Interest rate (return)
How would you define the concept of "interest rate"?
the cost of borrowing money or the benefit or profit of lending or investing money
What are the main components of a corporation’s balance sheet, and what do they mean?
On the Assets side
Short-term (current) and Long-term (non current) assets are the goods and rights a company owns (receivables, inventory, fixed assets, etc.) to run the business
On the Liabilities & Equity side
Liabilities and equity are the sources of funds used to finance those assets. Equity represents the funds belonging to the owners, while liabilities capture the obligations the firm owes to external parties such as banks, bond holders, suppliers, etc.
What do you think is the market cap (or market capitalization) of a listed company and how do you calculate it?
It represents the market value of a company Equity and it is calculated by multiplying the price of the stock by the total number of outstanding shares of the company.
What is the difference between a stock and a bond?
Stocks represent partial ownership (equity) in a company while Bonds are loans companies (or governments) use to finance their projects, assets, investments, etc.
What was the trigger of the 2008 financial crisis?
The crisis was triggered by the collapse of the U.S. housing bubble and widespread defaults on subprime mortgages. Lehman Brothers, heavily exposed to mortgage-backed securities, filed for bankruptcy in 2008—the largest in U.S. history—which intensified the global financial meltdown.
Do you think that the return obtained by investing in a stock or a bond must compensate the risk of investing in them (one of which is insolvency of the firm) and the risk of inflation, or only one of both risks, and which one?
Yes, return paid should compensate both type of risks
The book value of a firm’s total assets is ___ the combined book value of its liabilities and equity.”
Options: equal to / lower than / higher than
Equal to
Can you explain what is a mutual fund?
A mutual fund is a vehicle that pools money from many investors and invests the money in securities such as stocks and bonds.
The mutual fund prospectus contains information about the mutual fund’s investment objectives, risks, performance, and expenses.
How would you define what the financial system in an economy is?
The financial system is the set of institutions, markets and instruments in a country whose function is to move the flow of funds from suppliers to demanders.
What is a financial bubble in the stock market, and how can you illustrate it with an example?
A financial bubble occurs when asset prices rise far above their intrinsic value due to speculation. Example: the Dot-com bubble (late 1990s), fueled by overinvestment in internet companies without viable business models, which burst in 2000–2002 erasing trillions in market value.
Theoretically, in a world without risk and inflation, the interest rate should be zero.
No, it should be positive, due to the opportunity cost of not being able to use the money if it is lent.
Does a company’s equity market value usually coincide with its book value? Why or why not?
No. Book value is based on a company's balance sheet and is the accounting value of the stockholders' equity, while market value is based on a company's stock (share) price, which changes often due to stock market sentiment. Book Value of Assets are based on historical assets' prices while market values are based on current values.
Do you know what an ETF is?
An ETF is a Exchange-traded fund or investment product. Like mutual funds, ETFs offer investors a way to pool their money in a fund that makes investments in stocks, bonds, or other assets and, in return, to receive an interest in that investment pool. Unlike mutual funds, however, ETF shares are traded on a national stock exchange and at market prices that may or may not be the same as the net asset value (“NAV”) of the shares.
What is the supervisory body or institution of the US securities market? and what are its objectives related to investors, markets and corporations?
The SEC (Securities & Exchange Commission)
The U. S. Securities and Exchange Commission (SEC) has a three-part mission:
What triggered the Great Depression of 1929, and what was its impact?
It began with the Wall Street Crash of October 1929, when the Dow Jones Industrial Average lost almost 25% of its value over two days (“Black Thursday” and “Black Tuesday”). The causes were excessive speculation and debt levels.
The collapse destroyed household wealth, led to more than 9,000 U.S. bank failures, unemployment reaching about 25%, and a global economic downturn that lasted through the 1930s.
What is the difference between simple and compound interest rate?
Simple interest is calculated only on the initial principal, while compound interest is calculated on the principal and any previously earned interest.
What does it mean depreciation related to accounting principles?
Depreciation is an accounting method that spreads the cost of an asset over its expected useful life to give a more accurate view of the business’s profitability. As opposed to recording the entire cost of an asset on the income statement as soon as it’s bought, businesses record depreciation as a periodic expense on the income statement.
Can you explain what is an annuity?
An annuity is a contract between you and an insurance company that is designed to meet retirement and other long-range goals, under which you make a lump-sum payment or series of payments. In return, the insurer agrees to make periodic payments to you beginning immediately or at some future date.
What is a stock market index and what is it used for? Mention some of the most popular indices you know
Stock indices measure the price performance of a set of stocks listed on a market. They are commonly used as indicators of economic trends and benchmarks against which active portfolio management can be compared.
Some of the most popular are: Dow Jones Industrial Average, S&P 500, Nasdaq 100, Eurostoxx 50, DAX 30, CAC 40, IBEX 35, FTSE 100, Nikkei 225, SSE Composite, MSCI World, MSCI Emerging Markets, MSCI Latin America
What is “Black Monday” (1987)?
On October 19, 1987, global stock markets crashed. The Dow Jones Industrial Average dropped from 2,246 points to 1,738 points, a decline of about 22.6% in a single day—the largest one-day percentage fall in its history.