End Of Class Assessment Quiz
This quiz is to help us assess how effective this class is in teaching you about investment banking concepts. This will in no way impact your candidacy - this is for educational analysis only.
Questions and Answers
- 1.
What is GAAP?
- A.
Generally Accountable Actuary Principles
- B.
A set of rules and regulations governing investment banks
- C.
A standard framework of guidelines for financial accounting
- D.
I don't know
Correct Answer
C. A standard framework of guidelines for financial accountingExplanation
GAAP , or Generally Accepted Accounting Principles, is the common set of accounting principles, standards and procedures that companies use to compile their financial statements. GAAP are a combination of authoritative standards (set by policy boards) and simply the commonly accepted ways of recording and reporting accounting information.
For more, see here http://www.investopedia.com/terms/g/gaap.aspRate this question:
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- 2.
The financial statement that reports the revenues and expenses for a period of time such as a year or a month is the:
- A.
Balance Sheet
- B.
Income Statement
- C.
Cash Flow Statement
Correct Answer
B. Income StatementExplanation
Revenues and expenses are recording in the Income Statement. An Income Statement is a financial statement that measures a company's financial performance over a specific accounting period. Financial performance is assessed by giving a summary of how the business incurs its revenues and expenses through both operating and non-operating activities. It also shows the net profit or loss incurred over a specific accounting period, typically over a fiscal quarter or year.
For more, see here http://www.investopedia.com/terms/i/incomestatement.aspRate this question:
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- 3.
Unearned Revenues is what type of account?
- A.
Asset
- B.
Liability
- C.
Shareholder Equity
- D.
Income Statement Account
Correct Answer
B. LiabilityExplanation
When an individual or company receives money for a service or product that has yet to be fulfilled. Unearned revenue can be thought of as a "pre-payment" for goods or services which a person or company is expected to produce to the purchaser. As a result of this prepayment, the seller now has a liability equal to the revenue earned until deliver of the good or service, because they have not actually delivered that good or service.
For more, see here http://www.investopedia.com/terms/u/unearnedrevenue.aspRate this question:
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- 4.
When cash is received, the account Cash will be:
- A.
Debited
- B.
Credited
Correct Answer
A. DebitedExplanation
Debits increase an account.
For more, see here http://www.wikihow.com/Understand-Debits-and-CreditsRate this question:
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- 5.
If a company has debt of $100 with a current interest rate of 5%, which of the following would be affected if the interest rate changed to 10%?
- A.
Cash
- B.
Taxes Payable
- C.
Retained Earnings
- D.
Gross Profit
Correct Answer(s)
A. Cash
C. Retained EarningsExplanation
If a company has to pay more money in interest, that means that it will have less cash. Similarly, because Interest Expense is an Income Statement item, it affects Net Income, which in turns, affects Retained Earnings
Gross Profit is calculated before Interest Expense is deducted on the Income Statement, and will not be affected by any changes to interest.
Taxes Payable are liabilities, and is not directly affected by the amount of profit or cash in a given year.Rate this question:
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- 6.
What is a DCF?
- A.
Discounted company forecast
- B.
A way to project how much money a company can make in the future
- C.
An analysis that detects issues in historical profitability
- D.
A method of valuing a project, company, or asset using the concepts of the time value of money
Correct Answer
D. A method of valuing a project, company, or asset using the concepts of the time value of moneyExplanation
A DCF, or Discounted Cash Flow analysis, is a valuation method used to estimate the attractiveness of an investment opportunity. Discounted cash flow (DCF) analysis uses future free cash flow projections and discounts them (most often using the weighted average cost of capital) to arrive at a present value, which is used to evaluate the potential for investment. If the value arrived at through DCF analysis is higher than the current cost of the investment, the opportunity may be a good one.
For more, see here: http://www.investopedia.com/terms/d/dcf.aspRate this question:
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- 7.
Which of the following is the most senior financing instrument?
- A.
Preferred Equity
- B.
Common Equity
- C.
Senior Subordinated Loan
- D.
2nd Lien Debt
Correct Answer
D. 2nd Lien DebtExplanation
Seniority is defined by which instrument gets repaid first in the event of a bankruptcy. As such, 2nd Lien Debt, which requires an asset in order to be provided as financing, is considered a shorter term loan, and therefore expected to be repaid earliest out of the instruments listed here.
While equity controls the voting and the company, debt holders must be repaid before equity holders.Rate this question:
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- 8.
