Finance Final Exam

Question 1

Unconstrained Cost of Debt

Answer 1

revenues less than $25 million, all interest is expected to be written off

Question 2

Constrained Cost of Debt

Answer 2

revenues over $25 million, no tax write off

Question 3

Weighted Average Cost of Capital (WACC)

Answer 3

average cost per dollar of capital raised

Question 4

Equifax

Answer 4

oldest credit card bureau, global, specialty of consumer and business credit card data

Question 5

Experian

Answer 5

1996, global credit analysis and fraud protections, specialty of consumer credit moderating services

Question 6

TransUnion

Answer 6

1968, comprehensive credit reports and fraud protection tools, credit scores is used for consumer education

Question 7

FICO (Fair Isaac Corporation)

Answer 7

most widely used credit score, based on data from Equifax, Experian and TransUnion

Question 8

Vantage Score

Answer 8

created by Equifax, Experian and TransUnion to create a consistent scoring model across bureaus

Question 9

FICO Score Breakdown

Answer 9

-Payment History (35%)
-Amounts Owed (30%)
-Length of Credit History (15%)
-Credit Mix (10%)
-New Credit (10%)

Question 10

How to Build Credit

Answer 10

1. Make timely payments
2. Keep credit utilization low
3. Start with a secured card or credit-builder loan
4. Avoid opening too many accounts at once
5. Monitor credit regularly

Question 11

Credit Card Repayment Strategies

Answer 11

1. Pay more than minimum
2. Balance transfer payments
3. Installment Payments of Debt Management Plan
4. Snowball Method
5. Avalanche Method

Question 12

Minimum Payment

Answer 12

smallest amount you are required to pay each month to keep account in good standing

Question 13

Snowball Method

Answer 13

pay smallest debt first while continuing to make minimum payments

Question 14

Avalanche Method

Answer 14

pay debt with highest interest rate first while continuing to make minimum payments

Question 15

Subsidized Loan

Answer 15

federal direct loan where interest does not begin to accrue until after graduation, need based, amount offered is based on year, undergrad only, interest rate is 6.53%

Question 16

Unsubsidized Loan

Answer 16

federal direct loan where interest begins to accrue after the loan is disbursed, not need based, amount offered is based on year, undergrad and graduate loan, interest rate of 6.53%

Question 17

PLUS Loans

Answer 17

federal loan available to the parents of undergraduate students and to graduate students themselves, loan amount up to the cost of attendance, interest rate of 9.08%

Question 18

Types of Repayment Plans

Answer 18

1. Standard Repayment
2. Income Driven Repayment
3. Deferment and Forbearance

Question 19

Federal Student Loan Tax Treatment

Answer 19

1. Deduction Amount - up to $2,500
2. Qualifying Loans - only for education
3. Income Limitations - $75-90k for singles and $155-185k for married couples
4. Filing Status - not eligible if filed married but separate

Question 20

Payback Statistic

Answer 20

generates decision rules and associated metrics for choosing projects based on how quickly they return the initial investment

Question 21

Net Present Value (NPV) Statistic

Answer 21

generates a decision rule and associated metric for choosing projects based on the total discounted value of their cash flow, accept project if NPV > 0, reject project if NPV < 0

Question 22

Profitability Index

Answer 22

decision rule and associated methodology for converting NPV statistic into rate based metric, accept if PI > 1, reject if PI < 1

Question 23

Yen Hits 34-Year Low as Hopes for BOJ Rate Increases Fade

Answer 23

-ended 8 year stretch of negative interest rates
-step toward normalizing monetary policy for BOJ
-gap between U.S. Fed and BOJ bonds is still wide

Question 24

Never-Ending Revenge Spending - ‘What is the New Norm?’

Answer 24

-revenge spending post pandemic
-spending>saving
-consumer spending starting to pull back
-some are spending on credit to maintain lifestyle

Question 25

Why Treasury Yields Are Rising Despite Rate-Cut Expectations

Answer 25

-10 year yield increase has led to high mortgage rates -rates could still rise even if inflation falls -fed aims to bring rates down to a neutral rate

Question 26

Inflation Stays Firm, But Not Enough to Derail December Fed Cut

Answer 26

-inflation has slowed to lowest rate in 3.5 years -energy prices are unchanged and gas is down -prices of almost everything else are up

Question 27

Credit cards start with oil companies and Department stores

Answer 27

1920s-1930s

Question 28

Diner club card, the first universal charge card, is created

Answer 28

1950

Question 29

Bank of America launches Bank of Americard, which later becomes Visa, first card to where you can hold a balance

Answer 29

1958

Question 30

MasterCharge now MasterCard is created

Answer 30

1966

Question 31

Credit bureau networks form and create credit scores

Answer 31

1970s

Question 32

IBM introduces magnetic strip cards

Answer 32

1980s

Question 33

Credit cards go global

Answer 33

1990s

Question 34

Chips and contactless payments are created

Answer 34

2000s

Question 35

National Defense Education Act supports students in STEM and foreign languages during the Cold War

Answer 35

1958

Question 36

The Higher Education Act makes education more accessible

Answer 36

1965

Question 37

Expansions and Changes - government direct loans and new private loans

Answer 37

1980s-1990s

Question 38

Federal government takeover of student loans, federally backed loans like Sallie Mae and Citibank

Answer 38

2000s

Question 39

Student Aid Responsibility Act ends federally backed private loans

Answer 39

2010