1. What is an investment? 2. What is the key difference between a "real asset" and a "financial asset"? 3. We have discussed three types of financial assets are: The two primary financial assets are: 1. Fixed income (Debt) 2. Equity 4. The value of the third type of financial asset is dependent on the value of an underlying asset: 5. One of the underlying components of how we value securities has to do with a concept called "opportunity cost". What is "opportunity cost"? 6. Why is it easier to value debt securities versus equity securities? 7. What type of security would have the most senior claim on the assets of a firm? 8. What is "book value"? 9. True/False: If we take the book value of all securities issued, we can determine the actual value of a firm. 10. Fill in the blank: If we take the value of all securities issued, we can determine the total value of a firm. 11. What are the two primary ways that a firm will raise new capital for the firm? 12. Because there is no "guarantee" investing in , there is a higher risk associated with it than other financial assets. 13. Based on the risk/return principle, would you expect to carn a higher return on the common stock of a company or preferred stock issued by the same company? 14. Based on the risk/return principle, which asset would you expect to carry lower risk, bonds or preferred stock issued by the same company? 15. Preferred stock is considered to be a hybrid of stock and bonds, as it shares certain characteristics with each of these asset classes. Which of these characteristics apply to preferred stock? a. Voting Rights: Y/N b. Maturity Date: Y/N c. Coupon Payments: Y/N 16. What is the key advantage to a company if it is able to call a payment to an investor a dividend versus if it calls it a coupon? Assume the same tax advantage would apply to each payment, and the after-tax cost to the firm would be identical in each case. 17. True False: Most shares trading on the New York Stock Exchange occur on what we would call the "Primary Market". 18. True/False: A share that occurs in the secondary market" would NOT increase the shares outstanding for the company, and the company would NOT receive a financial benefit if you were to purchase company shares in this type of transaction. 19. In what way(s) are Preferred shares in a private company similar to Preferred shares in the public markets? 20. In what way(s) are Preferred shares in the private markets different from Preferred shares in a public company? 21. The earliest stage of investing where founders typically use their own capital to start a company is called 22. The stage of funding where an Angel investor or friends and family would typically participate in rounds up to around $1 Million is called round. 23. If a company uses its own resources from an existing business to expand into another vertical rather than raising outside investment capital, this is called 24. The first significant round of funding that would typically be between $2-15 Million and would include professional investors (Venture Capitalists and Private Equity investors) would be called 25. The first round of funding for a company that would be open for any accredited investor to participate is called _. This round typically creates liquidity for early investors, so therefore private equity investors will also refer to this type of round as an) 26. True/False: an IPO is a secondary market" transaction since its shares are transacted on a major stock exchange. 27. What is the "black swan" problem? 28. The best measurement of risk if we are concerned with evaluating a portfolio for the potential for maximum loss of capital would be: a. Beta b. Standard Deviation c. VAR 29. True False: One of the shortcomings of VAR is that it is only useful for evaluating certain types of equity assets. 30. True/False: If a bank offers continuous compounding of an instrument, since the instrument is continuously compounding, on average it will achieve a much higher rate of return (generally 40-50% higher), than if the same instrument was compounded monthly. Therefore, instruments that offer continuous compounding tend to have a much higher relative market value, to compensate the lender for the additional interest provided. 31. True/False: Inflation is easy to predict because of the Fisher equation. 32. True/False: In order to compare investments of different holding periods, we might use (EAR), Effective Annual Rate, which is defined as the increase in funds over a l- year time period. 33. True/False: For a one-year investment, the EAR would equal the total return of that investment. 34. True/False: In a normal bell curve distribution, individual values fall within the range of +/-2 Standard Deviations approximately 68% of the time. 35. True/False: In technical analysis, the outer range of Bollinger Bands are usually set to a range of +/- 2 Standard Deviations from the mean. 36. True/False: According to Elton and Gruber, adding 4 more stocks to a 1 stock portfolio would reduce your expected volatility by approximately 20%. 37. True/False: If you want to know how much systematic risk exists in a portfolio, you can look at the Beta, which will measure how volatile the portfolio is relative to the index. 38. True/False: Systematic Risk cannot be eliminated through diversification across asset classes, but can effectively be offset through Hedging. 39. The three forms of the Efficient Market Hypothesis are: c. 40. Explain the fallacy in the Efficient Market Hypothesis that was exposed by Philip Fisher, what is his reasoning for why he does not believe the market is fully efficient, and how does he explain why he believes that it must be possible for an effective analyst to beat the market returns? 41. Many mutual fund managers underperform the markets. Even though this is the case, mutual fund manager performance still provides evidence for why it might be for a successful analyst to outperform the markets. Explain of 41. Many mutual fund managers underperform the markets. Even though this is the case, mutual fund manager performance still provides evidence for why it might be possible for a successful analyst to outperform the markets. Explain. 42. According to a study on mutual funds by Morningstar, what did the results of their study conclude regarding how an investor should select mutual fund investments? That is, what was the single factor that best predicted mutual fund performance over the course of their analysis? 43. Discounted Cash Flow is a method for determining the intrinsic value of an asset based on determining the of that asset. 44. One of the key steps in DCF analysis is to generate _financial statements, which is a useful forecasting tool based on historical data. 45. The old adage in financial forecasting states that "all financial models are , but some are more than others". 46. When building a financial model, we will typically separate the model into two stages. The period exists beyond the 3-5 year period, and contains approximately % of the value of the company. 47. What are some of the key weaknesses in using the DCF methodology? 48. Define the term "Free Cash Flow to the Firm". How is this related to Net Income? 49. Cash Flow from Operations - = Free Cash Flow to the Firm. 50. What is the difference between LFCF and UFCF, and which is typically the better choice to use for DCF analysis? 51. What does Enterprise Value tell an investor and how is it calculated? 52. What is Minority Interest