What is the formula for EBITDA interest coverage?
- A.
Interest Expense / EBITDA
- B.
EBITDA / Total Debt
- C.
EBITDA / Interest Expense
- D.
EBITDA / (Interest Expense + Taxes)
Correct Answer
C. EBITDA / Interest ExpenseExplanation
A ratio that is used to assess a company's financial durability by examining whether it is at least profitably enough to pay off its interest expenses. A ratio greater than 1 indicates that the company has more than enough interest coverage to pay off its interest expenses.
For more, see here http://www.investopedia.com/terms/e/ebitdacoverinterestratio.aspRate this question:
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- 9.
What is EBITDA?
- A.
A metric to measure profitability
- B.
Revenue - Total Expenses
- C.
A Balance Sheet Item
Correct Answer
A. A metric to measure profitabilityExplanation
EBITDA means Earnings Before Interest, Taxes, Depreciation and Amortization, and it is something calculated from the Income Statement. It is not simply Revenue - Total Expenses because Total Expenses may include taxes, interest expense, and some non-cash items that are inappropriate to deduct for this analysis
For more, see here http://www.investopedia.com/terms/e/ebitda.aspRate this question:
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- 10.
What options do corporations typically evaluate when considering a merger or acquisition of another company?
- A.
Raising secondary equity
- B.
Raising debt from debt investors
- C.
Providing the target company stock in the acquiring company
Correct Answer(s)
A. Raising secondary equity
B. Raising debt from debt investors
C. Providing the target company stock in the acquiring companyExplanation
These are all options that an investment bank advises a corporation on when considering a merger or acquisition.
For more, see here: http://www.aamsmerger.org/ways-in-which-businesses-finance-a-merger.phpRate this question:
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- 11.
Select the roles an investment banker plays with her clients
- A.
Trusted Advisor
- B.
Financing Source
- C.
Access point for information not available to the public
- D.
Golf partner
Correct Answer(s)
A. Trusted Advisor
B. Financing SourceExplanation
An investment banker plays the role of a trusted advisor by providing expert advice and guidance to clients regarding their investment decisions. They are knowledgeable about market trends, financial products, and investment strategies, which helps clients make informed decisions. Additionally, investment bankers also act as a financing source, helping clients raise capital for various purposes such as mergers and acquisitions, expansion plans, or debt refinancing. They have access to a wide network of investors and financial institutions, making them a valuable resource for clients seeking funding.Rate this question:
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- 12.
What is the difference between a retail bank and an investment bank?
- A.
One has storefronts, the other provides mortgages
- B.
One provides corporations loans and the other provides corporations with 401Ks
- C.
One holds consumer accounts, like checking and savings, and the other performs a range of corporate finance tasks, including issuing securities, raising capital for mergers and acquisitions, and market making
- D.
Nothing
Correct Answer
C. One holds consumer accounts, like checking and savings, and the other performs a range of corporate finance tasks, including issuing securities, raising capital for mergers and acquisitions, and market makingExplanation
An investment bank raises money by selling securities to companies and to the government. They also provide advice to corporations about mergers and buyouts.
A retail bank deals directly with consumers instead of companies or other banks. A retail bank primarily handles savings and checking accounts, mortgages, and personal loans.
For more, see here: http://www.slate.com/articles/news_and_politics/explainer/2008/09/banks_firms_and_houses.htmlRate this question:
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- 13.
True or False: An Investment Banker helps companies decide on creative financing strategies for everything from expanding into new territories to buying complementary companies
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
An investment banker is a financial professional who advises companies on various financial matters, including creative financing strategies. They assist companies in making decisions related to expanding into new territories or acquiring complementary companies. They provide expertise in structuring deals, raising capital, and evaluating potential risks and returns. Therefore, the statement "An Investment Banker helps companies decide on creative financing strategies for everything from expanding into new territories to buying complementary companies" is true.Rate this question:
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- 14.
True or False: Investment banks get to help take fast-growing, exciting companies, like Twitter and Facebook, public through IPOs
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
Investment banks play a crucial role in taking fast-growing and exciting companies public through IPOs. They assist in the underwriting process, which involves evaluating the company's financials, determining the offering price, and marketing the shares to potential investors. Investment banks also provide advisory services to the company, helping them navigate the complex process of going public. Therefore, the statement "Investment banks get to help take fast-growing, exciting companies, like Twitter and Facebook, public through IPOs" is true.Rate this question:
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- 15.
