50 Questions
What is the primary goal of a firm according to corporate governance policies?
Maximize shareholder value while minimizing agency problems
A portfolio consisting of multiple assets with a correlation coefficient of 0.5 is an example of:
Diversification
Which of the following factors has the greatest impact on the value of an option?
Volatility of the underlying asset
A bond with a face value of $1,000 and a market price of $950 is an example of a:
Discount bond
The yield curve is a graphical representation of the:
Relationship between bond yield and time to maturity
What is the primary purpose of a country's financial system?
To facilitate the flow of capital between savers and investors
Which of the following is a consequence of the agency problem?
Conflict of interests between management and shareholders
What is the main advantage of diversification in a portfolio?
Reduced risk
What is the relationship between bond duration and interest rate changes?
Bond duration decreases when interest rates rise
What is the effect of inflation on the purchasing power of money?
Inflation reduces purchasing power
What is the purpose of financial statement analysis?
To forecast a firm's future performance
What is the primary function of a country's financial system?
To allocate resources efficiently
What is the primary determinant of the value of an asset in a firm?
Expected future cash flows
Which of the following is a characteristic of a systematic risk?
Affects the overall market
What is the primary goal of a firm's monetary policy decisions?
To maximize shareholder value
What is the impact of an increase in interest rates on the value of a bond?
Decreases the value of the bond
Which of the following is a consequence of a bank run?
Failure of the banking system
What is the relationship between the time value of money and the present value of a cash flow?
The present value of a cash flow is lower when the time value of money is higher
What is the primary issue arising from the relationship between principals and agents?
Conflict of interest
What is the main goal of corporate governance?
To balance the interests of stakeholders
What is the primary purpose of financial statement analysis?
To identify financial strengths and weaknesses
What arises when the interests of principals and agents conflict?
Agency problem
Who are the principals in the agency theory?
Shareholders
What is involved in corporate governance?
Mechanisms, processes, and relations
What is the primary principle behind the time value of money?
Money available today is worth more than the same amount in the future
What type of risk is impossible to avoid through diversification?
Systematic risk
What is the main purpose of diversification in a portfolio?
To yield higher returns and pose a lower risk
What determines the value of an asset?
Cash inflows and outflows, growth potential, inherent risk, and economic environment
What is the primary difference between a long and short position?
Long position is buying with the expectation of price rise, while short position is selling with the expectation of price decline
What is the primary advantage of bonds over stocks?
Bonds offer fixed interest payments
What is the primary goal of a company's capital structure decisions?
To minimize the weighted average cost of capital
What is the primary function of financial systems?
To create wealth and facilitate the allocation of resources
What is the primary difference between common stock and preferred stock?
Preferred stock is senior to common stock
What is the primary impact of an increase in volatility on the value of an option?
The value of the option increases
What is the core principle of finance that states that money available at the present time is worth more than the same amount in the future?
Time value of money
What is the main goal of diversification in a portfolio?
To decrease risk
What type of risk affects a large number of assets and is impossible to avoid through diversification?
Systematic risk
What is the primary determinant of an asset’s value?
Cash inflows and outflows
What is the purpose of financial systems?
To facilitate the allocation of resources
What is the primary difference between a long and short position?
Expectation of price increase or decrease
What is the primary goal of a firm's capital structure decisions?
To minimize weighted average cost of capital
What is the primary characteristic of systematic risk?
Affects a large number of assets
What is the primary influence on the value of an option?
Volatility of the underlying asset
What is the primary advantage of bonds over stocks?
Fixed interest payments
What is the primary source of conflict in the agency theory?
Conflict between principal's needs and agent's self-interest
What is the main objective of corporate governance?
To balance stakeholder interests
What is the primary purpose of financial statement analysis?
To identify financial strengths and weaknesses
Who are the principals in the agency theory?
Shareholders
What is the primary goal of effective corporate governance?
To set and achieve objectives
What is the agency problem a result of?
Conflict between principals and agents
Test your understanding of corporate finance concepts, including agency theory, financial statement analysis, time value of money, risk, and diversification. Assess your knowledge of corporate governance policies and asset pricing.
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