# FREE Basic Finance Questions and Answers

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#### Regular interest payment to bondholders is termed coupon interest

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Coupon payments refer to bondholders' regular interest payments. When a company or government issues a bond, it promises to pay periodic interest at a fixed rate, known as the coupon rate, to the bondholders. Typically, the coupon rate is expressed as a percentage of the face value of the bond. Interest payments are typically made semi-annually or annually, depending on the terms of the bond. The term "coupon" originated from the practice of attaching coupons to physical bond certificates, which bondholders presented to receive interest payments. The majority of bonds are now held electronically, and the interest is deposited directly into bondholders' accounts.

#### Calculations involve dividing the price/ratio by the cash flow/share ratio.

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The stock price of a company is compared to its cash flow per share using the P/CF ratio. It is determined by dividing the market price of the company's shares by its cash flow per share. When the P/CF ratio is high, the stock value is high, while when it is low, the stock is undervalued.

#### what asset class is goodwill?

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An asset that is considered intangible is goodwill. Intangible assets are those that don't have a physical presence but represent important rights or advantages to the company that owns them. When a business buys another business for a sum greater than the identifiable net assets (assets minus liabilities) acquired, goodwill is created.

#### What determines the greatest number in a series of numbers?

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The function MAX(B1:B3) finds the highest number in a series of numbers by comparing the contents of cells B1, B2, and B3. The MAX function is a common mathematical function utilized in spreadsheet applications such as Microsoft Excel and Google Sheets to determine the maximum value in a given range of cells. Using this function, you can easily determine the largest value in a given set of numbers, which is useful for a variety of data analysis and decision-making tasks.

#### The ___provides investors with a window into the company.

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The prospectus shows investors the company. A company that plans to sell securities like stocks or bonds prepares it as a legal document. The prospectus provides detailed information about the company's financial health, business operations, management, risk factors, and other crucial information for potential investors.

#### A business will have favorable leverage if its __are greater than its debt expense.

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If a company's earnings exceed its debt cost, it will have favorable leverage. In financial terms, leverage refers to the financing of a company's operations or investments with borrowed funds (debt). When a company generates a return on its investments that is greater than the cost of the debt it took on to finance those investments, it is said to have favorable leverage.

#### A company's investment decision is also known as the

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The capital budgeting decision is another name for a company's investment choice. The process by which a business evaluates and chooses long-term investment projects and decides which projects to take on to maximize shareholder value is known as capital budgeting. It entails examining different investment opportunities and allocating money to ventures that are anticipated to produce positive cash flows and offer the highest return on investment.

#### Currently, 2:5 Rs. is the current liability. Net working capital is equal to .

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By dividing current assets by current liabilities, the current ratio compares a company's current assets to its current liabilities. The current ratio in this case is 2:5, and the current liabilities are Rs. X. A negative net working capital of Rs.(-)18,000 is obtained by deducting current liabilities from current assets, which raises questions about the company's liquidity and short-term financial stability.

#### The cash method of accounting disregards.

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Cash basis accounting adheres to the realization principle, wherein revenue is recognized when earned, irrespective of receipt. Receivables are not considered earned until they have been paid, violating the principle by recording revenue before they have been earned.

#### What makes an excel pivot table unique

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An effective data summarization tool in Excel called a pivot table enables users to analyze and present large datasets in a more structured and meaningful manner. It is a useful feature for anyone using Excel to work with data because it makes data analysis and reporting quicker and more effective.

#### This is what the cost of retained earnings is.

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Retained earnings are the portion of a company's net income that is reinvested into the business to finance projects, expansion, or capital expenditures. The cost of equity is the expected return on a company's stock that investors demand as compensation for the risk of investing in the equity of the company. Retained earnings are used internally rather than issuing new shares to raise external capital, making them equivalent to the cost of equity.

#### What is the purpose of financial markets?

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By purchasing and selling a variety of financial instruments, financial markets facilitate the flow of funds from savers to borrowers. They play an important role in the economy by channeling excess capital to borrowers, thereby enabling businesses to finance operations, expand, and create jobs. In addition to providing opportunities for risk management, diversification of investment portfolios, and hedging against uncertainty, financial markets also facilitate risk management and portfolio diversification.

#### When a forward contract is exchanged, it is referred to as

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A private agreement between two parties to purchase or sell an asset at a specified price at a future date is known as a forward contract. There is no standardization. A future contract is an exchange-traded version of a forward contract that is standardized and subject to financial exchange regulation. Terms are set in advance by the exchange, promoting trading ease, transparency, and liquidity. Investors and hedgers use futures contracts to control risks and make predictions about asset price changes.

#### The money an investor receives for assuming a risk is known as return.

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The risk premium is the additional return that investors anticipate receiving for investing in riskier assets as opposed to risk-free assets. The relationship between risk and return is positive, with higher-risk investments expected to generate greater returns over time. The risk premium is determined by investors based on their risk tolerance, market conditions, and investment riskiness. This concept is fundamental to portfolio management and investment decisions.

#### The capital market line is which of the following?

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Both the capital allocation line of a market portfolio and the capital allocation line of a risk-free asset are represented by the capital market line (CML). Modern portfolio theory, which seeks to maximize the risk-return trade-off for investors, is fundamentally based on this idea.

#### Conflicts between managers' and shareholders' interests are referred to as

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Conflicts of interest between shareholders and managers in a company are referred to as an agency problem. It happens when managers, who are chosen to lead the company on behalf of the shareholders, put their own interests ahead of those of the shareholders they are supposed to represent. This conflict may cause managers to make choices that maximize their own interests rather than those of the shareholders.