Select knowledge backgrounds that are helpful to an investment banker
- A.
Accounting
- B.
Finance
- C.
Business Strategy
- D.
Healthcare
Correct Answer(s)
A. Accounting
B. Finance
C. Business StrategyExplanation
Knowledge in accounting is essential for an investment banker as it helps in understanding financial statements, analyzing financial data, and making informed investment decisions. Finance knowledge is crucial as it enables an investment banker to assess the financial viability of projects, evaluate risks, and manage portfolios effectively. Business strategy knowledge is also important as it helps in identifying market opportunities, developing investment strategies, and maximizing returns. However, healthcare knowledge is not directly relevant to the role of an investment banker and therefore not helpful in this context.Rate this question:
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- 16.
What is a “frictionless asset”?
- A.
An asset that you sell within 3 days of purchase
- B.
An asset that makes you money without you having to sell it, like a bond with a coupon payment
- C.
An asset with a bid-ask spread of 0
Correct Answer
C. An asset with a bid-ask spread of 0Explanation
For traders, friction in the market and in assets is fundamentally defined by the differences in perceived value. Without a difference in value, there would be no friction.
For more, see here: http://en.wikipedia.org/wiki/Bid%E2%80%93offer_spreadRate this question:
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- 17.
What is the “bid-ask” spread?
- A.
The difference between a quoted price at which someone will sell their asset, and the quoted price at which someone would buy that same asset.
- B.
The difference in value of what a company owns an asset for and what its depreciated value is
- C.
The gap between what a stock broker will offer for a stock, and what someone paid for that stock
- D.
The difference of value in each transaction a trader executes
Correct Answer
A. The difference between a quoted price at which someone will sell their asset, and the quoted price at which someone would buy that same asset.Explanation
The bid–ask spread for securities (such as stocks, futures contracts, options, or currency pairs) is the difference between the prices quoted (either by a single market maker or in a limit order book) for an immediate sale (offer) and an immediate purchase (bid). The size of the bid-offer spread in a security is one measure of the liquidity of the market and of the size of the transaction cost.
For more, see here: http://en.wikipedia.org/wiki/Bid%E2%80%93offer_spreadRate this question:
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- 18.
Select which best describes a sales & trading position
- A.
A position in which you perform lots of research and summarize that research for reports
- B.
Sales & Trading revolves around pitches to corporate clients in the hopes of winning the opportunity to execute their financings
- C.
A fast paced environment in which clients buy and sell various financial assets based on the intelligence and strategies of the team
Correct Answer
C. A fast paced environment in which clients buy and sell various financial assets based on the intelligence and strategies of the teamExplanation
Sales & Trading is a fast-paced environment where clients engage in buying and selling financial assets. The team relies on their intelligence and strategies to execute these transactions successfully. This description highlights the core activities involved in a sales & trading position, emphasizing the dynamic nature of the role and the importance of the team's expertise in guiding clients' investment decisions.Rate this question:
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- 19.
True or False: People who like to keep up with day to day global, economic and industry specific news can do well in a markets driven position
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
People who like to keep up with day to day global, economic, and industry specific news can do well in a markets driven position. This is because staying informed about current events and trends in the market is crucial for making informed decisions and understanding the potential impact on investments. Being up-to-date with news allows individuals to identify opportunities and risks, adapt strategies accordingly, and stay ahead of competitors. Therefore, a strong interest and knowledge in current affairs can be advantageous in a markets driven position.Rate this question:
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- 20.
What knowledge backgrounds are highly useful for a trader?
- A.
Marketing
- B.
Statistics
- C.
Economics
- D.
Finance
Correct Answer(s)
B. Statistics
C. Economics
D. FinanceExplanation
A trader requires a strong understanding of statistics in order to analyze market trends and make informed decisions. Economics knowledge is essential to understand the factors influencing the market, such as supply and demand. Finance knowledge helps traders understand financial instruments and manage risk effectively. Therefore, a trader with a background in statistics, economics, and finance would be equipped with the necessary knowledge and skills to navigate the complexities of the trading world.Rate this question:
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- 21.
True or False: Bank of America has a sophomore rotational program in which students get to explore investment banking and sales & trading first hand
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
Bank of America offers a sophomore rotational program that allows students to gain firsthand experience in investment banking and sales & trading. This program provides an opportunity for students to explore these areas of the banking industry early on in their careers. By participating in this program, students can develop a better understanding of these fields and potentially make informed decisions about their future career paths.Rate this question:
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