Exam 15: Finacial Decisions and Risk Management

Ryerson says: "Money is hard to come by, so when one has money one should make sure that, above all, one doesn't lose it. One hears a lot of success stories about people making a lot of money by investing, but of course you don't hear about the people who lose money investing. As risky as it is, based on so many unknown factors, investing your money really is like gambling. The only prudent plan is to keep money in a savings account where it can earn a predictable amount of interest. One can't lose money that way, at least, so with money in a savings account one can always count on it being there for future needs." Groh responds by saying: "Investing is inherently risky, but the risk need not be insurmountable. It is true that the more potential there is for a higher return, the higher the chance is also for more money to be lost. But there are more and less risky ways to invest, and even the less risky investments can give a significantly higher return than a simple savings account. When one diversifies one's stock holdings, one increases the chances of getting a good return among one's holdings, and decreases the damage from a loss in value. Also, even if stocks lose value temporarily, the value of stocks overall has always gone up over long periods of time. So a savings account, while it may seem prudent and safe, is probably not the best way to ensure that money is being saved in the most optimal way possible." Which of the following issues do Ryerson and Groh disagree about?

Why is retained earnings viewed as a form of equity financing?

Explain the principle of compound growth.

Suppose you were interested in purchasing a printing company. This might be an attractive target if the ________ value of the stock was less than the ________ value.

What is the purpose of the various provincial securities commissions? What are some of the difficulties these agencies encounter as they try to protect investors?

Explain how the Rule of 72 works using an example.

What is a stock's market value?

What are the two methods of equity financing for long-term funding requirements? What issues must be considered before the choice is made between the two methods? Explain your reason.

Preferred shares never mature, however, payments to the holder are fixed in amount and can be withheld if the company wishes.

Suppose you purchased a $1000 par-value bond in 2003 for $650. Its stated interest rate is 6 percent and it matured in 2013. What was your yield?

Which of the following is a source of long-term borrowing from outside the corporation?

Conserving the firm's earning power and assets by reducing the threat of losses due to uncontrollable events is ________ management.

Differentiate between odd and round lots.

Kim has investments in stocks, and wants to calculate her total return. What should she do?

Discuss the investment traits of preferred stock.

Which of the following represents a stock's real value?

With a line of credit, a business knows the maximum amount of money it will be able to borrow, but only if the bank has the money available to lend.

Explain the difference between the three basic types of inventory that companies typically carry.

Give an example of how commercial paper works.

Mutual funds vary according to the investment goals emphasized by the fund managers.