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Present Value (PV) and Future Value (FV) are crucial components in the everyday financial decision-making in the managerial environment. In a 2-3 page Word document please respond to the following:

· What is PV?

· What is FV?

· How is relevant to financial decision-making?

· How are these to concepts applicable to my current work environment?

· Provide examples of how they would be used in your current work environment including the impact they have on the financial decision-making.

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Jarrod Robel
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29 Jul 2018

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essay questions from the list.

A. The “Supply and Demand” analysis for bonds offers a theory for how interest rates are determined.

1. List the Demand factors that affect interest rates.

2. List the Supply factors that affect interest rates.

3. Which factors do you believe are most important in determining interest rates?

B. Issuing bonds are an important mechanism for attracting capital into the financial markets.

1. What is the importance of Credit-Rating Agencies?

2. List at least two (2) credit-rating agencies in the US.

3. Explain how they affect the efficiency of Capital Markets.

C. Junk bonds are common in the secondary market.

1. Explain what is a “Junk” bond.

2. If they are NOT “Investment” grade, then why are they popular with investors?

3. Discuss an example of a “Junk” bond that would be a very profitable investment.

D. It is hard to avoid “conflicts of interest” in financial markets.

1. Why is it so important to identify a conflict of interest?

2. Discuss a specific finance example.

3. Explain how financial markets operate to minimize “conflicts of interest.”

E. Financial Engineering has been blamed as an important cause of the 2008 Financial Crisis.

1. Explain the advantages of “Financial Engineering.”

2. Explain the disadvantages of “Financial Engineering.”

3. Provide an example of “Financial Engineering.” Who benefited the most from this financial innov

A. Trillions of dollars in asset value disappeared after the peak of the 2006 Asset Bubble.

1. What factors do you think were most important in the 2008 Financial Meltdown?

2. How did they impact the confidence in the financial markets?

3. What policies do you think are most important in preventing a future financial crisis? Explain.

B. Financial Innovation and Liberalization contributed to the Global Financial Crisis.

1. Explain how specific examples of “Financial Innovation” negatively impacted financial markets during this period.

2. Explain how specific examples of “Financial Liberalization” negatively impacted financial markets during this period.

3. How did consumer lending and bank supervisory regulation contribute to the Financial Crisis? Could it Happen Again? Explain.

Amongst corporations, sole proprietorships and partnerships, approximately what percentage of revenues are generated by corporations?

50%

42%

33%

82%

Question 2

What should be the financial goal of any firm?

attracting and acquiring capital and investing it

maximization of the owners’ wealth

offering quality products at fair prices

quality customer service

Question 3
4 pts
Which of the following statement(s) is \ are true regarding the corporate management team?

In a corporation, ownership and direct control are typically separate.

Board of Directors is elected by shareholders and has ultimate decision-making authority

The Chief Executive Officer (CEO) – the Board typically delegates day-to-day decision making to the CEO.

All of the above



Question 4
4 pts
When calculating the present value of either a future single sum or a future annuity, it involves a process called discounting. The applicable interest rate to perform the discounting function is usually called the

yield to maturity

compound interest rate

discount rate

none of the above

Question 5
4 pts
_________________ are used to present additional information about items included in the financial statements and to present additional financial information.

stock certificates

Notes to financial statements

Preferred stocks

Convertible securities
Question 6
4 pts
What should be the financial goal of any firm?

maximization of the owners’ wealth

attracting and acquiring capital and investing it

offering quality products at fair prices

quality customer service

Question 7
4 pts
A competitive market is one in which a _____ numbers of producers compete with each other to satisfy the wants and needs of a _____ number of consumers.

Large, small

Small, small

Large, large

Small, large

Question 8
4 pts
The Valuation Principle is an analysis between the value of the ______ of a financial alternative and the value of its ______.

revenues, income

benefits, costs

expenses, costs

Question 9
4 pts
The Net Present Value rule implies that we should compare a project’s net present value (NPV) to___________. (zero \ future value \ the past).

Zero

Future Value

The Past

An Estimate

Question 10
4 pts
The internal rate of return (IRR) rule will _______ agree with the Net Present Value rule on a given investment project.

always

never

sometimes

none of the above

Question 11
5 pts
The law of one price exists due to arbitrage opportunities. If the price of a security, commodity or asset is different in two different markets, then an arbitrageur will ______ the asset in the more expensive market and ________ it where prices are lower.

sell, purchase

purchase, sell

purchase, purchase

sell, sell

Question 12
5 pts
Approaching every problem using a timeline is a(n) ________ idea because timelines identify events in a transaction or investment which might otherwise be easily overlooked.

good

bad

indifferent

unrealistic

Question 13
5 pts
The present value (PV) of a stream of cash flows is the _______ the present values of each individual cash flow

difference between

product of

sum of

same as

Question 14
5 pts
As the number of periods increases, present value (increases\decreases\stays the same).

increases

decreases

stays the same

is unrelated

Question 15
5 pts
When a constant cash flow will occur at regular intervals for a finite number of periods of time, it is called a(n) __________.

annuity

perpetuity

interest payment

principle payment

Question 16
5 pts
When a constant cash flow will occur at regular intervals forever, it is called a(n) ___________.

annuity

perpetuity

interest payment

principle payment

Question 17
5 pts
The NPV measures the ______ change in shareholder wealth that arises from undertaking a project.

