Budget and Finance Exam 1 Flashcards

How is econ and Finance differet?

• econ is more theoritical while finance is more applicable

How is the sports/government relationship strong?

• because sports is often seen as a public good.

• Owners like it when the government spends money on stadiums. As the relationship grows stronger

what is the definition of debt?

• borrowing money that must be repaid over time usually with interest

equity

exchanging a share or portion of ownership for a company usually with money

What is retained earnings?

reinvestment to prior earnings 

GIFT

charitable in kind donations

What is the definition of double entry book keeping?

every entry of an account have a corrposonding entry of an another account

What are the three basic types of financial statements?

• balance sheet 

• income statement 

  • statement of cash flows 

What is the definition of a financial statement

• the primary source of infomration used to evaluate the financial health and performance of an organization

What is the definition of a balance sheet?

• a picture or snapshot of the financial condition of an organization at a specific point in time

What are the three primary sectinos of a balance sheet?

• assets

• liabilities

• owners equity

What is a mortgaged back secrutiy?

• a collateralized debt obligation

What is the equation for the rate of return?

amount recieved-amount invested/amount invested

What is the rate of return?

the gain or loss of an investment over time

what is the definition of risk?

measurement of the volatilitiy of rates of return

What type of relationship is there between risk and rate of return?

inverse relationship

Definition of interest rates

they are a function of the supply for loanable funds (people saving money) and demand for loanable funds (people/firms who wish to invest)

What is the definition of nominal interest rate?

the real risk free rate of interest plus multiple risk premiums

What is a risk free rate of itnerest?

• interest rate for a risk free investment

• assuming zero inflation

What is an inflation premium?

• the general rise in the prices of goods and services

What is the default risk premium?

• risk the borrower may default

Liquidty premium

if you buy an asset that is easy to sell it is considered a liquid asset

expected rate of return what is it?

• sum of each outcome mutiplied by these possibilities (given in the probability discussion)

what is a probability distribution?

• expresses every possible outcome and the likelihood of each outcome.

What is the definition of coefficient of variance?

a good way to measure both risk and reward, good at comparing two assets with different rates of return. 

What are two types of risk?

• diversifiable risk 

• market risk 

What is diversifiable risk?

the portion of risk that can be reduced by diversifying your investments

What is market risk?

risk that is a function of the market itself, the general ebb and flow of the market will change this. 

What are beta coefficients?

• best way to measure risk for indivual stocks and thus can be used to measure risk for portfolios. 

How do you hedge risk?

• futures market

• revenue sharing 

• money flows from the larger market teams to the smaller market teams. 

Definition of inflation?

• the rise of of the prices of goods and services.

What is the equation for present value?

PV= FV(1/(1+i) n squared

What is the equation for future value?

PV(1+i)n

definition of econ?

• the study of maximizing unlimited wants with limited resources.

What is the definition of opportunity cost?

the highest valued of alternative forgone

What are the four main types of depreciation

• straight line, sum of years, double decline balance, units of production

What are the two types of fiscal policies?

expansionary fiscal policy, contractionary monetary policy