Finance Study Guide Help

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timer Asked: Dec 9th, 2014

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Fin 320 Final Exam Study Guide.docx 

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Fin 320 Final Exam Study Guide Chapter 1 • • • • • What is Finance? What are the two branches of finance? What is the role of financial sector? Major forms of business organization Major types of financial assets Chapter 2 • • • • Know the major financial statements Know the difference between book value and market value Know the difference between accounting income and cash flow Know how to determine a firm’s cash flow from its financial statements Chapters 5 and 6 • • • • • • • • What is TVM? Simple rates vs. compounded rates. How to calculate How to calculate FV or PV of a Cash Flow? How to calculate FV or PV of multiple CFs? Types of annuities and Value of annuity - Ordinary Annuity - Annuity Due - Growing Annuity Four parameters of annuity: value, payment, rate and the number of periods (time). How to calculate one parameter if the other three are known? Perpetuity and its value - Ordinary Perpetuity - Perpetuity Due - Growing Perpetuity Effective annual rate (EAR) - Compounding – how to calculate EAR, if APR and compounding period are given - How to calculate EAR, if in addition to compounding there are additional fees (loan origination etc.) involved 1. Figure out the interest rate per payment period from the bank’s point of view 2. Calculate the payments 3. Set up the cash flow, including additional fees 4. Based on the Cash flow, calculate the per period rate from your point of view 5. Calculate the EAR Chapter 7 • • • • • • • • • • • • Know the bond terminology - Face or Par value - Coupon rate - Maturity date - Issue date - Yield to maturity - What is sinking Fund Provision - What is a callable bond - What is zero coupon bond How to calculate coupon rate, coupon yield How to calculate YTM with annual and semi-annual coupon How to find the value of the bond, if coupon rate, coupon frequency maturity, and YTM are known How to calculate coupon if price, YTM, and maturity are known Tax treatment of coupons and zero coupon bonds - Current IRS rules - Straight line tax calculation - How to compute taxable income for investors and tax deductions for bond issuers in cases of coupon-bearing bond and zero-coupon bonds Clean Prices and Dirty Prices What is the credit risk What is the interest rate risk The difference between nominal and real Relationship between nominal and real rates and inflation (Fisher equation) How to calculate real return, if nominal is given and vice versa Chapter 8 • • • • Features of common stock - Voting Rights ▪ Proxy voting ▪ Cumulative and majority voting - Cash flow rights (dividends etc.) Dividends and their difference from coupons. Tax treatment of dividends Relationship between return, capital gains and dividend yield Discounted dividend model - General valuation of stock using discounted dividend model - Case of constant dividends ▪ Finding value if dividends and rate of return are known ▪ Finding dividends if value is known ▪ Finding dividend yield and capital gains - Case of constant dividend growth • • ▪ Finding value if dividends, growth and rate of return are known ▪ Finding dividends or growth rate if value is known ▪ Finding dividend yield and capital gains - More general non-constant growth case ▪ Finding value if dividends, growth and rate of return are known ▪ Finding dividends or growth rate if value is known ▪ Finding dividend yield and capital gains P/E ratio and multiples valuation - Net Income, EPS Stock Markets - Understanding and using stock quotes - Dealers and brokers - NYSE: Commission brokers, Specialists, Floor brokers, Floor traders - NASDAQ and three levels of information - Pink sheets Chapter 9 • • • What is Capital Budgeting? - Steps in Capital Budgeting - Independent and mutually exclusive projects - Normal and Abnormal Cash Flows NPV and the NPV Rule - NPV rule for independent projects - NPV rule for mutually exclusive projects IRR - IRR criterion - Comparing IRR and NPV ▪ Cases when IRR works (independent projects with normal cash flows) ▪ Cases when IRR has problems ▪ Crossover point, how to find it Chapter 13 • • • • Expected Returns and Variances - How to calculate expected return, variance and standard deviation when different states of the world/ probabilities are given - How to calculate expected return, variance and standard deviation based on historical returns What is a measure of risk - Portfolios and risk diversification - Risk: Systematic and Unsystematic - Systematic Risk and Beta How to calculate portfolio return? How to calculate individual security return using CAPM • • • The Capital Market Line and Security Market Line How to calculate portfolio beta? How to calculate abnormal returns?
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