. What are the three fundamental decisions financial management team isconcerned with, and how do they affect the firm’s balance sheet?
Name: _______________________________
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2. Explain why profit maximization is not the best goal for a company. What is anappropriate goal?
3. What are the two basic sources of funds for all businesses?
Name: _______________________________
Date: ________________
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4. What is the general decision rule for a firm considering undertaking a project?Give a real life example.
5. What is capital structure and why is it important to a company?
Name: _______________________________
Date: ________________
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6. Who are the owners of a corporation and how is their ownership represented?
7. What is an agency relationship and what is an agency conflict? How canagency conflicts be reduced in a corporation?
Name: _______________________________
Date: ________________
8. What are the advantages and disadvantages of a sole proprietorship?
9. What is a partnership, and what is the biggest disadvantage of this form ofbusiness organization? How can this disadvantage be avoided?
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Name: _______________________________
Date: ________________
10. How do large corporations adjust their liquidity in the money markets?
11. What is the role of the financial system, and what are the two majorcomponent of the financial system?
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Name: _______________________________
Date: ________________
12. What is the main difference between money market and capital markets?
13. What is the primary market? What does IPO stand for?
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Name: _______________________________
Date: ________________
14. What is the difference between savers-lenders and borrower-spenders?
15. What does a competitive financial system imply about interest rates?
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Name: _______________________________
Date: ________________
16. What is the real rate of interest, and how is it determined?
17. How does the nominal rate of interest vary over time?
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Name: _______________________________
Date: ________________
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18. Imagine you borrow $500 from your roommate, agreeing to pay her back the$500 plus 7 percent interest in one year. Assume inflation over the life of thecontract is expected to be 4.25 percent. What is the total amount you will haveto pay her back in a year? What percentage of the interest payment is theresult of the real rate of interest?Show calculations
Answer: Total amount to pay back _____________________________
Name: _______________________________
Date: ________________
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Answer: Percentage of interest of interest payment resulting from Real Rate : ________
19. Your parents have given you $1,000 a year before your graduation so that youcan take a trip when you graduate. You wisely decide to invest the money in abank CD that pays 6.75 percent interest. You know that the trip costs $1,025right now and that the inflation for the year is predicted to be 4 percent. Willyou have enough money in a year to purchase the trip?Show calculations
Answer: YES or NO _________
20. If the nominal rate of interest is 7.5 percent and the real rate is 4 percent, whatis the expected inflation premium?
Show calculations
Answer: Inflation premium _________
Name: _______________________________
Date: ________________
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