FIL 240 Final Exam Review
7 questions, answer 5
Course objectives
3 questions are from the previous exams
1. Distinguish between accounting and !nance, how they differ in terms of costs and the
impact on the pro!t.
Opportunity cost Accounting pro!t does not show cash &ows which does not
create an accurate picture of how much cash is &owing in and out of the
company
2. Bonds: know the price drivers of bonds. Know the rela”onship between the term and
the price of a bond. What is the rela”onship between the price of a bond and the
spread between the coupon and the yield?
3. Risk: What is the difference between diversi!able and non diversi!able risk. Which one
ma,ers to us in out actual lives.
Non diversi!able risk is the uncertainty inherent to the entire market or entire
market segment, whereas diversi!able risk is the uncertainty that comes with the
company that someone invests in.
4. Name 3 factors important in making a “good portfolio.” About 5 factors in total
Systema”c risk, correla”on, size and balance of the portfolio
5. Interest rates: what are the components of an interests rate? Explain each piece of the
risk premium. Name the pieces
Illiquity premium
6. Why changes in interest rates are important to business. Think of the NPV of a project.
7. What is beta?
The measure of the risk that remains a0er non systematic risk is smoothed out
8. Know the difference between internal generated and external generated equity. How
can a company generate equity?
9. Why should you be suspicious of a company that raises money through equity? Couple