consistent

dollar

annual

semi-annual

Question 18
5 pts
When calculating the present value of either a future single sum or a future annuity, the applicable interest rate is usually called the _______ rate

compounding

inverted

market

discount

Question 19
5 pts
To endow a perpetuity is the same as calculating the present value (PV) of a perpetuity. Say you want to endow an annual graduation party at your alma mater. You want the event to be a memorable one, so you budget $30,000 per year forever for the party. If the university earns 8% per year on its investments, and if the first party is in one year’s time, how much will you need to donate to endow the party?
The formula for PV of a perpetuity = C\r; = $30,000 \ 0.08; =

$3,750

$37,500

$375,000

$3,750,000

Question 20
5 pts
With an Ordinary Annuity, payments are required at the ________ of each period. An example of this is bonds which usually pay coupon payments at the end of every six months until the bond's maturity date.

beginning

middle

end

payments are not required

Question 21
5 pts
Sales of securities that the seller does not own is called a:

stop-loss order

short sale

limit order

maintenance margin

Question 22
5 pts
What is the name of the market where money market securities, bonds, and mortgages are originated and traded?

debt securities market

foreign exchange market

derivative securities market

equity securities market

Question 23
5 pts
If an investor feels the price of a stock will decline in the future, which trade should the investor undertake?

market order

buy on margin

limit order

short sale

Question 24
5 pts
For risk averse investors, how much return is expected for taking on more risk?

lower

equal

zero

higher

Question 25
5 pts
A ___________________ is a highly regulated document which details the issuers operations and finances and must be provided to each buyer of a newly issued security.

Prospectus

An underwriting agreement

A best efforts agreement

none of the above

Question 26
5 pts
Which of the following statements about liquidity ratios is true?

The lower the quick ratio relative to the current ratio, the safer a firm is in terms of liquidity.

The higher the current ratio, the more likely a firm is able to pay its short-term obligations.

The quick ratio is always between 0 and 1.

All the above statements are true.

Question 27
5 pts
The ability of a firm to meet its short-term debt obligations as they come due is indicated by which of the following ratios:

liquidity ratios

asset utilization ratios

financial leverage ratios

profitability ratios

Question 28
5 pts
Which one of the following financial statements reports a firm’s assets and the claims on assets?

balance sheet

income statement

statement of changes in financial position

cash flow statement

Question 29
5 pts
The extent to which assets are used to support sales is indicated by which of the following ratios:

liquidity ratios

asset utilization ratios

financial leverage ratios

profitability ratios

Question 30
5 pts
The extent to which assets are financed by borrowed funds and other liabilities is indicated by:

liquidity ratios

asset utilization ratios

financial leverage ratios

profitability ratios

Question 31
5 pts
The basic price that equates the demand for and supply of loanable funds in the financial markets is the __________:

interest rate

yield curve

term structure

cash price

none of the above

Question 32
5 pts
Federal obligations usually issued for maturities of two to ten years are called:

Treasury bonds

Treasury notes

Treasury bills

Agency issues

Question 33
5 pts
An increase in the demand for loan-able funds, holding supply constant, will cause interest rates to:

increase

decrease

stay the same

none of the above

Question 34
5 pts
As interest rates rise, the prices of existing bonds will:

rise

stay the same

fall

either a or b

Question 35
5 pts
In an inflationary period, interest rates have a tendency to:

rise

fall

stay the same

act erratically

Part III Overview To make corporate finance decisions, take an advanced finance course, or pursue a career in finance, you will need to understand basic concepts. This includes going beyond the number crunching and reading graphs in order to analyze various financial indicators. This analysis can lead to many important decisions in your financial career. For this part of the final project, you will be given a scenario in which you are asked to illustrate your financial knowledge and analysis skills.

This part of the assessment addresses the following course outcomes: · Analyze the roles and responsibilities of financial managers in confirming compliance with federal and shareholder requirements · Differentiate between various financial markets and institutions by comparing and contrasting options when selecting appropriate private and corporate investments · Compute financial ratios, time value, variables, and returns using industry standard tools for optimizing financial success · Analyze corporate financial data for multiple companies in evaluating past and future financial performances

Part III Prompt The results of both sections of your employment examination have finally been received, and you were offered the position. You have a few important decisions to make before you can formally accept or decline the position. When composing your answers to these decisions, ensure that they are cohesive and read like a short essay. Your submission must address the following critical elements:

I. School Versus Work A. The school you would like to attend costs $100,000. To help finance your education, you need to choose whether or not to sell your 1,000 shares of Apple stock, 1,000 EE Savings Bonds (with $100 denominations and 4.25% coupon rate) that are five years from their 30-year maturity date, or a combination of both. Provide the appropriate data and calculations that you would perform to make this decision.

B. What are the advantages and disadvantages of selling a combination of stocks and bonds? Be sure to support your answers.

C. Suppose that you choose to sell your stocks, bonds, or a combination of both. What is your choice, and what is your financial reasoning behind this choice? Consider supporting your answer with quantitative data.

D. Suppose that you choose to accept the job. What is your financial reasoning behind this choice? Be sure to support your answer with quantitative data.

II. Bonus Versus Stock A. The company has offered you a $5,000 bonus, which you may receive today, or 100 shares of the company’s stock, which has a current stock price of $50 per share. Mathematically, what is the best choice? Why?

B. What are the advantages and disadvantages of each option? Be sure to support your answers.

C. What would you ultimately choose to do? What is your financial reasoning behind this choice? Consider supporting your answer with quantitative data.

III. Compliance A. While investigating the shares offered to you by your potential boss, you discover that the company you are considering working for is not registered as required under the Securities Act of 1933. How does this influence you as a potential employee and as a potential shareholder? Be sure to reference any applicable statutes or laws.

B. You know that accepting this job may eventually lead to a promotion into the role of the financial manager. As the potential financial manager, what federal and shareholder requirements would you need to be familiar with in order to ensure that you are being completely compliant?

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