Let's Take in to Account the Finance Quiz

Answer: higher return

One of the fundamental principles of Finance is the Risk-Return Trade Off. Risk is defined as the uncertainty to compensate the investors. Risk-seeker investors typically require a higher expected of return from risky investments. Different kinds of risks include credit or default risk, inflation, operational, foreign exchange etc.

Answer: Preferred Shareholders only

Preferred shareholders are prioritized over common shareholders for the earnings and assets in the event of company's liquidation. However, they are rarely given voting rights as compared to the common shareholders. Preferred shares could be participating, non-participating, cumulative, non-cumulative, or even cumulative-participating.

Answer: Intangible Asset

Non-current assets are the assets not realized in one year after the balance sheet date or within the entity's operating cycle. Though intangible assets are also part of fixed assets, they should be distinguished from tangible assets like plant, property and equipment. Other intangible assets include franchises, licences, trademarks, and secret processes.

Answer: Assets = Liabilities + Equity

The expanded accounting equation is Assets= Liabilities + Equity + (Revenue-Expenses). Assets are the resources controlled by company while liabilities (bonds)and equity (stocks) are the elements needed to finance those assets.

Answer: Systematic risk

In the capital market theory, all investors want a completely diversified portfolio (combination of risky assets) in order to reduce risk. The unsystematic risk or the unique risk for an individual asset is diversified away. The systematic risk remains and cannot be eliminated because it reflects the market condition through the macroeconomic factors that affect all risky assets.

This is why the systematic risk is also called as the market risk.

Answer: Pricing

The Capital Asset Pricing Model or CAPM formula is "RFR + (Beta * Expected market risk premium)". The risk-free rate (RFR) is the rate of return paid by the risk-free asset that has zero variance and correlation, that means, low default risk. The Beta is the standardized measure of systematic risk or the market risk.

Answer: Balance Sheet

Unlike Balance Sheet, Income Statement reflects the company's performance in a period of time. Assets, Liabilities, and Equity are general items of the Balance Sheet. On the other hand, Revenues and Expenses are reflected in the Income Statement.

Answer: Profit Margin

Profit margin is a profitability ratio derived from dividing net income over revenue. Liquidity describes the entity's amount of time until an asset is converted to cash and settle its current obligations. A higher liquidity and profitability is an indicator of lower risk failure.

Answer: Limited liability

A corporation has an artificial personality distinct from its shareholders; that's why it's not personally liable (advantage) for the debts of its owners. A corporation's credit is weakened (disadvantage) by the corporation's limited liability.

Answer: Underwriting, distributing, advising

The investment banker acts as an intermediary between the issuing firm and investors in return for advising fees, success fees etc. It is very significant in the smooth flow of transactions in the financial markets.

Answer: Private placement

In private placement, the company sometimes pay advising fees to an investment banker. The company may not need the investment banker's underwriting and distributing function.

Answer: Treasury bills

Treasury bills or T-bills are a type of bond issued by the government to finance their current expenditures. T-bills are regarded as less risky securities because it has a maturity of one year or less.

Answer: Income Statement only

Income Statement can also be referred as the Profit and Loss Statement. It helps the investors project the timing and risks of future cash flows. It can be reported as single-step or multiple-step income statement.

Answer: Bonds

YTM is a promised or redemption yield that the bondholders or creditors will receive if the bond matures. Bonds are fixed-income debt securities.

Answer: National Association of Securities Dealers Automated Quotations

NASDAQ, an American Stock Exchange, was the world's first electronic stock market created in 1971. It has the largest electronic screen that provides price quotations of different company stocks that are actively traded in the financial market.