Deck 6

Question 1

describe perfect competition

Answer 1

large number of sellers and all are too small to affect the price of the product, sell same product, no entry/exit barrier

Question 2

describe pure monopoly

Answer 2

one seller of a product with no close substitutes

Question 3

describe monopolistic competition

Answer 3

many firms selling a differentiated product

Question 4

describe oligopoly

Answer 4

a few sellers, kinked demand curve mean that firms match price increases but not decreases. If unregulated become cartels and engage in price fixing.

Question 5

what is arithmetic average

Answer 5

simple calculation of adding returns for a number of periods and divide by the number of periods

Question 6

what is geometric average

Answer 6

calcs using the compounded annual return

Question 7

what is Unsystematic risk

Answer 7

the risks that exists for a particular investment. This risk can be diversified away. Owning a tech stock can be diversified away by owning a balanced portfolio

Question 8

what is systematic risk

Answer 8

risk that relates to market factors and cannot be diversified away.

Question 9

name the 6 stages of capital budgeting ISISFI

Answer 9

Identification
Search
Information-acquisition
Selection
Financing
Implementation

Question 10

define accounting rate of return

Answer 10

computes the approximate rate of return. adv-uses accounting info, disadv- ignores the time value of money

Question 11

define NPV

Answer 11

discounted cash flow method which calcs pv of future cash flows less the initial investment. If this amount is positive the investment should be undertaken

Question 12

define IRR

Answer 12

a discounted cash flow method. The term internal refers to the fact that its calculation does not incorporate environmental factors (e.g., the interest rate or inflation).
The internal rate of return on an investment or project is the “annualized effective compounded return rate” or rate of return that makes the net present value of all cash flows (both positive and negative) from a particular investment equal to zero. It can also be defined as the discount rate at which the present value of all future cash flow is equal to the initial investment or, in other words, the rate at which an investment breaks even.

Question 13

define virtualization

Answer 13

technology that allows multiple operating systems to run simultaneously on a single computer

Question 14

what are the COBIT 5 principles

Answer 14

Meeting stakeholder needs
cover enterprise end-to-end
apply single integrated framework
enable a holistic approach
seperate governance from management