1. What is the time value of money?

The concept that money available today is

worth more than the same amount in the
future due to its potential earning capacity.

2. What is the difference between NPV and

IRR?
A: NPV is the difference between the present
value of cash inflows and outflows. IRR is the
discount rate that makes the NPV of all cash
flows from a project zero.

3. What is CAPM?
A: The Capital Asset Pricing Model (CAPM)
calculates the expected return on an asset
based on its risk (beta) relative to the market.
4. What is WACC?
A: The Weighted Average Cost of Capital
(WACC) is the average rate of return a
company is expected to pay its investors,
weighted by the proportion of debt and equity.

5. What is the difference between a balance

sheet and an income statement?
A: The balance sheet shows a company’s
assets, liabilities, and equity at a specific point
in time, while the income statement reports
revenue and expenses over a period.

6. What is financial modeling?

A: Financial modeling involves building
abstract representations (models) of a
company's financial situation to forecast
future performance.
7. What is EBITDA?
A: EBITDA stands for Earnings Before Interest,
Taxes, Depreciation, and Amortization. It
measures a company’s profitability before
accounting for these expenses.

8. What is a DCF analysis?

A: A Discounted Cash Flow (DCF) analysis is a
valuation method that estimates the value of
an investment based on its future cash flows,
discounted back to present value.

9. What are working capital and its

components?
A: Working capital is the difference between
current assets and current liabilities.
Components include cash, accounts
receivable, inventory, and accounts payable.
10. What is accrual accounting?
A: Accrual accounting records revenues and
expenses when they are incurred, regardless of
when cash is exchanged.

11. What is a liquidity ratio?

A: A liquidity ratio measures a company’s
ability to meet its short-term obligations, with
common examples being the current ratio and
quick ratio.

12. What is the debt-to-equity ratio?

A: The debt-to-equity ratio measures a
company’s financial leverage by dividing its
total liabilities by shareholders' equity.
13. What is free cash flow (FCF)?
A: Free cash flow is the cash a company
generates after accounting for capital
expenditures. It’s used to pay dividends,
reduce debt, or invest.

14. What are derivatives?

A: Derivatives are financial contracts whose
value is derived from an underlying asset,
index, or interest rate, like options or futures.

15. What is a leveraged buyout (LBO)?

A: An LBO is when a company is acquired using
a significant amount of borrowed money, with
the acquired company’s assets often serving
as collateral.
16. What is the difference between a merger
and an acquisition?
A: In a merger, two companies combine to form
a new entity, while in an acquisition, one
company takes over another.

17. What is beta in finance?

A: Beta measures a stock’s volatility relative to
the overall market. A beta greater than 1
indicates higher volatility, while less than 1
indicates lower volatility.

18. What is the efficient market hypothesis

(EMH)?
A: The EMH suggests that asset prices fully
reflect all available information, meaning it's
impossible to consistently outperform the
market.
19. What is a bond?
A: A bond is a debt security in which an
investor loans money to an entity that borrows
the funds for a defined period at a fixed
interest rate.

20. What is the payback period?

A: The payback period is the amount of time it
takes to recover the initial investment in a
project.

21. What is a stock option?

A: A stock option gives the holder the right, but
not the obligation, to buy or sell a stock at a
specified price before a specified date.
22. What is the purpose of a financial audit?
A: A financial audit provides an independent
assessment of whether a company’s financial
statements are accurate and free from
material misstatement.

23. What are retained earnings?

A: Retained earnings are the portion of net
income that is not paid out as dividends but
reinvested in the business.

24. What is a capital structure?

A: Capital structure is the mix of a company’s
debt, equity, and other financial instruments
used to finance its operations.
25. What is the difference between a primary
and secondary market?
A: The primary market is where new securities
are issued, while the secondary market is
where investors buy and sell previously issued
securities.

26. What is an IPO?

A: An Initial Public Offering (IPO) is when a
company offers shares to the public for the
first time.

27. What are the four main financial

statements?
A: The four main financial statements are the
balance sheet, income statement, cash flow
statement, and statement of shareholders’
equity.
28. What is an annuity?
A: An annuity is a series of equal payments
made at regular intervals over a period of time.

29. What is a corporate bond?

A: A corporate bond is a debt security issued
by a corporation to raise capital, with fixed
interest payments made to bondholders.

30. What is goodwill in accounting?

A: Goodwill is an intangible asset that arises
when a company acquires another for more
than its fair market value.
31. What is financial leverage?
A: Financial leverage refers to using borrowed
funds to increase the potential return on
investment.

32. What is the DuPont analysis?

A: DuPont analysis breaks down Return on
Equity (ROE) into three components: profit
margin, asset turnover, and financial leverage.

33. What is a dividend?

A: A dividend is a portion of a company’s
earnings paid out to shareholders.
34. What is capital expenditure (CapEx)?
A: CapEx refers to funds used by a company to
acquire or upgrade physical assets like
property, buildings, or equipment.

35. What is ROI?

A: Return on Investment (ROI) measures the
gain or loss generated relative to the amount
of capital invested.

36. What is a hedge fund?

A: A hedge fund is an investment vehicle that
uses various strategies to earn active returns
for its investors.
37. What is a mutual fund?
A: A mutual fund pools money from multiple
investors to invest in a diversified portfolio of
securities.

38. What is alpha in investing?

A: Alpha is a measure of an investment’s
performance relative to a benchmark,
representing the excess return achieved.

39. What is arbitrage?

A: Arbitrage involves profiting from price
differences of identical or similar financial
instruments on different markets or in
different forms.
40. What is a credit default swap (CDS)?
A: A CDS is a financial derivative that allows an
investor to swap or offset credit risk with
another party.

