) Manager Agent (they are hired by the shareholder) They may make decisions that have potential to conflict with the best interests of the shareholders Shareholder Principal, they in way hire the managers to perform a certain task CHECK THIS QUESTION, I’m not sure if it’s entirely right Chapter 2 Financial Markets and Institutions What is the difference between a money market and a capital market? The main difference relates to the maturity date Money Market The markets for short-term, highly liquid debt securities NY, London, and Tokyo are among the largest EX: U.S. Treasury Bills, Banker’s acceptances, Commercial paper IMPORTANT: The are an intangible market, trading occurs through computer or phone Capital Market Markets for intermediate or long-term debt and corporate stocks The New York Stock Exchange Organized security exchanges and the over-the-counter markets. Ex: U.S. treasury notes and bonds, mortgages
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What is the difference between a primary market and a secondary market Primary markets are markets in which corporations raise capital by issuing new securities Secondary markets Markets in which existing securities are traded among investors after they have been issued by investors NYSE- secondary market The corporation whose securities are being traded are not involved in the market transaction What Is the difference between Private and Public Markets? Private Where contracts are negotiated directly between two parties Public Markets where standardized contracts are traded on organized exchanges. Broad ownership and standardization make these securities more liquid What is the EMH? The general name: Efficient Markets Hypotheses If markets are efficient, then (market) price equals (intrinsic) value and prices are in equilibrium (will be stable until new info is available) Three levels of efficiency 1) Weak Form: information on past stock price movements cannot be used to predict future stock prices (trends and charts irrelevant) 2) Semi-strong form: Not only is past info, but all public info is reflected in the price 3) String form: ALL information, even company insiders with inside info can’t earn abnormally high returns Chapter 8 Risk and Rates of Return What is meant by (an asset’s) total risk, and how is it measured? (you don’t have to compute, just know what it is) Total Risk The chance that some unfavorable event will occur (stocks riskier than bonds)
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This document was uploaded on 11/01/2011 for the course FIN 301 at Miami University.

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Finance 301 Final Exam Outline -...

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