1

Question 2

What is the primary goal of financial management?

Answer 2

Maximize the value of the owner’s equity.

Question 3

What is Corporate Finance?

Answer 3

It deals with long-term investments (capital budgeting), financing decisions (capital structure), and managing short-term operations (liquidity).

Question 4

Name the three main financial management decisions.

Answer 4

1. Capital Budgeting
2. Capital Structure
3. Working Capital Management

Question 5

What is capital budgeting?

Answer 5

The process of planning and managing long-term investments, focusing on projects worth more than they cost.

Question 6

What is capital structure?

Answer 6

The mix of debt and equity a firm uses to finance operations.

Question 7

What is working capital management?

Answer 7

Managing short-term assets and liabilities, such as inventory and receivables.

Question 8

What is the time value of money?

Answer 8

A concept that money today is worth more than the same amount in the future due to its earning potential.

Question 9

What is the formula for future value (FV)?

Answer 9

Vt = V0 (1 + r)^t

Question 10

What is the formula for present value (PV)?

Answer 10

V0 = Vt / (1 + r)^t

Question 11

Define compounding.

Answer 11

The process of accumulating interest over time, so interest earns interest.

Question 12

Define discounting.

Answer 12

The process of calculating present value of future cash flows.

Question 13

What is simple interest?

Answer 13

Interest calculated only on the principal amount: V0 × r × t

Question 14

What is interest on interest?

Answer 14

Additional interest earned from reinvested interest in compounding.

Question 15

What is an annuity?

Answer 15

A fixed stream of equal payments for a specific period.

Question 16

What is a perpetuity?

Answer 16

A stream of equal payments that continues forever.

Question 17

What is the PV of a perpetuity?

Answer 17

PV = C / r

Question 18

What is the formula for PV of an annuity?

Answer 18

PV = C × [1 - (1 + r)^-t] / r

Question 19

What is the formula for FV of an annuity?

Answer 19

FV = C × [(1 + r)^t - 1] / r

Question 20

What is the nominal interest rate?

Answer 20

The stated annual rate, not adjusted for compounding.

Question 21

What is the effective annual rate (EAR)?

Answer 21

EAR = (1 + r/m)^m - 1, where m is compounding periods per year.

Question 22

What is the EAR for a 12% nominal rate compounded quarterly?

Answer 22

EAR = (1 + 0.03)^4 - 1 = 12.55%

Question 23

What is the formula for EAR with continuous compounding?

Answer 23

EAR = e^r - 1

Question 24

What is the difference between primary and secondary markets?

Answer 24

Primary: securities issued to investors. Secondary: securities traded among investors.

Question 25

Name some major stock exchanges.

Answer 25

NYSE, London Stock Exchange, Euronext, Shanghai, Tokyo.

Question 26

What does it mean when a stock is 'listed'?

Answer 26

It is traded on an organized exchange.

Question 27

What is the Triple Bottom Line?

Answer 27

A framework considering People (human capital), Planet (environmental impact), Profit (financial return).

Question 28

What are the course learning objectives (summarized)?

Answer 28

Scope of finance & environment, time value of money in bonds/stocks, capital investment decisions, risk & return computation.