41. What is corporate governance?

A: Corporate governance refers to the system
of rules, practices, and processes by which a
company is directed and controlled

41. What is the cost of equity?

A: The cost of equity is the return that equity
investors expect to receive from an
investment in a company, often estimated
using CAPM.
42. What is a cash flow statement?
A: The cash flow statement shows the inflow
and outflow of cash from operating, investing,
and financing activities over a period of time.

43. What is an equity multiplier?

A: The equity multiplier measures a company’s
financial leverage by dividing total assets by
total equity, indicating the proportion of a
company’s assets financed by shareholders.

44. What is financial distress?

A: Financial distress occurs when a company
cannot meet or has difficulty paying off its
financial obligations, which may lead to
bankruptcy.
45. What is a variable cost?
A: A variable cost changes in proportion to the
level of output or sales, such as raw materials
or production supplies.

46. What is an economic moat?

A: An economic moat refers to a company’s
competitive advantage that allows it to protect
its market share and profitability from
competitors.

47. What is the Modigliani-Miller theorem?

A: The Modigliani-Miller theorem states that, in
a perfect market, the value of a firm is
unaffected by how it is financed, whether
through debt or equity.
48. What is an interest rate swap?
A: An interest rate swap is a financial derivative
where two parties exchange interest rate
payments, typically switching between fixed
and floating rates.

49. What is securitization?

A: Securitization is the process of pooling
various types of debt, like mortgages, and
selling them as securities to investors.

50. What is venture capital?

A: Venture capital is funding provided by
investors to startups or small businesses with
long-term growth potential in exchange for
equity.
51. What is operating leverage?
A: Operating leverage refers to the extent to
which a company uses fixed costs in its
operations, which can magnify profits as sales
increase.

52. What is a credit rating?

A: A credit rating assesses the creditworthiness
of a borrower, indicating the risk level of
default for bonds or loans.

53. What is systematic risk?

A: Systematic risk is the inherent risk that
affects the entire market or a large segment of
the market, such as interest rate changes or
recessions.
54. What is unsystematic risk?
A: Unsystematic risk is the risk that is unique to
a specific company or industry, such as
management changes or regulatory impacts.

55. What is a leveraged loan?

A: A leveraged loan is a loan extended to
companies or individuals with high levels of
debt, usually at higher interest rates due to
increased risk.

56. What is the dividend payout ratio?

A: The dividend payout ratio measures the
proportion of earnings a company pays out to
shareholders in the form of dividends,
calculated as dividends per share divided by
earnings per share.
57. What is a convertible bond?
A: A convertible bond is a bond that can be
converted into a specified number of shares of
the issuing company’s stock.

58. What is return on equity (ROE)?

A: ROE measures a company’s profitability by
showing how much profit it generates with the
money shareholders have invested, calculated
as net income divided by shareholders' equity.

59. What is a junk bond?

A: A junk bond is a high-yield, high-risk security
issued by companies with lower credit ratings.
60. What is the internal rate of return (IRR)?
A: IRR is the discount rate that makes the net
present value (NPV) of all cash flows from an
investment equal to zero.

61. What is the primary market?

A: The primary market is where new securities
are issued and sold to investors directly, often
through initial public offerings (IPOs).

62. What is goodwill impairment?

A: Goodwill impairment occurs when the
carrying value of goodwill on a company’s
balance sheet exceeds its fair market value,
requiring a write-down.
63. What is the price-to-earnings (P/E) ratio?
A: The P/E ratio measures a company’s current
share price relative to its per-share earnings,
used to gauge market expectations of future
earnings growth.

64. What is an earnings call?

A: An earnings call is a conference call in which
a company discusses its financial results with
investors, analysts, and the media.

65. What is the difference between forward

and futures contracts?
A: A forward contract is a customized
agreement between two parties to buy or sell
an asset at a specific price in the future, while
a futures contract is standardized and traded
on exchanges.
66. What is portfolio diversification?
A: Portfolio diversification is the practice of
spreading investments across various asset
classes or sectors to reduce risk.

67. What is the Sharpe ratio?

A: The Sharpe ratio measures the risk-adjusted
return of an investment, calculated by dividing
the difference between the investment return
and the risk-free rate by its standard deviation.

68. What is capital allocation?

A: Capital allocation is the process of deciding
how to distribute financial resources across
various investment opportunities to maximize
returns.
69. What is a rights issue?
A: A rights issue is an offer by a company to
existing shareholders to purchase additional
shares at a discounted price, typically to raise
capital.

70. What is inflation?

A: Inflation is the rate at which the general
price level of goods and services rises, eroding
purchasing power over time.

71. What is a zero-coupon bond?

A: A zero-coupon bond does not pay periodic
interest; instead, it is issued at a discount and
redeemed at face value upon maturity.
72. What is the Altman Z-score?
A: The Altman Z-score is a formula that
predicts the likelihood of a company going
bankrupt based on its financial ratios and
performance metrics.

73. What is operational risk?

A: Operational risk refers to the potential loss
resulting from inadequate or failed internal
processes, people, systems, or external events.

74. What is asset-backed security (ABS)?

A: An ABS is a security whose income
payments and value are derived from and
backed by a pool of underlying assets,
typically loans, leases, or credit card debt.
75. What is quantitative easing (QE)?
A: QE is a monetary policy where a central
bank purchases government securities or other
financial assets to inject liquidity into the
economy and encourage lending and
investment.

76. What is book value?

A: Book value is the value of a company's
assets as reported on the balance sheet,
calculated as total assets minus liabilities.

77. What is the going concern principle?

A: The going concern principle assumes that a
business will continue operating indefinitely
unless there is evidence to the contrary,
affecting how financial statements are
prepared.
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