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Fin 342 exam 1 complete questions and answers | verified | 2024/2025
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Fin 342 exam 1 complete questions and answers | verified | 2024/2025
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Fin 342 exam 1 complete questions andanswers | verified | 2024/2025
Explain differences between real assets and financial markets CORRECT ANSWERS
Real assets - determine the productive capacity snd net income of the economy Ex:
land, buildings, machine, intellectual property.
Financial Assets - claim on real assets. Do not contribute directly to productive capacity
Ex: stocks, bonds
Explain differences between money market vs capital market CORRECT ANSWERS
Money Market - sub sector of the fixed income market. Short term (less than a year).
Liquid (easily convert asset to cash). Low risk. Often have large denominations. Good
investment strategy for investors who want short term and safe assets. Ex: mutual bond
Capital market- sub sector of fixed income market. Long term (greater than 1 year).
Liquid. Low risk, but not as low as money market.
Ex: treasury bonds, municipal bonds, corporate bonds.
Describe money market securities ( T-Bills, CD, CP) CORRECT ANSWERS T- bills -
short term and highly liquid debt of Fed Govt
Certificates of deposit (CD) - time deposit with the bank. The bank will pay interest and
principal only at the end of a fixed term.
Commercial Paper (CP) - short term, unsecured debt issued by large corporations.
Except for treasury bills. Money market securities are not free of risk.
Describe capital market securities (T-Notes/ T-Bonds, TIPS, municipal/ corporate
bonds) CORRECT ANSWERS T -notes/bonds - notes maturity is up to 10 years, while
bonds is up to 30 years. Par value is 1000. Interest paid semi annually.
TIPS - provide inflation protection. The principal amount is adjusted in proportion to
increases in inflation rate.
MUNI bonds - issued by local govt. interest is exempt from federal income tax and
sometimes from state and local.
Corporate bonds - issued by corporations, semi-annual interest payment. Greater
default risk than govt securities. Callable or convertible option.
Describe equity securities (common/preferred stock, ADR) CORRECT ANSWERS
Common stock - ownership, residual claim, limited liability
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