D076 Finance Skills for Managers - Set 1 - Part 3

Correct Answer: Principal-agent problem

The principal-agent problem arises when the interests of the managers (agents) diverge from those of the owners (principals), leading to potential conflicts in decision-making.

Correct Answer: Interest rate

The interest rate is the percentage charged by lenders to borrowers for the use of assets, such as money, over a specified period of time.

Correct Answer: Assets or securities with beta greater than 1

Aggressive assets or securities have a beta greater than 1, meaning they are more volatile and offer higher returns, but with greater risk compared to the market.

Correct Answer: Annual Percentage Rate (APR)

The APR represents the annual rate charged for borrowing or earned through an investment, including fees or additional costs.

Correct Answer: A stream of cash flows of equal amount paid every consecutive period

An annuity is a series of equal payments made at regular intervals over a fixed period of time, such as monthly or annually.

Correct Answer: Spontaneous account

Spontaneous accounts are those that naturally change in proportion to sales growth, such as accounts receivable or accounts payable.

Correct Answer: The difference between the interest rate on different maturity bonds

The yield curve plots interest rates of bonds with the same credit quality but different maturities, often used to predict economic trends.

Correct Answer: By controlling the amount of money circulating and adjusting interest rates

The Federal Reserve uses tools such as interest rate adjustments and open market operations to control inflation and stabilize the economy.

Correct Answer: Investment bank

Investment banks assist companies in raising capital by underwriting and issuing stocks or bonds, facilitating mergers and acquisitions, and providing financial advisory services.

Correct Answer: It is sold for less than its par value

A bond is issued at a discount when its selling price is lower than its par value, often reflecting a higher yield than the coupon rate.