What is Moral Hazard?

Moral hazard is the act of engaging in activity that serves the interest of the managers over the owners of the corporation. It is the result of the principal/agent problem, where the person who makes the decisions does not bear the consequences of that decision. Moral hazard encompasses four areas: 1. Insufficient Effort, 2. Investment […]

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The 10 Things you NEED to do in a Finance Interview

#10. Wear the Right Clothes – Wear a dark suit (charcoal or dark blue), coupled with a clean pressed shirt and tie. Purple is a great tie/shirt color if you wan’t to stand out without being too obnoxious. #9. Get the Facts Right – It’s not necessary to memorize the details, but basic knowledge is expected e.g. […]

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The Top 15 Finance Interview Mistakes

Please watch out for these costly interview mistakes! #1. Arrogance. The #1 mistake is being too cocky (business and finance majors, beware). People in general don’t like bad attitudes especially when it comes to picking your colleagues. #2. Can’t Wait To Show Off. Don’t drop hints that you’re interviewing at my rival firm. I know […]

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Principles of Capital Budgeting

Capital budgeting has five principles that play a crucial role in the allocation of money and the process of capital budgeting.  The five principles are; (1) decisions are based on cash flows, not accounting income, (2) cash flows are based on opportunity cost, (3) The timing of cash flows are important, (4) cash flows are […]

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Introduction to Bonds

A bond exists as a debt investment in which an investor loans out money to an entity that will borrow those funds for a defined time period at a fixed interest rate.  Bonds are an important form of capital as governments, both foreign and domestic, companies, and businesses can finance projects and activities.  Investors will […]

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An Introduction to Corporate Finance: Capital Investment

Making capital investment decision requires the combination of various factors.  A firm realizes that its main goal in investing in a project is to maximize its shareholders value.  Before making the ultimate decision to invest a firm needs to analyze the potential long-term growth and evaluate whether it is a project worth pursuing.  Most of […]

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An Introduction to Corporate Finance

Corporate finance is the area of finance in which business enterprises make monetary decisions.  Businesses and corporations utilize various tools and analyses with the primary goal of maximizing shareholder’s value.  Financial decisions made are contingent on short-term and long-term effects.  One of the primary variables of corporate finance is investing.  With the goal of growing […]

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How do Equity Research Analysts use financial models?

Equity research analysts are tasked with providing an unbiased view of stocks, bonds, and other financial instruments. Sell-side analysts are typically employed by an investment bank and will usually cover one industry in depth. The analyst then makes specific recommendations to its clients and issues his reports publicly. Buy-side analysts on the other hand are […]

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How do Credit Analysts use financial models?

Credit Analysts focuses on the ability of a company to service its current or prospective debt. If the company already has debt on its books, the analyst will use financial models to determine if the company has the required cash flow to maintain its payments. If the company fails such metrics, than it may be […]

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What does an Investment Banker do?

Let’s start by clarifying the term “Investment Banking.” An Investment Bank is a financial institution that performs three core activities: Investment Banking, Sales and Trading, and Research. When we refer to Investment Bankers throughout this guide we are referring to the Investment Banking function (also called “corporate finance”) of the Investment Bank. Investment Bankers are […]

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