Financial Management Terms

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What is the Holding Period Return?

The rate at which the average price level of a basket of chosen goods and services in an economy increases over a period of time.

The worth of cash flows in terms of the dollar amount in the relative future.

The required rate of return that a company expects to earn in order to consider a project.

The return over the entire period that an investor owns a financial security. (correct)

What is the purpose of Insurance Companies?

To provide loans to individuals and businesses.

To provide financial advisory services to clients.

To charge premiums to invest in bonds and stocks to pay claims. (correct)

To issue stocks and bonds to raise capital.

What is the Hurdle Rate?

The rate of return on a bond.

The required rate of return that a company expects to earn in order to consider a project. (correct)

The market rate of return on a particular investment.

The minimum rate of return required by investors from a project.

What is the Gordon Growth Model used for?

To value common stock based on the assumptions that dividends are paid every year and grow at a constant rate forever. Signup and view all the answers

What is Idiosyncratic Risk?

Risk that results from factors at a particular firm and can be reduced through diversification. Signup and view all the answers

What is the purpose of the Fixed Asset Turnover ratio?

To measure a company's asset utilization. Signup and view all the answers

What category of ratios measures a firm's ability to meet short-term obligations?

Liquidity Ratios Signup and view all the answers

What is the term for the probability that changes in interest rates will impact the value of a bond?

Interest Rate Risk Signup and view all the answers

What is the rate of return that a firm earns on its capital projects?

Internal Rate of Return (IRR) Signup and view all the answers

What type of financial institution offers complex financial transactions such as underwriting and facilitating mergers?

Investment Bank Signup and view all the answers

What is the term for the ability to turn financial securities into cash easily without losing significant value?

Liquidity Signup and view all the answers

What category of ratios is used to evaluate the current share price of a public firm's stock?

Market Ratios Signup and view all the answers

What is the primary objective of a firm's capital structure?

To maximize owner wealth Signup and view all the answers

What is the purpose of a cash budget?

To control cash inflows and outflows Signup and view all the answers

What is the primary function of central banks?

To control the amount of money circulating in the economy Signup and view all the answers

What is the purpose of compounding?

To find a future value given a present value Signup and view all the answers

What is the coupon rate of a bond?

The stated interest rate of a bond Signup and view all the answers

What is cross-sectional analysis used for?

To compare a firm's financial ratios to other firms' ratios or industry averages Signup and view all the answers